What the heck is a Short Sale?

Good Tuesday Morning to Everyone!

I have been getting a lot of emails from people asking the same question.  People are asking me: "David, what the heck is a short sale?"  Hopefully, today I can answer this question.

A "short sale" is a real estate transaction in which the proceeds from the sale are less than what is owed to the lender(s).  The concept here, is to have the lender(s) agree to accept a lesser amount to close the sale.  Now the "tricky" part...

In a ratified  "short sale" the lender agrees to accept an agreed amount of money to consummate the sale, because of an economic or financial hardship suffered by the mortgagor (Home Owner).  This negotiation is done through communication (or sometimes lack of communication) with the lender's loss mitigation department.  The lender will evaluate the "hardship" of the mortgagor and make a decision based on the current value of the home, the mortgagor's financial status and contract terms.  If the lender feels that the circumstances submitted meets the criteria of a "short sale" the lender will agree to accept the proceeds in full satisfaction of the debt, even if it is "short." The extenuating circumstances will influence whether or not the lender will accept the "short" payoff.  

A "short sale" is an alternative to prevent a home from going into foreclosure.  A home owner may contact a Realtor to come out and give them an estimate of value.  If the "market value" is less than what is owed, the Realtor may put the home on the market and advertise it as a "short sale."  Communication is then established with the lender(s) to let them know what is taking place.  A "short sale" is a type of sale that all terms and conditions have to be approved by the mortgage holders, so Buyer's need to understand this.  Lender(s) that I have dealt all deal with "short sales" differently.   I have received approvals in as little as two weeks, and some have taken 5 months.  So if you are a Buyer and are looking at a "short sale" to purchase, you must be patient.

Once an offer has been submitted to a lender(s) for approval, the bank will order a "Broker Price Opinion (BPO)" to determine fair market value of the home.  This is done so that the lender has an idea of the value and eliminates fraudulent sales.  If the lender feels that the "short sale" is more favorable than a foreclosure, there is a great probability that the "short sale" will be approved.  A "short sale" is typically faster and less expensive than a foreclosure.

In short, a "short sale" is negotiating with the lender(s) a payoff which is less than what is owed.  "Short Sales" are becoming more and more common in this real estate market.  Now that I have totally confused you, you may send specific questions to me and I will do my best to clarify.  I do know what I am doing with these "short sales" and do not shy away from them, like some Realtors do.  I enjoy the challenge!

It's August 18, 2009 and I am bullish on Sacramento

David Ohara

@dwo34

dwo34@aol.com