Buying and Selling in a Short Sale

What is a Short Sale?

A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.

Be aware that the seller need not be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.

Check the Public Records

I'll research Public Records before making submitting you offer to purchase. I'll identify out who is on title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer.

If there are two loans, you could have a problem. The first mortgage lender's position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.

Qualifying the Property and Seller for a Short Sale

In the past, a lender was unlikely to agree to a short sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Times have changed. I will present an argument and market analysis in your area to receive permission from the Bank to do a short sale.

Submit Documentation and Purchase Offer to Lender

Once the seller has accepted your offer, send it to the lender for approval. You do not have a deal until the lender accepts. Also, send the lender a copy of your earnest money deposit. Do not be astonished if the lender asks you to increase it.

In addition, the lender will want to see that you have your own loan available and you are preapproved. Send a preapproval letter to the lender. It will help if your agent sends a list of comparable sales that support the price you are offering to pay for the home.

Give the Short Sale Lender Time to Respond

Make your offer contingent upon the lender's acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel.

Some lenders submit short sales to committee, but most Banks now have streamlined the process and we can have an offer reviewed fairly quicky.

Reserve the Right to Conduct Inspections

Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property "as is," which means no repairs.

It is extremely important that we buyer obtain a home inspection.