The mechanics of short sales in real estate

There are not many “ways out”, once you are in a tight spot as a home owner, who’s going through some financial problems and finding it hard to reimburse the debt amount to his/her lender or mortgagee. Most of the times, you are left with no other options but to withdraw from your home ownership, either by means of foreclosure or “short sale”. A short sale occurs when you sell your home (of course with the consent of the lender) to some buyer at a price that’s less than the owed amount of debt. In case of a short sale, lenders keep the money, buyers get the home and the sellers are left with … well, nothing but at least they can save themselves from dishonor and bad credit record that comes with foreclosures or bankruptcy.

Mostly, three major stakeholders are involved in a short sale, namely seller, buyer and lender. Let’s discuss the transaction one by one, from their standpoint.

Seller:

Though seller gets nothing (of a monetary value) out of “short sale”, still he/she is the one who is the most concerned. As a seller, you should keep some points in mind. First, the lender will not always absolve you of the remaining debt. Second, the credit history doesn’t really remain unmarked in case of short sale (though the bad impact is less than the foreclosure). As a seller, you must put forward a very strong case for the bank's loss mitigation department, an application providing valid reasons with documented proofs (especially if you have cited the "decline in property prices" as the reason for short sale). 

Lender:

Lender is of the paramount importance in a short sale, buyers and sellers cannot proceed with the deal without the lender’s permission (In case there are more than one lenders involved, consent from both parties will be needed). Mostly lending banks permit sellers to carry on with the short sale to save all the costs and complications attached with foreclosures, but not before going through a thorough checking and verification process.

Buyer:

Homes at short sale notices are typically low-priced (not lesser than foreclosures though). But the biggest drawback in going for a piece of "short sale property" is the amount of time it can take before the deal is finalized, mainly because it's not the seller but lender who'll approve or disapprove the offer. As a buyer, it makes sense to involve a real estate agent, who has previously dealt with short sales. Short sale homes are supposed to be in better condition than the foreclosed ones, but you must hire a home inspector to do the inspection in any case.