Important Notes on Short Sales

Mortgage and Lending with Oak Valley Mortgage-California Home Loans and Refinancing



"Short Sales" are a hot topic right now, as homeowners, homebuyers, real estate professionals and lenders simply can't avoid them in today's real estate market. Existing homeowners are calling their lender to see if a short sale is the right "exit-strategy" for them, with little money left to make the mortgage payments. On the flipside, homebuyers are calling lenders daily to find out what financing options are available to purchase one.

Lets start with a good definition of a short sale, as people often mix the concept up with a foreclosure, REO, etc...

Short Sale: The sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.

Like anything else...there are some great deals out there and there are some really bad ones...Simple logic should tell a perspective homebuyer that if the homeowner was unable to make their mortgage payments, they probably weren't keeping up with the maintenance on the home. In big red letters, each short-sale on the market should read, BUYERS MUST PERFORM THEIR DUE DILLEGANCE AND MOVE FORWARD WITH CAUTION. DON'T ASSUME ANYTHING!

Everyone wants a great deal. And yes, there are some GREAT DEALS out there! I've been looking to purchase a secondary residence in Southern California. Homes that were selling for $550,000-600,000 at the peak of the market 1-2 years ago are now in the $275,000-300,000 range! Certainly things will turn back around and many will stand to do well from a long-term perspective in real estate. Again, I emphasize long-term. Once we get out of the market we are currently in, things will once again rebound. Why? History always repeats itself. Home prices simply need to catch up with the times.

I've personally walked through well over 200 short sale properties in the past few months. After seeing enough of them, you get to see the good, the bad and the ugly. Ugly to where the house would be a great movie set for the next Arachnophobia movie, where you swear it was a homicide scene at some point before you entered. Appliances and fixtures missing...all the way down to the toilets!

In between the search though, there are some real gems!

As people call me to get pre-qualified to find out "how much home they can afford on a short-sale", I note the following items below, as a short-sale transaction can run differently than your normal home seller/home buyer transaction.

  1. Typically, short sale properties are sold "as is" and without warranties from the bank currently holding the mortgage. Banks do this to remove themselves from disclosing anything pertinent to the property, which could ultimately be a problem. Why? They were the lender...not the homeowner. As such, there could be things wrong with the property that they are unaware of and don't want to be held liable for problems down the road. This is why I highly recommend hiring a great inspector to look at the home from head to toe once you have narrowed your search down to 1 or 2 properties. Foundation problems, structural damage, water/mold damage and so on can be very costly to fix.

  2. When dealing with a short sale, don't expect the bank to respond quickly. Every bank is different. You would think the bank is taking a loss and would want the bad loan "off their books" as soon as possible. It's not that the bank doesn't. However, banks are simply inundated with short sales right now. I've talked to bank representatives that have hundreds of files in and around their desk. How does one decide which file gets picked up in the course of a day? I recommend having a great real estate agent that will "go to bat for you" and will be on the phone with the bank first thing in the morning; to make sure your offer and file get looked at over the sea of others. I've seen a direct correlation between clear lines of communication and closed deals as opposed to poor communication and deals that never happen. As such, I can stress the importance of working with a great real estate agent and lender that will help you through the process.

  3. "Low-Balling" the bank's approved short sale asking price can be a no-no. I have several clients that have put offers in for HIGHER than the banks approved short sale asking price, only to not hear from the bank for over 2 months! Yet perspective homebuyers think they can "low-ball" a bank and put an offer in lower than the approved selling price, feeling the bank "won't pass it up" because the bank must be desperate to sell the home. Many times, I have seen otherwise. Remember, banks are essentially throwing money at bad money. They are already taking a loss. If the bank is looking through hundreds of files and choosing which ones deserve the most attention...where will your file and offer lie?

  4. Finally, if the home needs rehabbing or fixing up, I tell people to consider the cost of doing so in relation to other homes on the market which are "turn-key" and ready to move into with little or no money needed.

 Scott Gormley

Written By:

Scott Gormley


Oak Valley Mortgage

Direct: 530-592-8362



"You Find the Perfect Home, We'll Find the Perfect Loan!"

Comments (4)

Adam Brett
The Adam and Eric Group - Fullerton, CA
The Adam and Eric Group, Fullerton's Finest

Very good informative post.  I like the caveats and points made.

May 14, 2008 05:36 AM
Bryan Flynn
Regency Mortgage Corporation - Worcester, MA
Central Mass and Worcester Mortgages

Well said thanks for the information Scott.


-Bryan Flynn

May 27, 2008 12:08 AM

I think a short term loan might be a good way out when you are tight with money and you still have few days to payday.



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Jun 26, 2008 07:08 PM
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • GRI • HAFA • PSC Calabasas CA

It is interesting that your blog was posted in 2008, but Short Sales rules did not changed. Banks are not concerned with 'reinventing the wheel'.

May 01, 2013 02:13 AM