So, you are looking for a house and you fell in love with a home that is offered as a short sale. What does that mean for you? What is a short sale and what is the difference between a short sale and a foreclosure?

To sum it up, a foreclosure happens when mortgage payments are not made and the banks takes over the home. The bank takes over not only the home, but also the title to the home and evicts the person who used to be buying the house. For this reason foreclosed homes are usually empty.

A short sale happens before a forclosure. Its when the home owner has fallen behind on their payments or they can see it coming in the near future, and they think that if only they could sell the house, not only would they be saved from a total foreclosure, but they may end up with some money in their pocket also. So they list the home and it doesn't sell. So they lower the price, again and again, until finally, they can't lower it anymore and pay all of the realtor commissions, closing fees, and the bank. So someone needs to start cutting their pay. Realtors aren't in the business of working for free, so they may give a little and the bank ends up giving the most. Since the bank will be taking a loss, they now get involved with negotiating the deal. In fact, they can really stick their nose in things now.

When you submit an offer on a short sale, it goes straight to the bank and they decide whether they will accept it or not. This can take up to four months of your offer sitting on a desk, thousands of miles away. Unfortunately, its out of everybody's hands at this point. The seller can't do anything, neither can the realtors, the lender or you, the buyer.

At this point you are just waiting to find out whether you even have an offer or not. Sometimes the bank is considering multiple offers, which makes the game even more confusing for the buyers.

What kind of deal are you going to get? Will it be pennies on the dollar? Probably not. The bank has a good idea of what the home will appraise for, and they don't want to loose any more money than they have to. So the probability of them lowering their payoff, while giving you the equity, is pretty slim. Read More