The Short Sale

The Short Sale (also known as Short Pay or Pre Foreclosure Sale)

General Definition

A “Short-pay” sale occurs when the proceeds from the sale of property are not sufficient to pay off the lender (or lenders) of record in full. The lender(s), upon review of the documentation required may agree to accept a pay-off that is less than the amount actually owed. The seller will net zero proceeds. All costs of sale are paid by the lender not the borrower.

Who Qualifies?

A homeowner experiencing a hardship such as, divorce, death, loss of income or income reduction. A homeowner who because of such a life change may be in danger of defaulting on their loan obligations.

The Lender’s Perspective

A short sale can save many of the costs associated with the foreclosure process – attorney fees, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender is able to minimize these loses by avoiding becoming the owner of the property. The job of the Realtor is to convince the lender that they will fare better by accepting less money now.

The Seller’s Perspective

Negotiating a short sale with the lender is difficult, communication-intense process. There can be a great deal of wait time and “bouncing around” until you make contact with the person who can authorize a short sale of the property. A seller must be prepared to fully disclose and document their financial situation and work with all parties involved to make the transaction as smooth as possible. It is beneficial to enlist the services of a Realtor experienced with short sales to facilitate the process.

The Buyer’s Perspective

The buyer must observe the laws of “equity purchasing” and be careful not to be perceived as taking advantage of the financial hardship. The offer should be priced according to the condition of the property and the market value. These properties will normally be sold “as is”, so buyers need to be aware of this when selecting their financing. Buyers of short sale property need to keep in mind that approvals are not easy to come by, and exercise patience and understanding throughout the transaction.

The Realtor’s Perspective

To succeed in the short sale arena, Realtors must have a thorough understanding of foreclosure timelines, training in what Lenders require in their short sale packages, be highly organized, and be able to complete a well-prepared package to submit for approval, possess patience and persistence.