Understanding Short Sales

If you have recently searched for homes on any Internet search site you have probably come across the term"Short Sale" quite a few times. Many people ask us about these properties and inquire if they are a good deal for them to purchase. The answer is usually "It depends" and we will try to explain that here.

The term "Short Sale" simply means that the seller of the home owes more to the mortgage holder(s) than they will realize from the sale of their home. They are selling their home short and negotiating with their mortgage holder(s) to accept less than what is owed rather than have the property go into foreclosure.

Does that mean this is a good way to get a great deal on the purchase of your next home? You can decide after we go through the explanation of the process.

The process of a short sale can be very lengthy. Banks are not always quick to respond to an offer on a short sale. If you have a short time frame in which to find and purchase your home then short sales are definitely not for you. If you have no specific time frame and are willing to wait for the perfect home, then short sales may be the way to go. We will review a few key points in deciding to make an offer on a short sale property.

It is important to understand the status of your target property before making an offer. Your should consider:

Has a Notice of Default(NOD) been filed on the property. This is the first step in the foreclosure process. Most banks will not consider negotiating a short sale unless the homeowner is behind in payments. If a NOD has been filed on your target property then you know the bank has started the "clock" on the foreclosure process.
How many mortgages are on the property. If there are more than one bank involved it is extremely difficult if not impossible to negotiate a settlement with them.
Are there any other liens against the property. Again, if there are any liens this really complicates the process. They must be negotiated to a settlement before a bank will accept a short sale.
Has the seller received bank approval for a short sale at a certain dollar amount. This would greatly improve the chances for a successful transaction.

So you have decided to go forward and submit an offer on a short sale property. What happens next? When you submit an offer on a short sale it is subject to bank approval. The offer is forwarded by the seller's agent to the bank. The sellers must also provide whatever other documentation their bank requires. This file is then reviewed by the bank. The bank may accept, counter or reject the offer. Unlike a typical purchase offer, since the short sale offer is subject to bank approval, you will not know the status of your offer in a 1-3 day period. The bank may takes weeks even to review the offer. This can be the hardest part of the process for many buyers.

We hope this has helped you to understand the basics of a short sale transaction. As always, if you would like a more detailed explanation or would like information on a specific property you are interested in, please feel free to contact us.