A short sale by definition is when a property is sold for less than the mortgage(s) owed on the property. In other words, the lenders (and any other creditors who have encumbered the property) agree to a reduced pay off amount in order to facilitate a sale.
If a short sale sounds complicated that is because it certainly can be. Here is how the process works. Once a property owner decides to sell their property and they find that the market value is below the amount owed , a short sale is born. The property can be placed on the market subject to acceptance by the lender. What this means to any potential buyer is that you are really not going to know if you have purchased the property until the lender approves the sale. The approval process may take months, so pack your patience before embarking on the short sale trip.
Since short sales are popping up all over South Florida here are some other frequently asked questions about short sales…
If I am wanting to purchase a short sale and I offer full list price, can I be assured of having a sale?
Unfortunately, the answer to this question is no. The list price should be a reflection of market value which is not necessarily the number the lender is willing to accept. In some cases, there are actually listed properties out there that have been deliberately priced BELOW market value just to attract offers and have little or no chance of being accepted. The only way you can be assured that you have a firm price is that the bank has accepted your offer in writing.
I am a seller and I know that the only way I can sell it is to sell it below what is owed… what should I do?
I would recommend that you attempt to contact your lender and try to get the process started. I understand that many lenders may not be willing to discuss a short sale unless you have already fallen behind in your payments. I know it seems a little crazy but if you want to preserve your credit rating, be persistent. There are companies out there that offer to assist you in the process… be very careful before you fork over your hard earned money for something you can probably do yourself with the same results. Be prepared for the lender to ask you for full financial disclosure. Before the lender makes any concession they are going to want to know if you have other assets they can encumber to cover any shortage. In short, you will need to fill out questionnaires and provide information much like when you get a full documented loan. Once the lender has the documentation, they will review the documentation and make a recommendation about what they will accept and what obligations, if any, you may have to agree to in order to complete a short sale.
Is a short sale a good deal?
There is no guarantee that a short sale is a great deal. Different from a foreclosure, even when you are willing to pay full market price for the property, the lender might not be willing to accept it. So, if you find yourself wanting to make that offer on a short sale property, place the offer for what you are willing to pay and wait it out. It can take as much as 3 months or more for the bank to respond, so be patient. If they accept what you think was a great deal… then you got one!
For more information on short sales please read:
Short Sales – Do they Work or Not?
Can a short sale negatively affect a sellers credit?
Short Sales, Foreclosures and Debt Forgiveness
Four Tips for Navigating Foreclosures