Thread: Short sales

Originally Posted by underthere

When a real estate ad says "possible short sale" does this mean the asking price is already below the current loan value and will require approval from the mortgage company or does it mean they may be willing to accept less than the asking price in the ad subject to their mortgage company acceptance?

I would take it as it is listed as a normal sale but if your offer is low it could possibly become a short sale. They must be close to breaking even or being upside down, so depending on your offer's purchase price it could possibly be a short sale.

When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.

If you are considering buying a short sale, there could be drawbacks. For your protection, I suggest that all borrowers:

Obtain legal advice from a competent real estate lawyer

Call an accountant to discuss short sale tax ramifications

I think yes...

My idea of short sale is: it is an alternative to bankruptcy or foreclosure... So when you realize that they have a sign of foreclosure, maybe the "short sale" they are offering you is lower price...

underthere, you ask "When a real estate ad says "possible short sale" does this mean the asking price is already below the current loan value and will require approval from the mortgage company or does it mean they may be willing to accept less than the asking price in the ad".

I would suggest that there is no way to tell from this. It probably indicates the latter, but there is no way to know for sure. So often we see that the list agent doesn't really know what the total cost of selling the property is, so there is no way that you can know from this info alone.

But does it matter to you? If you are interested in the property, the amount of debt on it doesn't matter to you at all. What this listing does indicate is that the seller is willing to sell and walk away with nothing. So make an offer that you are willing to pay.

If you want to know what offer you can hope to get accepted, first try to determine the loan type. Check out the mortgage doc at the recorders office to try to determine the loan type, then take the value of the home times the standard discount for the loan type, add the costs of the sale to that number, and that is what the lender will likely accept.

In reference to BillJames comments:

"Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.
If you are considering buying a short sale, there could be drawbacks. For your protection, I suggest that all borrowers:
Obtain legal advice from a competent real estate lawyer
Call an accountant to discuss short sale tax ramifications"

In years of working with short sales as my main focus I have NEVER seen a lender that won't do a short sale, and probably never will. It can never make financial sense for the lender to foreclose as long as the short sale offer is reasonable, meaning that the lender recoup 82+% of the property value. Also all properties qualify for short sales, the property is not the issue.

As far as drawbacks to buying a short sale, what would that be? For the buyer there is no difference buying a short sale property. The only difference is at closing instead of the usual mortgage payoff letter there is a short sale acceptance letter. This doesn't affect a buyer at all.

And as a buyer there are no tax ramifications whatsoever.

Chris