The Central Florida REBlog

A short sale occurs when the purchase price is not high enough to pay off the mortgage(s) and cover the other costs of sale including taxes, closing fees, commission, title insurance, etc. Sometimes the purchase price isn’t even enough to pay off the first mortgage, never mind a second mortgage and all that other stuff.

Great! Sounds like a bargain. I want to buy a short sale property.

It can be a bargain, and short sales do go through to completion, but here’s the rest of the story. You’ll need lots of patience and lots of time.

How does the short sale process work?

As a home buyer, you may see the words ‘short sale’ in the property listing description. Other clues that it’s likely to be a short sale are phrases like ‘pre-foreclosure’, ‘in foreclosure’, or ‘3rd party approval required.’ So, your Realtor arranges a showing of the property, you see it, and you decide to make an offer. The Realtor will prepare the offer on a sale and purchase contract form showing you as the buyer; the sellers will be shown as the people whose names are on the deed.

The sellers will likely sign just about any offer that comes in (as long as you don’t ask for the family pet to be included in the sale). They just want to keep the word “Foreclosure” off their credit report. While the seller is technically the person or couple whose names are on the deed they don’t have the final say about the sales price and other terms of the contract. This is where that ‘3rd party approval’ thing comes in. Usually the mortgage company holding the mortgage note must approve the sale. Even if the holder of the first mortgage says ‘yes’, the holder of a second mortgage, if there is one, can put a stop to the whole thing.

The listing agent will submit the offer to the mortgage company for approval. Specifically, the offer will go to someone in the “Loss Mitigation Department” whose title is something like “asset manager” or “negotiator.” Here’s where your patience will be tried. After some indeterminate period of time (it could be weeks), they will decide if your offer is acceptable or not. If they accept your offer, there will be another indeterminate period of time (days or weeks?) before you get a signed contract back so your loan officer can start your loan processing.

OK, I’m the patient type. Let’s get going.

Some short sale properties are listed in the MLS at a price the mortgage company has already approved, and if your offer is at that price, your wait will probably be shorter (but not necessarily short). Most short sales do not fall into this category. Most of the time, the mortgage company has no idea what asking price is on the listing, and it may be nowhere near the price they will actually agree to. You may get a counter offer from the mortgage company that is above the “asking price” and nowhere near the price you are willing to pay. On the other hand the counter offer may be reasonable, or they might accept your original offer, and you’ve just scored a bargain.

It sounds like a short sale is kind of a crap shoot.

You could say that.