Home buyers willing to endure the potential pitfalls of a short-sale transaction also require patience. A short sale, in which the seller owes more on his home than he or the sale proceeds can cover, is a good option if you have no set timeline for moving. The period of uncertainty characteristic to short sales is not for the faint of heart; be prepared to be left in limbo for several months.
The seller of a short sale requests that his lender agree to release the mortgage lien for a specified amount of money, short of the balance payoff. The lender's loss-mitigation personnel reviews requests, analyzes the deal and determines the final terms of sale. Sellers may initiate a short-sale request before or after accepting an offer. Gaining short-sale approval before offer acceptance usually results in a shorter waiting period for the buyer and a smoother transaction because the lender has already set the deal's parameters, such as price, closing date and allowable closing costs.
A short sale home with one mortgage lien usually takes less time to gain approval than a home with more than one lien. The transaction depends on the sole lender and its sale terms. Short-sale approval usually takes about two months. The seller and buyer wait for the lender to carry out its process of reviewing the seller's financial hardship, obtaining the property's value through an appraisal and working out the numbers to determine an acceptable bottom line. Approval can come several weeks sooner when the seller has gained lender approval before accepting an offer.
A short-sale deal that involves two or more loans requires all lenders to come to a consensus. A junior lien holder also collects the seller's financial paperwork, obtains an appraisal and determines an acceptable payoff amount. These lien holders usually receive a much smaller portion of the sale proceeds. Negotiations can become difficult when the second l want more money than the primary lender allows. A short sale can take four months or longer when two or more lenders are involved, according to Realtor.org.
The length of time a short sale takes from initial request to lender approval can vary greatly among lenders. Despite federal initiatives to streamline and escalate the short sale approval process (see Resource) transactions can take more than six months as of 2013. Short sales lasting more than one year are the exception and not the rule. Common delays include missing seller paperwork and lender backlog of short sale properties. The process can also be delayed by buyers who walk away. Replacing a buyer usually requires the seller and buyer to start the process over again or at least request a new approval.
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