What Is A Short Sale?

A Short Sale occurs when a bank allows an owner to sell property at a price that is less than the owner owes the bank.  In other words, the sales price is “short” of what is owed. This creates what is called a deficiency balance.  That is, even though the property has been sold to another buyer, the original owner still owes money to the bank.  The bank normally “forgives” or cancels that portion of the debt as a part of the Short Sale agreement.

Under normal circumstances, the bank’s loan must be paid in full at the time the property is sold.  However, a problem occurs when the value of the property has fallen below the amount of the loan, and the borrower is unable to continue making the payments.  If the borrower stops making payments, the bank will end up foreclosing on the property and reselling it to pay the debt. This is an expensive and time consuming process which can result in a large loss to the bank.  Consequently, banks are sometimes willing to allow a Short Sale if it will reduce the amount of their loss.

Unlike a foreclosure, a Short Sale still occurs between the property owner and the buyer, but the bank must approve the sale so that clear title can pass to the buyer.  Unfortunately this approval process is sometimes very time consuming and frustrating for all concerned.  It often takes months to get and answer, and sometimes the sale is not approved.  Buyers must be patient, willing and able to wait out the process.

Buyers often think that Short Sales are automatically a great deal.  Frankly, “that ain’t necessarily so.”  If they were worth a lot more money they probably would have sold for a higher price.  Wise buyers will look at all similar properties to get a feel for values.  They may find that traditional sales are priced competitively with far less frustration involved.

Guy Gunn
Sr. Vice President
Macon Residential Office