Distressed Property / Short Sale

What is a short sale? Sometimes homeowners must sell their homes because job loss, illness, or other changed circumstances make it difficult to keep up with loan payments [in some cases, this is because the loans were sub-prime, and the interest rates have skyrocketed], and unfortunately the market value of their home when they must sell is far less than the amount of the loans against it If the seller can prove severe financial hardship, the seller can ask the lender to forgive the amount of the loan that exceeds the actual sale price of the home.

In such a scenario, the sellers put their home on the market and accept an offer. The sellers then submit the offer to the lender. After the lender verifies both the home’s market value and the seller’s financial position, the lender approves the sale. Escrow closes, and the lender receives whatever is left over from the sale proceeds after all closing costs and any other fees are paid. The sellers do not have to pay off the loan balance, including any late fees – all is forgiven. The lender is thus "shorted" on the original loan. Ideally, if a short sale is approved, the sellers salvage their credit, the buyers get a good deal, and the lender avoids the costs and complications of a foreclosure.

Because of the complexity and the huge volume of short sale requests, a lender’s short sale approval process can take 3-4 months from the date the homeowner submits a purchase offer to the lender. If the sellers have already defaulted on their home loans for several months before they receive an offer to buy their home, then the short sale approval process may become a race against the foreclosure clock, and if there are junior lenders in the picture, sometimes timely short sale approvals from all lenders can be difficult to achieve. However, I have successfully completed short sales even in very difficult situations!