Short sales. Now there’s a phrase that has been removed from the everyday real estate vocabulary for a decade, but is coming back like the Santa Ana winds. Should you look for them? Should you avoid them when buying? Should you be trying to work one out if you’re in a pinch on your own mortgage payments?
A short sale is when a bank accepts a purchase price under the outstanding loan value instead foreclosing on a delinquent property. Short sales have slipped back in to our jargon with so many home owners having extended themselves to the edge of their affordability, interest rates making upward moves and the buzz around sub-prime loan worries.
As a buyer, short sales can be a good sign. If the lender has already accepted that they are going to take a loss and would prefer to sell rather than go the foreclosure auction route, they can be more open to working with interested buyers. It can also add some hassle and delay, as the purchase will need to be run through the bank’s process. Often listing agents will note in the write up of a new listing that it will be a short sale, so keep an eye out for that.
As a seller, if you find yourself over your head and are trying to work with your lender, short sales can be a good solution. Avoiding a full foreclosure is always great news. The tough part is that the lender will have to sign off on the sales price and they do not always do that. I have heard of many banks and lenders turning down short sale offers, only to have the foreclosure auction price come in even lower.
Carol Lloyd at SFGate wrote a great article about the topic of short sales recently. What have you heard about them?