A short sale is a real estate transaction in which the bank or lender agrees to let the homeowners sell their home for less than their loan balance. In some cases, the sellers don't need to pay back the difference between what they owe and the proceeds of the sale.
Recent changes in the industry have streamlined the short sale process, making this sort of transaction a popular alternative for both buyers and sellers. Additionally, banks are much more interested in facilitating short sales and avoiding foreclosures that result in placing the properties back on their books.
Say you owe $200,000 on your home and can no longer make the mortgage payments. One option is to refinance your home and secure a lower payment based on a longer term or better interest rates. But if your property has lost value due to local market conditions (say it would sell for only $150,000), refinancing isn't feasible. If the bank agrees to a sale at $150,000, it's called a short sale.
Although short sales have become more common in recent years, banks don't always grant them. In general, they approve short sales in theses situations:
Short sales often look like other listings in the MLS, except they may have a lower asking price than comparable properties.
The term "short sale" is a bit of a misnomer, though, as this type of transaction can take much longer to complete than a standard home sale.
The buying process is similar to a standard purchase. You still apply for financing the same way, and order inspections the same way, for instance. But complications in the selling process aren't uncommon, and you'll need patience and a solid real estate agent to deal with them.
The good news, though, is that times have changed. Many banks have streamlined their processes for short sales, making it much simpler and less time consuming for buyers and sellers. Market data shows that the time it takes to close a short sale has steadily decreased over the past few years.
For many reasons, choosing a real estate agent who has experience with short sales makes a tremendous difference. An experienced agent may already have the right contacts within the lender's local office, and most likely has already helped buyers through the process.
Second mortgages: These can pose problems because a second lender may not agree to the terms set between the primary lender and the seller.
Mortgage insurance: If the seller has mortgage insurance on their loan, the mortgage insurance company will need to approve the short sale.
Other liens on the property: A lien is a claim by an outside person or company on a property for money owed. Liens pose hurdles whether the transaction is a short sale or not, and will have to be addressed before the property can be transferred to a new owner.
Government-backed loans: If the home seller's loan was a government-backed loan, such as an FHA loan, this can cause delays and hurdles because the government will need to be involved in approvals.
HOAs: HOAs can present complications because the lender might not pay fees associated with the HOA transfer from the seller to the new owner. Your real estate agent can help put a plan in place for paying HOA transfer fees, document costs and any unpaid dues.
Working with an agent who understands the short sale process saves you stress and time spent dealing with obstacles that often come up along the way.