I often get a request from people buying a Los Angeles home as to what the disclosure “Short Pay” means. This is a brief overview of the process.
What does this mean for a Los Angeles home buyer?
The homeowner owes more on the mortgage than the home is actually worth. Instead of sitting in the home without making the monthly mortgage payments, or strategically defaulting (able to afford the payments but choosing not to continue), the homeowner tries to sell the property at market price.
Understand that because the homeowner owes more than the home is worth, the lender is going to expect the home to sell at market price. There is little or no negotiation on a short sale.
Escrow is not opened until after lender approval, and generally no deposit is paid until that time. So there is no risk to the buyer. However, depending on the expertise of the listing agent and how many lien holders there are, the length of the short sale process can vary and can take up to several months. It is also possible that the sale will not go through.
So if you are a Los Angeles home buyer considering a short pay you need to be in it for the long haul.
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