1. The lien-holder may find it is more advantageous to foreclose on the property that allow the short-sale. Which usually wipes out all other junior liens. They might collect more from the private mortgage insurer if they foreclose instead2. The buyer backs out of the deal. This is probably the biggest cause for a short-sale to fail. Short sale negotiations can often take 2 to 5 months to just get an answer from the lender (and that answer may be “no.”) so the buyer gets impatient and makes an offer on another property. Meanwhile, the buyer’s interest rate wasn’t locked-in and she is exposed to the risk of the rate going up during that time. Or the buyer finds a better deal and make an offer on that one instead.
So, should a buyer put an offer on a Short-Sale? If your dream-home happens to be a short-sale and you have no time pressures (such as you have to move in 4 months) then a short-sale may be a good deal for you. If you don’t have the patience and frustration for a short-sale or need to be able to move within a finite time-period, I would suggest looking at bank-owned properties or a “regular” sale.