*Real definition-* A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. A short sale is the sale of real property where the fair market sales price is less than the loan balance.
UNLESS A SELLER FITS THE 3 D's, the chances of a property selling at a negotiated price/a short sale price, here in Los Angeles, is 25% if you're lucky!
The 3 D's a seller probably needs in order for a shot sale to be accepted...
1. Dead
2. Divorced
3. Destitute (and I mean no money, no 401K's, no inheritance, no other properties, no money in the bank...bankruptcy may make the destitute claim easier.)
Because so many people used their home's equity essentially as an ATM card when the market was amazing, these people are now finding themselves with a lot of "stuff" and a whole lot of debt. They can't afford to keep up with the payments, so they need to sell their home. To do this, they need to negotiate a sales price with the bank, because the value of their home is now less than the loan amount. Now a short sale process is formed. Because many homeowners in these situations have more than 1 loan against the property, the seller is usually negotiating with the 2nd mortgage company to see what type of payoff the lender will accept.
If a seller owes $200,000 on their 2nd loan and $1,300,000 when you combine the amount of the 1st and 2nd loans on a property, and the value today is $1,100,000 someone has to take that $200,000 dollar loss. During a short sale, the negotiations are for the bank to take that $200,000 loss. The seller can prove the market value has decreased by presenting offers from buyers on their property.
The more offers a seller receives and gives to the bank, the seller feels proves the point to the bank "this" is the real value today. This tactic of presenting real offers to the bank for far less than what's owed on the property is the buyer's short sale process. Buyers then submit their offers, albeit they have an unfair advantage because they feel the list price is what they have a chance of getting it for (and it's not) which the seller turns into the bank showing value hoping for a reduced payoff (considering if the property went into foreclosure the second loan carrier most likely wouldn't see that $200,000 any way) BUT...UNLESS the seller fits the above 3 D's good luck on that short sale!
*Note: The way to get the property as a buyer and avoid the short sale processes...ask the agent how much the seller owes on the property including everything and see if that's a price you're comfortable paying...
