A short sale is when a property sells for less than the seller owes. For example, seller owes $450,000 on a home and cannot sell it for more than $425,000. Seller and Purchaser can agree upon a sale, instructing the REALTOR® to write the transaction subject to the lien holder’s acceptance of a final payment for $25,000 less than what the seller owes.
There are significant challenges with this scenario.
Time is an issue; the Seller and Purchaser may readily agree to a short sale only to be left waiting for the lien holder’s representative to agree to the sale. Often the lien holder wants to hold off on making an immediate decision; instead waiting for any other offers that would come closer to fulfilling the seller’s debt. In addition, there may be more than one lien holder for the same property and all would need to be in agreement to reduce and/or waive the amount of the mortgage owed to them. It’s not uncommon for a short sale to take 90 to 120 days. Often, if the lien holder(s) do agree to the sale, the Seller will be required to sign a note promising to pay the lien holder, at a later date, the difference owed.
Whether you are a Seller or a Purchaser, if you are considering a short sale, you are strongly encouraged to seek the advice of a real estate attorney and a CPA or accountant.