The short sale process can be difficult as it involves not just the buyer and the seller of the home, but also the bank that holds the seller's mortgage. While it offers the promise of a house at a lower cost, it's a mixed bag in terms of the house's condition when you buy it, as well as the time involved before you can sign on the dotted line. But if you've got the money, the patience and the fortitude, a short sale may be the ticket to your dream home.
A short sale doesn't refer to the size of the house. Instead, it refers to the fact that the house is sold short of the amount owed on the seller's mortgage. The shortfall is a direct loss for the bank that holds the mortgage, but it's often cheaper than foreclosing on the house, being responsible for property taxes and maintenance, and then the cost of the home's eventual sale. In a short sale, the sellers are typically behind on their mortgage, but this isn't true in every case. In a well-managed short sale, the sellers have already gained the mortgage holder's permission to sell the house for less than the balance of the mortgage.
When offering for a house on short sale, you often get a good deal. But thing can get complex because not only must the seller agree to your offer price, but the seller's mortgage holder must also agree to the terms of the offer. This can take some time as banks process paperwork slowly. If either the seller or the seller’s mortgage holder does not approve your offer, any counteroffer starts the process again.
A seller may disapprove if he believes the property should sell for more. The mortgage holder, or holders if there is a second mortgage, may not have agreed to forgive the seller's debt entirely and as such, the seller may need to secure a certain amount for the house to pay the owed debt. Similarly, a mortgage holder may disapprove, based on current fair market value. However, you're very likely to have your offer refused if your seller isn't yet in default. In this case, the mortgage holder doesn't have any impetus to even counteroffer. Since the mortgage is current, there's no reason for the mortgage holder to consider taking a loss on the loan. While you may be able to counteroffer, the mortgage holder may not be open to negotiation. If the seller is in bankruptcy, you're extremely unlikely to successfully negotiate a short sale. In bankruptcy, the mortgage holder is barred from attempting to collect a debt. Working out the particulars of a short sale may violate the protection offered by bankruptcy filing.
You may receive a counteroffer from the seller, and then from the mortgage holder. You may however, get a flat denial. If you've received a counteroffer, what happens next is up to you. If you love the house, location and layout -- and are willing to patiently work through the process of buying -- you can accept the counteroffer and start the escrow process. If you get a denial, the buying process is over and it's time to move on to the next property on your list.
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