What is a Short Sale? An Opportunity.

What is a Short Sale?  An Opportunity.

"Opportunity is missed by most people because it is dressed in overalls and looks like work." 

-Thomas Edison

Basically, you are paying less than what was borrowed to purchase the home.  A Short Sale means that the bank is willing to take less than the total amount due. This is often referred to as an ‘upside down mortgage.'  In a Short Sale, the bank or mortgage lender agrees to discount a loan balance because owner is behind on their payments.  

A Short Sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a Short Sale if they believe that it will result in a smaller financial loss than foreclosing. Buying a home in foreclosure is a different story.

As a buyer, you can find a deal.  However, just because it's a Short Sale, doesn't always mean it is a good deal.  Be sure to talk to your agent before you dive in. Also, you will deal with a seller who has given control over to the lender.  You deal with the owner and the lender.  You deal with the loss mitigation department or the resource recovery department. There is lot's of extra paperwork. Depending on the bank, it may take much longer to close because it is the lender who agrees to the offer. You are dealing with a large corporation with policies and procedures. You could make an offer and not hear back for months, so you'll need to have patience and be prepared for disappointment.

 For the home owner, the advantages include avoidance of having a foreclosure on their credit history and the partial control of the monetary deficiency. Also, a Short Sale is typically faster and less expensive than a foreclosure. There are many consequences for the seller's credit rating and taxes that should be discussed with a well qualified real estate lawyer.

Estimates are that roughly 20 percent of all U.S. home sales in March were Short Sales and locally about 6%. Over the next two years the news is that in California 50% of all homes sales will be Short Sales.  The estimate in Washington is 20%.   It will take a couple of years before the effects of the sub prime lending pass over and Short Sales percentages return to single digits. 

The opportunity is here now.  If you have the credit rating, down payment, and the patience, buying through a Short Sale is for you. So start your search. Most Real Estate listing services require disclosure of Short Sales.  You may not get this information through the public web sites.  You could search your neighborhood for opportunities. However, asking your neighbors if they are behind on their house payments could be touchy.

My favorite approach is to team up with your real estate agent who can find the home you want and help you through the long process.

The Short Sale may be dressed in overalls, but it is worth the work.