Everybody’s wondering what exactly a short sale is. It is definitely a hot topic in real estate these days. Let’s get right into it.

A short sale typically occurs when the homeowner is not able to make their minimum monthly payments. After about three months of not making payments, the banks will typically send out a letter called a notice of default or an NOD which notifies the homeowner of the default in writing right to their doorstep.

At this point time, the homeowner has the option of either catching up on the payments, modifying their loan if that option is available for the bank, selling the home if they can and pay off their loan, selling their home for less than what is currently owed on the property (this is a short sale), or letting the home go to foreclosure.

So again, a short sale occurs usually when the homeowner owes more on the property than what it is actually worth and need to sell property. The events of them doing a short sale instead of letting the home go to foreclosure is that a short sell will not affect their credit as much as the foreclosure will. In a foreclosure, they might not be able to purchase a home for up to 5 to 7 years, and they’re credit may be hit as much as 200 points.

A short sale, could potentially allow the homeowner to purchase a home in 3 to 5 years, and they only hit their credit or FICO score up to around 100 points. This a much better option in most cases. How much a short sale affects one’s credit really depends on how strong the persons credit is to start with. So, there are no set rules.

If you’re looking into purchasing a short sale property, there can be some great benefits and also some big fallbacks. First off, if you haven’t heard yet short sale transactions can be a real pain in the butt for the seller, the buyers agent, the seller’s agent, and the buyer. Depending on the bank and their systems of employees, it could take anywhere from two weeks to seven months to get a response back from the bank on an offer that has been accepted between a buyer and the seller. I don’t know about you, but when you’re looking to purchase a home waiting seven months can throw a kink into plans and really throw off your timing.

Here some the steps of the short sale.
Step one: List the property on the MLS

Step two: Obtain an accepted offer on the property between the buyer and the seller.

Step three: Obtain a preliminary net sheet showing the lender what they will net him a transaction.

Step four: Prepare the short sell package. This includes the accepted offer, a letter of authorization which gives the real estate agent permission to talk to the bank about the loan or loans in question, prepare a hardship letter, gather proof of income and assets, added copies of your most recent bank statements, listing agreement, and also submit a comparative market analysis of property to show the lender what the homes worth.

Step five: Wait

Step six: Wait some more.

Once you have all this data, you can submit be offered to the bank. Keep in mind that some transactions might have two, three, or more banks involved.

So, if you have a lot a time and you’re very patient person, short sale can be a viable option for you if you want to get a good deal on your next purchase, but I would definitely check out the REO or bank owned properties first before making an offer on a short sale listing.

Oh, and by the way that you’re working with an agent who has experience with short sales.