If you have been looking for homes, or are thinking about selling your home but owe more than it will sell for, you have probably ran across the term "short sale". So what exactly does that mean? It means that a homeowner is selling their home for market value, regardless of what they owe, because they have to.
This is accomplished by notifying the lender that owns the note of a hardship that requires the home owner to sell. The home owner supplies documentation of their current situation that has created the hardship (loss of income, divorce, increasing payment or interest rate, etc...) and then introduces their home to the market at a price that is reasonable for current market conditions.
Once an offer has been received from a buyer and accepted by the seller, it is presented to the home owner's lender for approval. That is why you may see remarks on properties that are for sale that say "subject to bank approval of a short sale".
What are the ramifications???
As a buyer of this type of property, it means that you have to be very patient! Unfortunately, lending institutions are still trying to develop the processes and man power to help this situation to flow smoothly.
There is an incredible amount of documentation required for them to make a decision and it takes anywhere from 60 days to 180 days to process the offer to purchase. In some cases it takes longer, even close to a year. As a purchaser, you have to really want this home and be willing to wait for the process to unfold. The upside is that a typical homeowner will continue to maintain the property while waiting.
The taxes remain "homesteaded", the heat and electricity stay on and vandals aren't stripping the home like we so often see in a foreclosed property. It is also possible that the lender that supplies the approval may deny the purchase agreement at the offered price and counter the buyer's offer. That is because part of the process is determining if the offer is legitimately fair market value.
Short Sale Requirements
The short sale bank will also require that everyone involved in the purchase and sale sign an affidavit that they are not related. They do not want a relative buying the home for considerably less than owed so the owner can buy it back for much less than their debt. As a seller of this home, the short sale allows you to solve a bad situation without the stigma or ramifications of a foreclosure. It will in most cases, have some affect on your credit. However the damage is considerably less and the recovery is much quicker.
You should also know that in most cases, if the hardship is legitimate, the lender will require no money from you to close the transaction AND provide you with documentation that the deficiency has been forgiven with no further obligation!
So there you have it. A short and sweet explanation of a "Short Sale". Feel free to contact me anytime about real estate information or questions and I will be happy to assist.