Definitions of REO

Definitions of Foreclosure

Definitions of Short Sale


A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from a Broker Price Opinion BPO (also known as a Broker Opinion of Value (BOV)) or through a valuation of an appraisal. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

When Real Estate in a Short Sale situation is purchased, the length of time that the Bank has to respond to the offer can extend beyond the time that the Residential Purchase Agreement (offer to buy the property document) dictates.  The Bank is under no obligation to respond in any specific time-frame.  The response from the Bank to the offer can take as long as two months.  The Buyer of a Short Sale property must be aware that the length of the Escrow may take months. Additionally, the Bank can at anytime cancel the Escrow and sell the property in any fashion they may chose.  This does not happen often but the Buyer must be aware that this type of sale has the least number of protections for the Buyer.  This does not mean that deposit money will be lost, only time and energy.

All Short Sales require that a CAR Short Sale Addendum be signed by the Buyer - PDF of the addendum



Sources: CAR - realestatewebmasters.com - wikipedia

DRE # 00981917 C. Green Real Estate Co.