A Short Sale is when the borrower shorts the lender by an amount less than what is owed for the mortgage. The property is sold with the approval of the lender. The lien is released by the lender at time of sale. A discharge of debt is shown on the credit statement of the borrower. A short sale can be negotiated any time before the lender acquires title to the property. In Michigan we have a 6 month redemption period, so even after the borrower has received late pay notices and a sheriff’s sale has occurred, there is still time to negotiate a short sale. The lender determines hardship, current market value through a brokers price opinion, and ability to repay vs. taking the property back through foreclosure. If a short sale were easy, all lenders would be approving them, but the lenders do not have to make this easy. There are many proactive steps in securing a successful short sale including filling out all required documentation, meeting the bank’s appraiser with comparables, and constant follow up and communication with the bank loss mitigator.
A major consideration for buyers is to have patience with a short sale. Because the buyer’s offer is contingent on bank approval, you need to wait for the bank to respond. This could take 60 or so days. Patience is the key. Finding out if there is one or 2 loans, and what those amounts are may be important. If they owe a total of $175,000, and the list price is $100,000, how likely is the sale to be approved? It could be approved; you just need to wait for a response. We have 3 buyers’ agents who represent buyers exclusively and have a ton of short sale and foreclosure experience in the Ann Arbor area. We are here to help.
Short sales may be a good strategy for now, but keep an eye on the market so you can change strategies once the market climate has begun to change. What helped me was becoming a certified distressed property expert. If you are interested in reading more, feel free to order Should I Short Sale My Home? A Homeowners Guide To Surviving The Worst Real Estate Market In History.