Short sales
I promised you a discussion of short sales, so here it goes. A short sale is a simple concept, and is becoming more prevalent in today’s market. Here’s the one-sentence explanation: a short sale occurs when a seller negotiates a sale of his residence for less than the dollar amount of the liens outstanding on the property.
More after the jump
Example: ABC owns a house with a $500,000 mortgage, and he still owes the entire principal. He lists his property for sale and gets an offer for $480,000. ABC wants to sell, but has to negotiate with his lender about taking the entire sale proceeds in exchange for discharging the mortgage and letting ABC walk away free and clear.
The advantage to both parties is obvious: ABC gets relief from a mortgage he either doesn’t want or can’t afford, and the buyer gets a piece of property that he wants for a good price.
The main problem with this scenario is getting the lender’s approval. Even if you have an accepted offer, or even a signed P&S, the sale must be contingent upon lender approval. Obtaining lender approval can be a long, arduous process that is frustrating for both parties to the potential transaction. For this reason, people interested in purchasing real estate in a short sale transaction should expect numerous delays and should be flexible about when they need to move into the new property, as closings often get delayed while waiting for the seller’s lender’s approval.
If you want to sell or buy via a short sale transaction, heed the cautionary advice above. I have many clients who ultimately succeed in purchasing the home of their dreams through this mechanism (or get rid of the albatross around their necks, if I’m representing the seller), but it’s time consuming and will test your patience.
Good luck!