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A Short Sale Primer

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Many buyers believe the term Short Sale means the approval process for purchasing a home is fast tracked and the sale takes place in a short or at least shorter period of time than normal. While we in the industry wish this were actually the case, alas, it is not.

Let's take a closer look at what a Short Sale is and what process unfolds with these types of sales. First and foremost, a home that is being sold pursuant to a Short Sale is still owned by the home owner, as opposed to a bank owned or Real Estate Owned (REO) property, where the bank does own the property.

A Short Sale is when the seller of the home is trying to sell their home and is asking the bank to allow the sale to take

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place even though the amount the home is being sold for is short of what is actually owed. This often happens when a seller has an unexpected hardship through the death of a spouse, loss of employment, unexpected medical bills, etc. The homeowner is unable to continue to make payments and the local market will not support a higher sales price in order to pay off the note to satisfy the mortgage.

The buyer (you) brings the seller an offer that appears reasonable for the market. The seller agrees to accept your offer and signs the Agreement of Sale (AOS.) Part of the Agreement of Sale has a contingency agreement that indicates the lien holder, generally a bank or financing institution, must agree to the short sale amount. If they do not agree, the buyer does not have to move forward with the purchase.

After the seller has signed the AOS, the seller's Realtor forwards the AOS to the lender for consideration. The lender asks the seller to supply a plethora of documentation explaining why they need to short sell- why they can't meet their financial obligation. The lender wants the seller's bank statements, tax filings, pay stubs, etc. Once the lender is satisfied the seller may default their loan if the sale is not agreed to, they then submit the AOS and supporting documents to the lender's decision makers; asset managers, Board of Directors, and investors in many cases. After the decision makers review the entire sales package and supporting documentation, they render a decision to accept or reject the offer.

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If accepted, the lender then provides their required settlement net as determined by a net sheet prepared by the seller's Realtor. The lender also sets an acceptable settlement date the closing must take place and sends an approval letter with closing instructions that must be adhered to. If the lender rejects the offer, they send the rejection back to the Realtor with an explanation, generally focused on the net being required by the lender.

If the lender accepts the offer, the parties may then proceed to settlement. If the offer is rejected, the buyer may either retract their offer or anti up additional funds to meet the lender's requirements. A short sale can indeed be a very good purchase opportunity for a buyer, but patience is an absolute necessity. The lien holder's approval process can be slow and if there is more than one lien holder, extra time is needed to get everyone's approval. Generally, a short sale from start to finish can take 60 to 90 days.

So, armed with a bit of Short Sale knowledge, go out and find that gem of a home you've been hoping for. There are a lot of great deals to be had. Here is a link to Sussex County's current Short Sale properties: SHORT SALES

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