A Short Story

Until recently, most of us thought a “short sale” was some sort of end-of-season clothing event at Tommy Bahama. Now, however, the term “short sale” is one of the most tossed-around terms in the real estate lexicon; if not one of it most misunderstood.

A short sale — in short — is a real estate transaction in which the proceeds from the sale fall short of satisfying the balance owed on the mortgage. In such a sale, the lender agrees to discount the loan balance due to financial hardship on the part of the seller/mortgage holder; with negotiations typically conducted between the beleaguered property owner and the lender’s loss mitigation department. For homeowners who can no longer afford to keep their mortgage payments current, a short sale is often far more palatable than the stain of bankruptcy or foreclosure. Likewise, many homebuyers find the idea of purchasing a short sale property far more palatable than paying fair market value for a non short-sale property.

One thing is certain. If you don’t have nerves of steel and the patience of Job; or are seeking immediate gratification, then a “short sale” is the last thing you want to dabble in. In other words, if you need a home right now—as in a month from now, or even three months from now—this is probably your least viable alternative. Rarely does a short sale happen in the reasonable time frame that most homebuyers expect. Sometimes it doesn’t happen at all. Frustration at the huge amount of time it takes to move the transaction forward often morphs into heartbreak when the deal—through no fault of yours—fails to materialize.

Still, many buyers regard short sales as a practical strategy for paying less than fair market value; and assume that one of these draconian transactions is the best way to snag the best deal. Sometimes they’re right, but only if they’re willing to risk a huge amount of time and emotion on a transaction that may never transpire.

How many ways can a short sale bring out the gray in your hair? The “cons” definitely outweigh the “pros.” Among the most common are:

  • If the seller is obligated to more than one lender, each must agree to the sale; or no deal.
  • A buyer can wait months and the lender may simply say no.
  • It is possible that the seller will not work diligently with their lender(s); thus delaying the mere possibility of a sale.
  • If you wish to check the status of a short sale, you must be authorized to communicate with the lender(s). Even then you can expect to make repeated phone calls and not get the correct answers. Sometimes, you will get conflicting information about the same sale on the same day.
  • When you purchase a short sale, you purchase the property “as-is.” While sellers must provide appropriate disclosures, they will likely not have the wherewithal to make repairs—or offer just compensation—as a buyer would expect in a conventional sale.
  • It is possible to submit an offer, wait months for approval; then have the lender finally counter at a price at or above fair market value.
  • While the lender usually takes steps to determine the property’s fair market value, they may not share with you what they know; which forces you to play the game of “guess and check;” resulting in months of additional negotiations.
  • If the lender does approve the short sale, they usually want to close immediately, forcing you to be prepared to close at any time.
  • Because short sales are a foreclosure avoidance tool, many sellers frequently stop maintaining the property. In condominiums, they often stop paying association fees. Therefore, it is common for code enforcement liens, tax liens, and other types of negative title issues to pile up. These, of course, must be cleared-up before closing.
  • Depending on the size of the lender, your case file may wind up in the hands of several different people; which makes it all the more difficult to track down the right person for the right answers.
  • Finally, just because a property is labeled a short sale, it is not always the best deal. Some lenders will only approve an offer when it exactly matches the home’s fair market value.

And now, the pros:

  • The lender may agree to accept less than the property’s fair market value because they would rather not waste time and money slogging through the foreclosure process.
  • The lender may agree to absorb some closing costs from its net proceeds.

One of the simplest truths about today’s market is that all serious-minded sellers—not just those facing short sales or foreclosures—are required to compete for the same pool of value-obsessed buyers. For better or worse, with short sales and foreclosures helping to set today’s fair market value on all comparable properties, non-distressed sellers must take this into consideration when pricing their homes.

You can submit yourself to the process of buying a short sale property, provided you have infinite patience and top-notch guidance. You can also use the same competently-trained agent to help find non short-sale properties of equal quality and value; and be certain of closing on your own terms and in your own time frame. In the meantime we implore the powers that be in big government and lending to come together and streamline this frustrating process. End the agony for sellers by making it a more dignified and compassionate process; then help everyone on both sides of the sale—buyers, sellers, their real estate agents and attorneys—by making the process shorter, easier to navigate and much less of a dead-end proposition.

End of story.

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