When I’m searching for homes for clients nowadays, many of the best priced homes have the dreaded disclaimer, “Subject to lender approving short sale.” If you are in the market for a home and haven’t yet heard the term “short sale,” you soon will. I’ll elaborate in a moment, but short doesn’t mean quick—and it doesn’t necessarily mean a great bargain. The definition of a “short sale” is a property being sold for less than what is owed on the mortgage. Though the home is being sold by the homeowner, the ultimate decision on selling and price is up to the lenders.
So, what’s involved? To start, a lot of time. It’s common to send the bank an offer and all of the required paperwork documenting the seller’s hardship, and then wait 45-60 days for the file to be assigned to an employee in the bank’s “loss mitigation department.” Once it has finally been assigned, an appraisal is ordered, which takes another week or two. For offers lower than the range set by the appraiser, the bank makes a counter offer. If you agree, the file is submitted for a final approval, which takes an additional 2-3 weeks, and if the sale is approved, you’ll have to be ready to close almost immediately since while you are waiting for the bank to respond to your offer, the foreclosure process continues moving forward.
For a short sale to succeed, the seller must be behind on their payments, have a demonstrable hardship and no assets they can use to pay the shortfall, or show that it was doomed from the beginning. Even with these factors present, if there is a second or third mortgage from a different lender and the shortage leaves no money for them, they will not agree to the sale—even if the first mortgage holder does.
The chief benefit of making an offer on a property subject to a short sale is the fact that it is usually priced to move and you may have less competition from other buyers. If it’s a home you love, and you’re currently renting or have a flexible timetable (and are extremely patient), it can be worth the extra effort and aggravation. If you have a short time frame or another home to sell, you should probably look elsewhere. 
09-01-07
