What is a Short Sale?

Homeowners who missed payments trigger the foreclosure clock and starts the pre-foreclosure process.  Banks or lenders send out a Notice of Default (also called an N.O.D.) to the financially distressed homeowner every month for three months.  Late fees pile up.  This is followed by three more months of Notices of Trustee’s sale (also called N.O.T.)  During the pre-foreclosure period, a smart homeowner should consider short selling their home.  Actually, the best time to start a short sale is before the homeowner defaults on their mortgage payments.

A short sale is the sale of a property for less than the balance of the home mortgage loan, subject to the lender’s approval.  The lender is motivated to do a short sale because it helps to cut their losses and carrying costs (such as property taxes, maintenance, repairs, utilities, HOA fees, and the risk of vandalism to a vacant home).

Homeowners are motivated to sell because they want to get out of a toxic loan and move on with their life.  If the homeowner still lives in the house, the buyer can obtain most of the standard disclosures associated with real estate transactions in California—that is, if they are represented by a REALTOR® who knows how to do short sales.

The advantage of a short sale is that buyer can often get the property at an excellent price.  The disadvantage of a short sale, compared to a regular purchase, is that the buyer has to wait for the bank’s approval of the sale price.  Starting 2013, banks are now processing short sales much faster.  The competence and experience of the listing agent is critical, and can shorten the short-sale processing time even more because they know how to prepare a complete file, how to price the property right, and how to present the market situation to the bank and its investors.  A smart listing agent will require that buyer shows commitment by wiring to escrow at least 1% of sale price as earnest deposit upon Seller’s acceptance, followed by an increased deposit of 2% of sale price upon Lender’s approval.

When I list a short sale, I hold Open House a few times and encourage other agents to submit offers.  I also update the buyer’s agent on a weekly basis.  This prevents the sinking feeling that many buyer agents have after they submit a short sale offer and never hear back from the listing agent.  My goal is to always create a win-win-win working relationship.  Give me a call if you are thinking of buying, selling or short-selling your home.