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By purchasing a property for less than what is owed, you may get that deal you were always looking for.  Many homes that are within the pre-foreclosure process are nice homes in nice condition. Other times, these homes may need a little TLC to make it habitable. Regardless of the condition of the property, to you as a Buyer, the end-result of the short sale is that you own a home, free and clear of all encumbrances of record. It will be no different than if you purchased a home at fair market value from Tom and Susie Homeseller, without the pre-foreclosure stigma.  The only difference is that the process may take a little longer to complete.

For the reasons stated above, make sure that if you are considering purchasing a home in which the seller is attempting to short the payoff amount, you give yourself plenty of time and maintain a contingency plan in case the process takes a turn to the left - or simply does not 'turn' at all.

Be aware that the short sale process is not an exact science. If you see a home that is 'listed' as a short sale, the list price you see may or may not be the price at which you can purchase the home.  I know this may sound strange... why can't you purchase a home for the asking price?  Many times, the seller or "Realtor' does not know at what value the lender will accept by the time the home is initially on the market. Remember, the whole reason to short a mortgage is to sell it for less than what is owed.  The only number the seller or Realtor may know at marketing time is what is owed. If the full balance owed is more than the home is worth, (which is the real reason for this entire process) then the seller may never obtain an offer.  Therefore, in many instances, the seller or Realtor markets the home at their best 'guestimate' of what the lender may accept. Once an offer is received, whether it is more or less than the list price, the seller or Realtor will submit it to the lender for approval, counter-offer, or flat refusal.

Having said all of the above, changes are slowly being made to the entire short sale arena.  The US Treasury's new HAFA program may allow sellers to understand the exact price for which the lender or servicer will accept on a short sale.  Additionally, they will even pre-approve a seller for short sale acceptance, pending only a viable contract.  However, before we get excited, we must mention that the HAFA program is not available to all short sale sellers. 

So, before bidding on a short sale listing, you need to inquire with the seller or listing agent as to how they arrived at the listed price.  Is it the fair market value of the home? Is it a shorted payoff amount that the lender will accept, or is it an estimate of what the borrower and/or Realtor hope the lender will accept? Is this loan part of the new HAFA program?  Many questions, so little time.

In any case, there are two main points that need to be stressed and need to be fully understood by the buyer:

1) There may be rare exceptions, but neither sellers nor lenders are looking for extraordinarily low offers. Despite what you may have read in the blogosphere, from your neighbor, or on TLC... buying short sales are not going to make you rich.  We have rarely ever encountered a short sale that has been sold for more than 10% to 20% of its market value. 5% to 10% is much more likely, and 20% is only likely if there are severe deficiencies such as mold or foundation problems.  If you are looking to pick up 'foreclosures' at 50 cents on the dollar, you can unplug your computer right now.  "Flippers" or wholesalers need not apply.  Because of increased lending regulations, it is nearly impossible to 'flip' nowadays.  There may be cities such as Las Vegas or Florida in which this may happen, but not here in the Triangle Region of NC.  Remember, however, that most times, lenders will discount off the market value and not the value that is owed.  So, a 10% discount is definitely a deal - one that you most likely wouldn't get if it were not a short sale.  I'll take a 5% to 10% discount, wouldn't you?  Moreover, we even see many 'shorted' homes not go any lower than current fair market value.  At current FMV, it may be a large discount in the lender or servicer's eyes since they loaned a heckuva lot more than the new purchase price.  But in the eyes of the Buyer, it really is not a discount because it is the same sale price that the other homes in the neighborhood are going for.

2) If you are going to make an offer on a short sale, please make sure you have the ability to wait a long time.  Short Sales can take as little as 30 days, but more likely, they take up to 4 months to a year.  You would be doing a dis-service to yourself, your family, the seller and everyone involved if you chose to 'bail' before you saw your offer continue through the entire process.  Be patient and know that this WILL take time and there are no short-cuts. 

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