You have read about them in the media. You have heard about them on the TV and around the water cooler. You know it has something to do with foreclosures, but you aren’t exactly sure how it works. “What IS a short sale?” you think to yourself.
Well I’m here to give you the answers you were looking for, and probably the ones you weren’t looking for either!
Simply and directly put, a short sale is when someone tries to sell a home for less than what is owed by the Seller on that home. Why would someone do this? The answers are clearly evident in the news: job loss, loan payments too high, reduction in income, divorce, illness, etc. The bottom line is that the Seller usually HAS to sell, or they may lose the home altogether through a foreclosure.
Unfortunately, a short sale isn’t as easy as the previous explanation. Since more is owed on the home than what it can be sold for, the lender (or lenders) who have a lien (loan) against the home in questions must approve the sale before it can be done. So when the Seller finds a ready, willing, and able Buyer, both Buyer and Seller must wait for the lenders to review the short sale package (see Part 3), perform an appraisal, and then make their decision. Of course, it is very likely that the lenders are doing this same thing for thousands of other clients, prolonging the experience. Everyone needs to be ready to “hurry up and wait.”
Something important to remember is that the lender may not approve the short sale, even after months of waiting. One thing that is certain in the world of short sales is that there is no “sure thing”.
So why do they call it a “short sale” if it takes so long? The “short” in “short sale” doesn’t refer to the time it takes to sell a home through a short sale, but instead refers to the fact that the Seller is “shorting” the lender the amount owed on the loan. Short sales are also called “short payoffs“.
Read the next article in this series, Short Sales 101 – Part 2: So You Have to Sell.