What is a Short Sale?
The short sale process starts when a seller informs their lender they are no longer able to make mortgage payments, can prove hardship as to why they are or will be in default, owes more than the value of their home, and is able to show proof they have no other assets available to remedy the situation. The lender may then agree to settle for less than the mortgage balance owed. In other words, the lender will accept the proceeds from the sale of the seller's property as settlement for the debt obligation in order to avoid foreclosing despite incurring a loss.
If you are shopping for homes for sale and find yourself considering a short sale listing, it is important to understand exactly what the term means to you, the buyer. There are a few things to consider before you proceed:
Do short sales happen quickly?
Despite the name, a short sale typically does not take place in a short period of time. But, if you are a buyer with patience, access to sound legal advice, and are willing to take on a few home repairs, a short sale listing may be your discounted ticket to home ownership. If you are hoping to close on a home relatively quickly, this kind of purchase is not likely an option for you. Any offer placed on this type of listing needs to be accepted, not only by the seller, but by the seller's lender as well. Since a lender is involved in determining whether or not to accept an offer, it's highly unlikely you'll be able to achieve a quick closing or even a closing within the typical timeframe.
Since there are no guarantees regarding a short sale closing date, it entails some ingenuity to get through the home buying process. If you are selling a home and trying to time that closing with the closing of a short sale property, it can be quite challenging. Your real estate agent can help coordinate everything, but it still may require closing delays pertaining to the sale of your current home in order to correspond with closing on your short sale purchase. Essentially, the buyers of your current home will also have to be patient and flexible.
The uncertain time frame of a short sale usually works better for buyers who would be more likely to have closing timeline flexibility, therefore, renters, investors and second home purchasers are apt to be more suited for this type of transaction.
What else should I consider?
First, your real estate agent will probably advise you to have a lawyer look at the agreement to make certain you are getting the exact deal you think you are. Real estate agents can explain and negotiate the contract for you, but cannot provide legal advice. Lenders have lawyers at their disposal, and it makes sense to get sound legal advice on the documents.
Your real estate agent can research and find out who holds the title, if a foreclosure notice has been filed, and the balance owed to the lender(s). This will guide you in determining how much to offer for the home. Realize that a short sale means the seller's lender is accepting less than what they are owed to release the mortgage, but they want to make as much of their money back as possible. Your agent can send along a list of comparable property sales records that support the price you are offering to pay for the home and help close the deal.
Since the lender is accepting a loss, in most cases they will not pay for any inspections, home guarantees on the property, or repairs needed. This means you absolutely should get a home inspection so you know what repairs are needed, with the knowledge that you are usually buying the home "as-is".
Be prepared to be wait; some lenders can make a decision in two-to-three months, while others may submit offers to committee, which can take longer. Your real estate agent will maintain contact with the lending institution regarding the status of your offer.
A short sale can be an option for a patient buyer on a diligent search for affordable homes for sale, but it is important to be aware that it is not like a typical listing. Taking on the challenges with an experienced real estate agent will make the deal go as smoothly and quickly as possible.