Short Sale Pitfall

To qualify for a short sale, the homeowner must occupy the home and be able to prove financial hardship. The lender may forgive all or only a portion of the debt and release its mortgage lien on the property, thus allowing the sale to occur or the lender may agree to release the mortgage on the property and not forgive the deficiency. THe seller may need to sign a promissory note for the balance.

Typically a short sale is often agreed to by the bank or mortgage lender to cut their loses and prevent the more expensive foreclosure of a property. The short sale can be a “win-win” for the seller, bank and buyer, but it also may not work out for everyone as there are many frustrations in the process.

Short sales are processed by the Lender’s Loss Mitigation department and will require the approval of the investors to move forward (which can be quite slow). Possible objectors to the short sale could include tax liens, mechanic’s lien holders and junior lien holders. All the paperwork must be done to avoid being placed at a bottom of the pile for missing in formation. It can take between weeks to months for the lender to give consent for the seller to qualify.

The lender will look to a broker to obtain a price opinion by looking at the condition of the house and the market value of the comparable properties.

The short sale is a time consuming and complex process. Sometimes an accepted offer from the seller, will yield a “no” answer from the lender even after waiting for weeks or months for an answer. Buyers and sellers need to do their homework to see if a short sale is right for them. Timing, liability of income taxes and the complex process of short sales must all be taken into account before choosing this transaction in the real estate market.