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What is a Short Sale

What is a Short Sale

Basically, a short sale is a house where the owners are upside down on their mortgage.

They owe more than what the house is worth.

They are in some sort of hardship where they’re at least 90 days past due on their house and can’t make the mortgage payments. (Perhaps divorce, lost job, death in family, etc.)

Instead of going to foreclosure, they try to work out a deal with the bank and put the house up for sale. But, since they basically don’t have any money – the house is likely in a distressed condition.

AND, if they’re upset about what has happened, it’s possible they’ll take that emotion out on the house (holes in walls, not taking care of property, etc.).

So, they put it up for sale and have an aggressive pricing strategy with the hope of getting an offer ASAP.

Once they have an offer (it’s probably going to be a low-ball, because… short sale) the owners will submit the offer to their bank with a hardship letter.

That letter explains why they can’t pay the mortgage and requests the bank’s approval to sell the house for less than what they owe.

AND, (this is the kicker) they ask the bank to write off the difference of what they owe.

AND THEN, they ask the bank to pay for the costs associated with selling (about 10% of the sales price).

So, you can see how the bank is being “shorted” on the amount they expected to get paid when the originally loaned the mortgage.

This is where it sits on someone’s desk FOREVER because it’s just not anyone’s priority to lose money on a sale. Banks in today’s economy would likely rather foreclose, make minor repairs and recoup their costs on the market.

You can probably see why the bank wouldn’t consider this a priority so it takes a long time to get a response.

If the bank accepts the owners request to short sale the house then the process will speed up, but there’s no guarantee of a timeline. The bank will send someone to value the property and the true negotiations will begin. That low ball offer you originally submitted? This is where you’ll get a counter offer.

Often times it takes several months for the bank to even respond and by then the house is getting to be in bad condition and other opportunities are being missed on the market.

If you have time AND patience, you might be able to get a good deal on a short sale, but it’s not going to be easy.

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Heather Wright

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