There’s an expression in the real estate industry called ”being upside down”. That’s when someone owes more on their property than the property can be sold for. When a property like that is sold, you’ll see that sometimes referred to as a Short Sale. Brokers will advertise that their listing is a “Possible Short Sale”. The word “possible” is the one thats thorny. The owners are just hoping that their lender will accept less than they owe on it and negotiate with them if someone else wants to by their home. Sometimes that does happen, but typically the lender does not release them from the obligation and still wants the owners to pay back any shortfall after the closing. So they are not off the hook if it sells. Those kinds of transactions are very difficult in that they usually take forever to get an answer from the lender, if at all. Sometimes lenders just ignore any requests. So if you are a Buyer, you should be in a position where you don’t have a deadline to move. If the deal can be worked out…great. If not, then it won’t be the end of the world.
A Short Sale is far different from a bank owned property or REO, which is one that has already gone through foreclosure. With a Short Sale the owners still own the property, not the lender. Personally, I would rather work on a transaction that is bank owned. The bank or lender is actually motivated to sell because they own the home and will get their investment back. It’s more certain that there will actually be a closing and my Buyer clients will own and be able to move into the home they wanted.
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