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What is a Short Sale?

In a short sale, the seller’s lender(s) agrees to accept less than the total amount owed
by the seller on the mortgage, because the seller can no longer afford to pay the mortgage
due to hardship.

Other similar terms:

  • Short Sale

  • Short Pay

  • Pre-Foreclosure

Who benefits from a short sale?

  • Short Sale Lender: Avoid bigger loss by avoiding repossession of the property via foreclosure, which is expensive and time consuming

  • Seller: California is a non-recourse state, and for most short sales, Seller will no longer be responsible for the mortgage, including any deficiencies. Many lenders also offer short sale incentives, so homeowners do not have to go through foreclosure. Seller will also be able to rebuild his credit faster than if he were to go through a foreclosure or bankruptcy.

  • Buyer: Many short sale transactions result in the buyer being able to purchase a property at less than fair market value, although this is not guaranteed, as it depends on the short sale lender’s third-party appraiser.

Short Sale Negotiation

Our experienced short sale team at VS Realty & Loans, Inc. includes a full-time short sale processor, and we are ready to service your short sale listing. We understand that this is a very stressful and difficult time for homeowners going through the short sale process, and we will do everything we can to protect our clients throughout this sometimes lengthy and emotional process.

The short sale process is different for every property/seller. Different circumstances (e.g how many loans  are on the property, are the sellers easy or difficult to reach, are there any liens on the property, who are the short sale lenders and investors, how quickly do the buyers’ agent and buyers respond to the bank’s requests, etc.) influence the length of the short sale negotiation process. The experience of the listing agent of the short sale property is also a significant influencing factor on the length of the short sale negotiation process. However, a homeowner/seller can count on your VS realtor to provide the highest level of expertise and experience to navigate the seller throughout the short sale negotiation process to achieve the best outcome possible.

There are also many short sale incentive programs designed to help homeowners during this difficult time, and the VS Team will be by the seller’s side to explain the programs, so that the seller will make the best decision for the seller and his/her family.

Examples of Short Sale Incentive Programs:

  • HAFA

  • Co-op

  • Traditional

  • Etc.

Making an Offer on a Short Sale Listing and Close of Escrow

The bank does not own the property in a short sale. However, the bank must approve the terms and conditions of the short sale, including the sales price of the property. This is because it is the lender, not the seller, who will be taking a loss of the property. Thus, it will perhaps seem like the buyer is purchasing the property from the bank. Short sale transactions, however, can be time-consuming and require much more patience than other real estate transactions, depending on the case of each short sale.  

When preparing an offer to purchase a short sale property, it must be specified on the contract that all terms and conditions are subject to the mortgage lender’s approval. Please note that the key difference here is that in a regular transaction, only the seller/homeowner’s approval would be needed. Further, short sale lenders often require that properties must be purchased “as-is.” While it is acceptable to include terms or conditions that allow a buyer to back out of the contract if an inspection reveals significant problems, a buyer should not expect the short sale lender to reduce the sales price or allow repairs, if any problems are revealed. Most often, the seller is going through a severe financial hardship during the short sale and will not be able to make any repairs or credit the buyer any money for repairs.

The process to close escrow on a short sale transaction can vary among different short sale lenders, since different banks have different requirements and processes to close escrow, but your VS realtor will guide you throughout the whole process.

The Cost of Benefits of Short Sale Purchase

Some buyers may consider purchasing short sale properties good deals, because the purchase price is sometimes below market value. However, there are some potential negative aspects to consider before deciding to purchase a short sale property:

  • Potentially bad condition of the property due to the owner not being able to maintain the property

  • Short sale lenders’ notorious delays and slow response times in reviewing short sale files

  • No guarantee that a short sale will go through, due to circumstances outside the seller’s control, e.g.

    • Pending foreclosure sales date

    • Lender’s slow response time

    • Problems with Buyer’s loan or response time to the short sale lenders’ requests

    • Unknown liens on the property

    • Number of short sale lenders

    • Seller’s filing for bankruptcy

Bottom Line

If you would like to partake in a short sale transaction, either as a buyer or as a seller, you will need an experienced short sale specialist to guide you through the difficult and sometimes long and complicated process. The VS Team is ready to provide buyers and sellers of short sale properties the benefit of our experience, expertise, and history of many successful short sale transactions (both as a seller’s agent and as a buyer’s agent).

Please contact the VS Team, if you have any questions or concerns about the short sale process or short sale transactions.