Everyone seems to have an opinion when it comes to short sales – they’re too good to be true, they’re a nightmare, they’re a great deal, don’t even bother…. No matter what you’ve heard, the bottom line is this: buying a short sale home is a complicated process.
A short sale is a sale for which the lender is willing to accept less than the amount still owed on the mortgage. This usually means that the homeowner must be so far behind on their payments that they cannot catch up. Also, the housing market must have gone down so much that the house is worth less now than the remaining balance on the mortgage. In most cases, the lender (and homeowner) will try a short sale process in order to avoid foreclosure.
Speaking of foreclosures, what is the difference between short sale and foreclosure? For one, the homeowner initiates the sale of their home in a short sale. Potential buyers will deal with the homeowner during the short sale process, and then the lender is brought in to approve the sale. However, even if the owner and the potential buyer agree to terms, the lender may not approve it. This is partly what can make this process so lengthy and frustrating.
But what is the actual process of a short sale? When a homeowner falls significantly behind on their payments, they may submit a short sale package to their lender, which essentially proves to the lender that they are not capable of making their payments and have no assets that would allow them to catch up. The homeowner then works with their agent to have the property listed. Once a potential buyer is found, the agent will execute a sales contract which is then sent to the lender.
The lender can respond in one of a few ways – by rejecting the offer, or they may reject the offer but outline terms to which they would agree to, or they could approve the offer, or in some cases they may not respond at all. Nothing. This leaves the agent, the potential buyer, and the current owners all hanging in limbo.
Understand that the process can be very slow and very unpredictable. You’ll likely have to buy the house “as-is” so make sure to have a home inspection done, even if the lender doesn’t require it. There may be instances where a short sale really is a great deal, but that won’t always be the case. Work with an agent who is experienced with short sales, and do your research.
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