Short sales happen when a seller needs to sell their home for less than what is owed. They are often behind in payments and would rather sell than face foreclosure. It generally has less of an effect on their credit and they can often buy a house in a shorter time frame than they would if foreclosed.
The short sale process is a lot longer than a standard sale, often taking more than 2 to 3 months. It is not called a short sale because the time is short but rather because the seller is selling the house “short” of what is owed.
The process in complicated. Real Estate agents need to negotiate with all lien holders on the property. It is not enough to make the first lender happy. All lien holders must approve. If HOA dues are owed, then they must be negotiated, seconds, thirds, HELOCs (equity lines of credit), tax liens, mechanics liens, must all be addressed. This is why the process takes so long. All these parties must sign off for the sale to happen. Sometimes we may wonder why these other liens won’t just sign off and be happy since they often get nothing if the property is foreclosed, but they have their reasons even if we don’t understand them.
Sellers need to be honest with their agent and make sure they disclose all information on the property to make sure it can be approved. One small detail can derail the whole process.
Buyers need to be informed about what is happening. It is important that they are kept in the loop. One of the biggest reasons that short sales fall apart is that the buyer walks. Some buyers feel that if they make multiple offers they have a better chance that one of the properties will be approved. The problem with this is that they are not being fair to the seller who is losing their home. When they back out this can have drastic consequence for the seller. Some banks will not continue with a second offer, but will require that the whole process start over again, which could cause the home to be foreclosed. This is why listing agents are now requiring earnest money deposits in escrow and even placing time limits to ensure buyers are serious.
It is a lengthy process but it is getting better. A few years back the process was almost impossible. It seemed a waste of time and the banks were not equipped to handle them. Now banks more often than not would rather sell short than foreclose. They are better staffed and are working on streamlining the process. Government backed programs, like HAFA, are also helping. Some large banks are even partnering with real estate companies to help in the process.
For more information please feel free to contact me. I am a Short Sale and Foreclosure Resource Specialist (SFR) as well as HAFA Certified.