What is a short sale?

A short sale is when a property is being sold at a price that is lower than the Seller owes on their mortgage(s) and the lender(s) agree to accept less than what is owed to allow the sale to occur. The lender’s approval is required and this can take significant time as the Seller needs to go through a short sale approval process that is as rigorous as applying for a mortgage.

What are the benefits of a short sale?

The Seller benefits in a short sale in that they are able to avoid foreclosure and in some instances qualify for relocation assistance benefits from the lender, allowing them some modest funds from the sale to help with the cost of the move.

The Buyer benefits in that they may be able to get a better price on the property by being able to wait for the lender approval and avoids the issues that a vacant foreclosed property may have.

The Seller’s lender is able to avoid having to go through the foreclosure process and thereby save the costs of litigation and the cost of holding the property in its bank owned inventory.

What are the disadvantages of a short sale?

Short sales take much more time than a traditional sale. Not only does the Seller need approval of their lender, if they have any other junior liens on the property, those need to be satisfied or negotiated as well and payments to them can only be made if approved by the Seller’s lender. Just like a Buyer applying for a mortgage to purchase the property, the Seller in a short sale must apply to the lender for approval and have a complete financial analysis completed to show that they really do not have the funds to pay off the loan.

Negotiating inspection or walk through issues is difficult, if not impossible, since no funds can be paid out to anyone without the approval of the Seller’s lender. These issues can often cause the deal to be terminated.

Why would a short sale not be approved?

The Seller still has funds and can afford to pay back some or all of the outstanding balance of the mortgage.

There are junior lien holders that will not agree to a compromised payout or it is easier for the lender to clear them through a foreclosure.

The foreclosure process has already started and is close to completion.