What is a Short Sale?

Sometimes referred to as a short pay, this is simply when a homeowner's mortgage is more than what they can sell the property for, therefore, they are "short". In almost all cases the homeowner is behind on the monthly mortgage payments and/or property taxes. The homeowner lists the property for sale in an effort to avoid foreclosure. Once an offer is received and accepted by the seller, the listing Realtor submits the offer to the financial institution (bank) holding the note payable on the property along with the seller's financial statement, bank statements, tax returns and a letter stating why they can no longer afford their house payment. This offer is "subject to lender approval". The bank may accept this offer and" forgive" the deficiency (the difference between the amount owed and the amount offered) or decline the offer and foreclose. To foreclosure is a lengthy and costly process for the bank and with home values declining more money is lost during this process. Therefore, banks are strongly inclined to consider accepting the short pay. As a buyer making an offer on a short pay it can be very frustrating. Unlike a normal sale, it can take literally months to get a response from the bank and you may not like the answer. Short sale approval is what you are waiting to hear and while the bank's employees jump through the corporate hoops, the listing agent of the property that you are trying to buy can continue to accept offers from other buyers on the same property. In the end, if the short sale is approved, the bank will work with the "best" offer. Usually this is the highest offer, but also the most qualified buyer. Hang in there, this can be a great way to buy a home for under market value, but it is essential that you have proper representation. Always work with a seasoned Realtor who understands the short sale process.