Short Sales


They’re a fact of life… here’s what potential homeowners should know before making an offer.

What is a Short Sale?

Short sales are sales of real estate where proceeds from selling the property fall short of the balance of debts secured by a lien (hold) against the property.  The property owner cannot afford to repay its full amount, so the lien holders agree to release their hold on the real estate and accept less than the amount owed on the debt.

Any unpaid balance owed to the creditors is known as a deficiency.  Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans unless specifically agreed to between the parties. 

A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and the borrower; however, both will often result in a negative credit report against the property owner.

Common mistakes to avoid:

Don’t Assume You’ll Pay the List Price

            Some agents use below-market sale prices strictly as bait.  Banks will then request appraisals to determine price.  The lender may decide that it’s more beneficial to pursue other avenues, such as foreclosure, or wait for a better offer.

Don’t Assume You Have Enough Documentation

            A lender must still study credit history, length of time on the job, debt ratios and more.  The most successful short-sale buyers submit a loan prequalification letter – or better yet, a loan pre-approval letter – with the offer.  

Don’t Assume You’ll Close in a Few Weeks

            It actually can take three to six months.  Lenders may have a backlog of short sales and foreclosures and limited staff trained to handle these.  The process could take longer if two loans are secured to the property.

Don’t Assume That Inspections Are Not Required

            Even though most short sale properties are sold “as is,” you must still determine what problems may exist with pests, the roof, the sewers, the septic tanks, the chimney or fireplace. As with other purchases, your offer should be contingent on the results of the inspection.  While sellers are not obligated to fix problems, buyers must still know what they’re getting into.

Don’t Assume that the Contract Will Not Change

            With new law passing on a regular basis, the lender can reserve the right to change the terms.