Simply put, the owners of a property owe more on the property than its open market value.  And usually the Sellers are heading towards foreclosure because there is financial hardship so they are unable to keep up with the mortgage payments.

The property is listed for sale with a Real Estate Agent even though the asking price is lower than the indebtedness against it. The Sellers are still the owners of the property but the lender has to agree in writing to the transaction since the property is being sold “short”. Sometimes there is more than one loan against the property.  In these cases, each lender must given written approval.

Eventually an offer is presented to the Sellers. The Sellers are still the legal owners so they are the ones who must accept the Offer that has been presented.  Once the Offer has been accepted by the Sellers, then the Listing Agent, or some other designated person, will contact the Lender and commence the “short sale” process.

The Sellers are still required to make all the necessary disclosures and the Real Estate Agent is responsible for their own disclosures.  There has been confusion over who has the obligation to fulfill the contractual obligations of the Offer.  Since the Sellers are still the legal owners, all contractual obligations fall on them.

The lender does not have to approve the “short sale” transaction.  If another offer comes in that the lender prefers, the lender may approve the second offer, or not.

There are a myriad of items that the lender requires be delivered to them before they will entertain a “short sale” approval.  It is in your best interest to deliver the entire package to them at one time and even then don’t be surprised if you are told the documents were not received and they have to be delivered again, and sometimes again!

The lender will have their own appraisal done on the property (commonly referred to as a BPO).  Sometimes the lender will have more than one appraiser and if you have more than one loan against the property, each lender will have their own BPO. At this juncture, your sale is assigned to a “Negotiator” and here is where the fun begins.

These short sale transactions can take months to complete. The Lenders are looking at numbers and verifying the hardship status of the Sellers. There is no emotional connection to the property or to the Sellers. The lenders have no responsibility to the real estate agents either. The buyer is in limbo and sometimes the buyer decides they don’t want to wait any longer.