A short sale is a situation in which the seller owes more money on the loan than the sale of the property will likely produce on the market and the seller is unable or willing to bring money to closing. In a short sale, the lender has not yet foreclosed on the property, which creates a window of opportunity for the owner to sell the property in order to at least partially get the lender what is owed.
Because short sales may require multiple approvals and can be extremely time intensive, short sales are considered by many real estate practitioners to be complicated transactions. So what makes for a successful short sale? As a general rule, successful short sales reflect the following:
1. The property is worth less than owned.
2. The seller has some hardship (death, divorce, loss of job, medical bills, etc…) that makes it impossible or extremely impractical for the seller to keep the property.
3. The seller is cooperative and willing to work with the Real Estate agents to package the short sale.
4. The lender is contacted and expresses willingness to entertain a short sale.
5. The property is listed, with appropriate caveats and protections for the seller, properly priced, and effectively marketed.
6. The lender is presented with a contract, accepted, signed and dated by the seller, along with a completed short sale packet and narrative explaining the necessity and desirability of the proposed short sale.
7. With lender approval in writing, the offer and sale closes as usual.
If you want to take advantage of a short sale because of the price, I will be happy to walk you through that. The main factors in a short sale are “TIME and CONDITION”. Usually they take a long time and the condition is not favorable. The buyer with the most “Patience”, will get the deal if they are willing to wait. Maybe 3-9 months, depending on how far along the process is when the offer is made and how many loans are on the property.
The process for putting in a bid on a short is very similar to a non-short sale (a few different forms, they are all “as is” contracts), except a letter of loan approval or proof of payment (on a cash offer) needs to accompany the offer. Many short sales now are such good prices that when they hit the market they may have numerous offers the first or second day. As soon as the seller signs the papers and they go to the bank the property then goes “Pending” which means it is off the market (not active and going into contract) and generally won’t be shown any longer and no more offers will be submitted. The bank can make a counter offer depending on what is owed on the property and what they feel the “market value” is. They will order a BPO (Broker price opinion) which will tell them the “market value” of the property. The most desirable offer to the bank is a “cash” offer with no contingencies.
If a Short sale is not permitted by a bank, the next recourse is “Foreclosure”. Once foreclosure is completed a property becomes a “REO” (Real Estate Owned, by the bank). One of the main differences between a short sale and foreclosure for the seller is the “Credit” hit that is taken. Short sale recovery time is approximately 1-3 years and a foreclosure can be 7-10 years.
There is always the possibility of a seller getting a deficiency judgment on the balance of the loan owned, it is recommended to consult with an attorney or financial adviser for any legal/financial recommendations.