…and why they are nothing but short.
In this market, you are likely to find homes listed as a “short-sale.” A short-sale is where the owner is attempting to sell their property for less than what they owe on it after all costs of the sale. It can also be known as trying to sell when you are “upside down.” A short sale can not be completed unless the lien-holders (usually the owner’s lender(s) but could also be taxing authorities, etc) agree to be paid less (“short”) than what they are owed.
Do lenders allow this? Sometimes. Are short-sales a good deal for buyers? Often, yes. Some short-sale tidbits:
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 instead.
2. 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.
Call or email me if you need further help.