Short sales happen when the bank is willing to accept a payoff on their outstanding Note that is secured by a Mortgage for less money than is owed to the bank. You often hear the owner of the property say, I am upside down on this property. So a property maybe worth $100,000.00 but the Note to the bank is for $120,000.00. The property is listed as a short sale and a buyer makes an offer. The offer is for $100,000.00 and the job now for the attorney is to negotiate with the bank on behalf of the Seller to get the bank to reduce the amount they require to issue a Satisfaction of Mortgage.
Buyers are not going to get a rock bottom deal as they may with a foreclosure. Often the Sellers’ are still living in the property. The air has been working and the property has been maintained. Buyers will need to make an offer for fair market value in order for the bank to even consider the short sale. The Sellers must prove they are not capable of paying the current mortgage payment and have some financial need to get out of this obligation for less than is owed. Sometimes the bank will offer the Seller an allowance for moving costs, but that is absolutely the only money the Seller may be entitled to at the end of closing. The bank will require that no proceeds go to the Seller because the bank is willing to take less than what was owed. It is important to make sure that the bank waives any right to a deficiency judgment, so that post-closing they will not come after you the difference.
These deals can take a very long time to close. The bank does not care about dates on contracts other than to insist a valid contract is in place prior to their approval, Usually once the bank does approve the short sale, they will want to close as soon as possible. Often the bank requires the property close within 3-5 days of their approval.