What is a short sale? – David Reecher
A short sale is the sale of a home for less than the homeowner owes on the mortgage. A homeowner who is unable to keep up with the mortgage payments may try to sell a home in a short sale to avoid going into foreclosure. Short sales can be challenging for both buyers and sellers because there’s often more than one mortgage on the home, and all lenders must approve the sale. This is why it can take months for a short sale offer to be approved. If the short sale fails, then the bank forecloses on the home.
How are short sales different from foreclosures?
Short sale homes are still owned by the individual homeowner, while foreclosures are owned by banks. If the homeowner cannot sell the home through a short sale, the bank initiates foreclosure to try to sell the home directly, often in an auction. If the auction fails to turn up a buyer willing to pay a price satisfactory to the lender, the home becomes Real Estate Owned (REO), where the owner is the bank. The bank then typically sells the property through a real estate agent.
The bottom line
If you plan to make an offer on a short sale, be prepared for a long haul. And keep in mind that even if your offer is accepted, the bank will usually ask you to buy the home as-is and won’t pay for any repairs. Learn more about the pros and cons of short sales.