Short Sale Basics

In these times where short sales are becoming more and more common, I wanted to take the time to answer a few questions that I have came across regarding short sales.

1. What is a short sale?

This is basically a process in which the lending institution is giving the owners of the property a chance to get out of the mortgage with the lending institution usually ending up having to take the loss on the difference in the lien balance and the selling price. If the bank approves of the offer, the mortgage is cleared, no one goes to foreclosure and the bank has one less non-revenue generating property that they have to worry about.

2. Why do lenders approve short sales?

The answer to this question seems to evolve on a continual basis. However, the main reason that I have found is that rather than the lending institution sitting on a property that is not making any money (as sometimes the homeowners have stopped their mortgage payments), they would rather clear the property from their possession. Although the sales price of the property is below the actual mortgage payoff balance, the lending institution would be avoiding delays from borrower bankruptcies, damage to property, cost associated with resale, property tax/insurance and of course attorneys' fees.

3. How long does the short sale process usually take?

This again can depend on many factors but a good answer is usually anywhere from a couple of weeks to a few months. Once the homeowner has an offer that they approve of, they then submit to the 3rd party for approval. A good minimum time frame this point is at least one month.

4. Is the price negotiable?

As with all things real estate, the price is negotiable. However, be aware that there may be short sales out there that are listed at one price, but the lender has another price in mind and just trying to find out what the market will bear for the property. Another thing that is considered is that if the lending institution has agreed to pay off the "short" part of the transaction or not. If Buyer X submits an offer and Seller Y does not have to pay off the difference of the offer price and the mortgage balance, then they are obviously more likely to accept a wider range of offers. The opposite effect - lender holding seller responsible for the deficiency -would result in the seller being much more picky about which offers are carried forward.

I hope this answers some basics regarding short sales.

Until next time, stay on Top of The Market...

Erik Hart
REALTOR®
Severna Park Sales
Long and Foster Realtors
410-544-4000 Office
443-889-6860 Cell
www.erikhart.lnf.com