What is a Short Sale, and Why Would the Buyer Care Anyway?

Real Estate Agent with Donovan Blatt Realty 01267479

An out of town friend wants to buy a home for significantly less than the listing price.  Typical in this market she figured, so why would her agent tell her that the seller had taken a lot of money out of the home?  Why would that matter to her?  She figured it wasn't her problem.

For the most part she's probably right.  However, if the fact that the seller has borrowed a lot of money means that he can't pay off the entire loan amount, plus costs, commissions, etc., it could result in a short sale

What is a short sale, and who cares anyway?  A short sale occurs when the seller asks the bank to accept less than they're owed on a loan on a property because the seller can't sell the property for enough money to cover the loan and/or the costs of selling the property.

The bank doesn't have to accept a short sale and can take a long time to make a decision.  This can be very frustrating to the buyer who may have to wait and wait only to be told that the bank will not accept their offer.  On the other hand, if the offer is accepted, it can result in a great deal for the buyer.

A short sale can also have significant tax consequences for a seller.  If the lender forgives the seller's debt, it can result in "income" to the seller.  This has been somewhat ameliorated by the Mortgage Forgiveness Debt Relief Act of 2007 which allows the exclusion of this "income" under certain circumstances such as when the loan was used to purchase or significantly improve a principal residence.

Thus, in the case of a short sale, both the lender and the seller may have something extra to lose, and the decision to move forward must be carefully considered. And, for the buyer it may mean a significant delay in waiting for a decision to be made on their offer.

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About the author: Christine Donovan is a California Residential Real Estate Broker with experience in assisting clients buy and sell residential real estate.

Are you upside down in your home? Is it worth less than you owe? Are you concerned about making your mortgage payment? For more information see Options to Foreclosures, understanding short sales or contact me at christine@donovanblatt.com to discuss your options.

If you want to buy a home or to list your property for sale, please click Newport Beach homes, Costa Mesa homes, Huntington Beach homes or Orange County homes.  Click the link if you are interested in buying a home at a courthouse auction sale.

Contact me at christine@donovanblatt.com or 714-319-9751 to learn about her system which will make your buying and selling experience easier.

Disclaimer: All information in this blog is deemed reliable but is subject to change at any time and is not guaranteed to be accurate nor are there any warantees either express or implied. This blog is not intended to offer any legal, tax or other advice.

Click Orange County homes for sale to view all OC homes for sale.


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Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes

Good post. Short sales are a challenge. We have one entering month six from the time the offers were submitted.... and still the bank has not decided. Buyers need patience if they want a short sale.

May 20, 2008 06:22 PM #1
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Bob & Carolin - Thanks.  Short sales are a challenge.  I agree; any buyer who wants to make an offer on a short sale is going to have to be patient, but when they do happen, they can be a great deal for the buyer.  Good luck with your offer.

May 21, 2008 07:37 AM #2
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Christine Donovan

Broker/Attorney 714-319-9751 DRE01267479 - Costa M
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