First, instead of explaining let’s use an example.

Let’s say a buyer purchase a house 2 years ago for $200,000 and put $20,000 downpayment and took a mortgage of $170,000.

Now let’s assume there was shit in the market and the value of the property today, 3 years after he purchased it, is $160,000.

Further, let’s assume the buyer cannot make his monthly mortgage payments.

Situation: $160,000 house with a mortgage of $170,000 and a borrower who cannot make the payments.

A Short Sale is an option for an owner to sell his house for LESS THAN WHAT’S OWED – in this case for $160,000.

In order for a Short Sale to go through the lender needs to approve the selling price since the lender is going to take a loss.

In other terms, the house is being sold at short to what owed.

Second, now that we understand what is a Short Sale let’s understand the complexity.

Note: keep in mind the mechanics can be different between one lender to another.

Typically, the owner/borrower need to

1. List the property for sale at market value, ie for under owed amount.
2. When there is an offer (#1) submit the offer to the lender to approve a Short Sale.
3. Wait 3/6/9 months until lender response/dis/approves the offer price (or not).
4. Put the house bank on the market, since offer #1 is probably gone by now.
5. Wait for offer #2 – typically the 2nd approval process with the lender is quicker

How to Buy a Short Sale

1. Ask the seller where in the approval process is the house?
2. Submit an offer which includes:
   1.  Zero or very small earnest money amount until lender’s approval is received.
   2. Only hold an inspection AFTER the lender’s approval is received.
   3. Terminate the contract at any point of time before lender’s approval.

FAQ

Q: Is there any reason to a buyer to be concerned about buying a short sale?
A: No. The Short Sale is on the seller/owner side and doesn’t “transfer” to you the buyer.

Q: Is a house sold as a Short Sale indicates on a problematic house?
A: Not necessarily. Every house needs to be inspected and evaluated regardless if is a Short Sale or not. Short Sale typically indicates the situation of the owner.

Note

Please do not see this explanation as a full explanation or suggestion about the Short Sale process.