When a lender agrees to accept an offer in an amount lesser than the amount of the mortgage, the opportunity for a short sale has been created. Short sales occur when the seller is in delinquent status or about to enter delinquent status.
Short sales have come to dominate the marketplace. Like foreclosures, short sales greatly impact the overall value of housing as they tend to drive prices down.
The investor stands to benefit the most in a short sale. The seller has no equity, is faced with the loss of the residence and a damaged credit rating and the mortgage holder usually takes a loss.
The typical short sale includes five basic components.
· The seller signs a listing agreement with a real estate agent. The agreement to sell is contingent upon approval by a third party, the mortgage holder.
· The agent finds a buyer and secures a contract for the purchase and sale of real estate.
· The seller accepts the offer contingent upon third party approval.
· The offer is submitted to the seller’s lender who accepts the buyer’s offer.
· The transaction closes when the buyer delivers the funds and the existing lender releases the lien and the seller delivers the deed.
Short sales take time to close. Many buyers become frustrated. The buyer must understand that the mortgage holder is taking an unwanted loss. These lenders do not bear many of the standard expenses a conventional seller might carry. As such, the buyer is expected to buy the property in “as is” condition.
It is the buyer’s responsibility to perform all inspections prior to validating the purchase and sale agreement. This includes pest, roof, sewer and water, plumbing, electrical, chimney, septic and fireplace inspections. The old adage “let the buyer beware” definitely applies to short sales. Buyers need to protect themselves with strong contingency language regarding these inspections.