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What is a Short Sale?
Lots of buzz is going around about SHORT SALES, and how you can get a great deal
buying a home in a short sale situation. But do you really know even what a
short sale is, and what are the implications? Is a short sale the same thing as
a foreclosure?
A short sale is any sale that results in a sale price that is insufficient
to pay of all loans/liens and the expenses of the sale.
In other words, the
outstanding loans, back property taxes, mechanic's liens, and other seller
monies owed (called obligations in legal circles) against the property are
greater than what the property can be sold for. Basically, the lender will be
accepting a discounted payoff. So what this means to you, is that even though
you are negotiating on a property with the seller, your offer is contingent on
approval by a 3rd party, their lender.
 Why would a lender be willing to accept a short sale? It all comes down to $$
money. The lender is not in the business of owning real property, and their only
alternative to accepting a short sale is foreclosure, and forclosures are
notorious for consuming lots of time, running up expenses for maintenance and
repairs, and costing sales commissions. Seems like a no-brainer, but why are
short sales so difficult? Again, it all comes down to money - the lenders figure
that the cost of foreclosure is currently running between $15 and $20,000 on an
average property and buyers making an offer in which the "discount" is
considerably more than that will have a hard time proving that it's a great deal
for the lender, who is in the business of making money on their money.
If you are a typical buyer, you are very excited to put in an offer on a
property and are anxious to hear from the sellers that your offer is accepted.
With short sales your offer goes into a pile on somebody's desk (depending on
who is servicing or holding the loan) and their sense of urgency and "time is of
the essence" is not like yours. If you've ever gone to the Massachusetts
Registry of Motor Vehicles and enjoyed the experience, you'll love short sales.
So, buyers who make a short sale offer on a property should be prepared for the following:
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delays, delays and more delays
-
uncertainty coupled with a high chance of failure
-
no guarantees of responsiveness
-
changes to the price, terms, or conditions agreed on in the original
offer
-
expending funds to cover appraisals, inspections, loan fees, title
searches, and other items and then learning that the lender's approval
cannot be obtained
-
there may be other unforeseen events outside the seller's & buyer's
control
Also, if the seller's lender approves a short sale, they will have certain
unbending expectations of the buyer, and they are:
-
good credit and strong down payment
-
no negotiations from home inspection
-
ability to secure financing and adhere to commitment deadlines
-
ability to move and close quickly after the approval has been granted
 Before you make a short sale offer on any property you should engage the
services of an attorney and a tax professional in addition to your buyer's
agent. There are many nuances of every decision you make and you need expert
guidance.
From a Realtor's perspective, here are a few things you as a buyer
should consider:
You can and should continue to search for other properties to purchase, but if
you make an offer on another property and it is accepted you may be in a
contractual obligation to buy multiple properties and it may void your loan
pre-approval.
You should avoid "contrary choices" such as letting the seller stay in the home
( a huge no-no) and requiring concessions from the seller on the purchase and
sale agreement ( the national and state laws do not allow this)
The seller's agent is required to disclose when the asking price will result in
a short sale. However, the asking price may be just enough to cover all costs
and technically not be a short sale. So your offer, if it is less than the
asking price will be a short sale offer, triggering all of the above
implications even if you didn't know it, and you have no recourse against the
seller's agent.
 In summary, short sales can be complicated and time consuming, carry significant
risk, and have tax and legal implications, and are not for the "faint of heart".
But if you're a willing and able buyer, you can get the home you want at a
discount. If you're a willing and able seller, you can get out from under a huge
financial mess while still preserving your credit and sanity.
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