Short Sales

Real Estate Agent with Dale Sorensen Real Estate

There's a lot of talk today about "Short Sales". Are they good or bad and for whom? Having sold and closed hundreds of foreclosed properties, I have had the opportunity to become involved with pre-foreclosure sales, also known as "Short Sales".

Let's define a "Short Sale".  When a homeowner can no longer afford the mortgage payments and the mortgage balance is greater than the market value of the property, the homeowner's mortgage lender is asked to forgive part of the mortgage balance. 

Say the homeowner purchased their house in 2005 for $350,000 and obtained a first mortgage of $315,000.  The current 2008 mortgage balance is $300,000 and the real market value today is $200,000.  After commissions and closing costs the lender will net $180,000 from the sale and accept a loss of $120,000. 

Sound crazy?  Not at all.  Most mortgage lenders are willing to agree to this scenario, because if they have to foreclose, they will incur even more expense and still have to sell the property at the current value ($200,000 today, but maybe less by the time the foreclosure is finalized).  The seller must be willing to submit financial documents substantiating their inability to pay the current mortgage and should consult an attorney and their financial advisor before entering into a "Short Sale".

 "Short Sale" buyers can obtain a home at a bargain price if they are patient and prepared to close quickly once the seller's lender agrees to the sale.  I have seen the current lender take two months or more to respond to the sales contract offer once it is submitted.  The lender is not lazy or ignoring the offer.  They will have the property evaluated by at least one, and maybe more, realtors and/or appraisers before they submit the offer to management for a response.  These losses are substantial and they are justified in verifying all information submitted to them.  Once the offer is accepted by the lender, they will ask to close the sale quickly (less than 30 days) and the buyer should be prepared to accommodate this request.  All inspections, new lender appraisals and buyer loan processing should be lined up ahead of time and ready to go at a moments notice.


The real estate agent involved with the sale should be aware of the time lines, be prepared to provide both the current lender and the buyer's new lender with all requested information and understand pricing and justifying current market values to the principals and lenders.


"Short Sales' can be a savior for some sellers, a vehicle to obtain a true home bargain for buyers and an outlet for lenders to dispose of non-performing loans.


Dick Davis

Dale Sorensen Real Estate


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