A short sale is where the Owner (Seller) needs to sell their home due to distressed circumstances, where they will not get the necessary funds to pay off the mortgage and closing costs. In other words, they are under-water, due in part to plunging housing prices and they are not able to be approved for a loan modification.
There are several things you need to know as a Buyer interested in purchasing a short sale. First the Seller still owns the property (it is Not Bank Owned-yet). Second, you need to do your homework to determine if there is more than 1-mortgage on the property. If there is a 2nd mortgage, it is very difficult to get a short sale approved. Third, it can take several months to get a response from the Bank (Lender) on your offer. Short Sales are always subject to 3rd Party approval, always in As-Is Condition, 100% tax proration, and will not provide an updated survey for the property. The reason for the long waiting time, is the bank has to perform in-depth checking and verification, to see if the Seller meets the qualifications of Hardship, Financial Distress, and are unable to be approved for a Loan Modification. If the Seller is using a qualified Real Estate Agent and Short Sale Negotiator, this will be instrumental in moving the approval process faster.
Getting qualified guidance as a Buyer (and Seller) is critical to the success in purchasing (and Selling) a short sale. You may be able to get a great deal on a house, however you will have to be patient to wait out the long approval process.
Best of Luck,
David Jaffe- SRES, CDPE