Term Tuesday: Short Sale

Image via renjith krishnan

A property is sold as a short sale when the balance of the loan exceeds the selling value of the property (the property is under water or upside down). Each short sale is different, but generally speaking they will follow this path:

1. The sellers enlist the help of a real estate agent. The agent will come up with an asking price by creating a CMA.
2. Once an offer is received, it is sent to the bank along with a short sale packet. This packet includes documentation from the seller as proof of why they need to short sale, such as bank statements, tax returns and a hardship letter.
3. The short sale process with the bank begins. This process can last several months while the bank examines the short sale packet, negotiations are worked out with any additional lien holders (for example, a second mortgage), and the offer in play considered.
4. The bank will decide on the terms they will accept (price, close of escrow, etc). If the original offers meet these terms, the short sale can proceed. If not, the bank may choose to counter the offer or reject it and wait for a new offer to be presented.
5. If an offer can meet the time and price restrictions set by the bank, the transaction can be completed. If the terms cannot be met, the property will become a foreclosure.

Keep in mind that the initial asking price is based solely on the opinion of the agent based on the market conditions. The actual price of the property will be determined by the lien holders.