Short sales are where a property is sold for less than what is owed on the property.  The lender forgives the debt and takes the loss.  Since the bank won’t be receiving 100% of the their loan repayment, there is a special approval process on buying short sales which can lengthen or cause the process to be longer.

The process of selling a short sale property begins like traditional sales, in which the buyer and seller are negotiating the written offer.  But there is an addition to the contract, stating “Subject to Lender Approval”.  Since the bank is losing the money, they need to approve the final price for the transaction.

Sometimes getting approval from the lender can be a time consuming process, but other times it can be surprisingly quick.  Be ready for anything with short sales.  Your offer could be rejected.

To guide you through the complicated process, picking a real estate agent familiar with short sales may help may it easier for you:

1. Closing dates could be delayed – It is inveitable in a short sale that a closing may be delayed past the typically normal closing from 30 to 45 days.  It could take much longer than that.  It all depends on the bank.
2. The offer is rejected – The bank may receive multiple offers during the long approval process.  Of course, they are likely to pick the best one.
3. Multiple liens on the property – Many homes going through short sales have multiple mortgages on the house.  If you have more than one to deal with, you are guaranteed that it will take longer to close the deal.  Both banks need to agree to payoff amounts.  Usually the first mortgage holder is paid back in full where the second holder is the one who gets the loss.  Thus, the 2nd mortgage holder will try to negotiate with the 1st mortgage holder to get something out of the deal.  If the bank doesn’t approve, the deal may go nowhere.  It takes both banks cooperation to close the deal.
4. There isn’t much you can do to speed things up – The agent is powerless.  All they can do is call the bank over and over and over again.  There is not much you can do to make the bank decide on the deal faster.  A lot of times they are already buried in a lot of short sales.
5. Is it a good deal? – Just because the home is being sold at a discount, doesn’t mean it is a good deal.  Make sure to research the local area.
6. Other fees and costs – Sellers are not responsible or likely in this type of short sale situation to take care of repairs.  The buyer’s agent commission may get reduced by the bank.

• Piggy Back Loans: These loans allow buyers to purchase homes with small down payment and help them avoid private mortgage insurance (PMI). Two loans are approved concurrently, the first mortgage usually consists of 80% of the property value and the second mortgage equals about 10-20% of the value, with the down payment making up the difference. The biggest benefit with this loan type is that overall payments are usually less than those that require PMI.
• Two-step Mortgages: These mortgages are specialized ARM’s which adjust at 5 or seven years. After the adjustment, the rate will remain fixed for the life of the loan. The new rate will not go above 6 percentage points than the initial rate, but the rate can drop as the market changes. Two-step mortgages are similar to fixed rate mortgages but an automatic refinancing built into the product.
• Convertible ARM’s:The loan gives the buyer the option of converting to a fixed rate and alleviates some risk involved with fluctuating interest rates. Converting to the fixed usually requires some kind of fee and the rate will most likely be higher than standard rates.
• Balloon Mortgages: These short term fixed-rate loans begin with low fixed payments and then end with one large sum payment for the remaining principal at the end of 5, 7 or 10 years. It can be a smart choice if the buyer only wants to stay in the home a couple years.
• Convertible Loans: These loans act like a fixed rate during their first 3, 5 or 7 years. They usually have a lower interest rate initially but then turn into a adjustable rate mortgages. If income is expected to increase or if interest rates are going to fall, then it could be a smart choice
• Graduated Payment Mortgages: The mortgages offer small payments at the beginning and then rise gradually and level off approximately 5 years. It’s recommended for buyers who expect income to rise significantly.