From time to time, I will use my blog to offer up answers to questions that are typically found on an FAQ. This allows me to go into a little more detailed explanation as opposed to the abbreviated for space version. Today, I'll answer a frequent question Realtors are getting in today's market.

What is a short sale?

A short sale occurs when a property is sold for less than the seller owes on their mortgage, and the bank agrees to accept the lower price as full payment of the loan. It is a way for a seller to avoid foreclosure on their property.

Typically, a property will be listed as a "potential short sale" or as "subject to bank approval" when the seller and/or agent has determined that the market value of the property is lower than what is owed and that the seller does not have the resources to pay off the difference.

Once a buyer submits an offer on the property and the seller has accepted the offer, a "short sale package" is submitted to the bank - this package consists of the offer along with a large stack of documentation intended to justify the sale, including documentation of the seller's financial hardship, an assessment of the property's value, and the details of the proposed sale.

Once the bank has received this short sale package, they will thoroughly analyze the property and the situation themselves, a process which can take considerable time. As a buyer, you will need to have a lot of patience, as it can take as long as 2-3 months to get a response from the bank. Neither your agent nor the listing agent has any control over this process - all the parties involved are at the mercy of the bank. Some banks are much more responsive than others.

A few other things to know about short sales:

- While it is still advisable to make property inspections a contingency of your offer to purchase, neither the homeowner nor the bank will make any repairs or price concessions based on the inspection results. If a major problem is found, you will have the right to terminate the agreement and have your deposit returned, but otherwise you must go forward with the sale and handle any problems yourself after the closing.

- You should expect their to be some issues due to deferred maintenance on the property - typically people who are in a financial position where they cannot afford to pay their mortgage have also been unable to afford to keep up their home as well as it should be.

- Once the bank has approved a short sale, the closing date in the contract must be met - if the closing is delayed due to issues on your end (your lender, attorney, inspector, etc), the bank will charge you a substantial daily penalty. Of course, if the delay is because of the bank, you have no recourse against them - not very fair, but that's reality.