What is a short sale? I have clients ask me this all the time since we do come across them in our Arizona retirement communities from time to time. The following is a definition of short sales that I borrowed from Wikipedia.
"A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.
In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.
A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property..."
While it makes sense it might be beneficial for a lender to approve a short sale instead of allowing a home to go into foreclosure, the path to getting a short sale transaction closed can be extremely frustrating for all concerned. What buyers need to understand with these transactions is that it may take many months before they find out whether or not their offer was accepted. AND, once an answer is finally given, their offer may not be the one the bank has chosen to move forward with.
I have a short sale listing. I have brought 6 seperate contracts to the lender(s) for consideration. In December of 2008 we thought we were going to be able to finalize the sale for an amount over list price. It was a great deal for the banks. But because there was a 1st AND 2nd mortgage on the property, the deal fell apart over $2500. The two banks couldn't come to an agreement between them. The current offer now being considered is now about $50k less than that first deal. Not only are the banks getting considerably less than they could have gotten, the house has now been vacant for 9 months and is looking VERY sad.
Does all this mean a buyer should stay away from short sales? Not necessarily. But they need to be prepared to sit it out for the long-haul and know that even after exhibiting great patience, they may still end up with nothing for their efforts.
For those who might be interested, I have set up search catagories for short sale properties in the following AZ retirement communities. I hope to have searches set up for Sun City West, Arizona Traditions and others soon.