In my last post, I discussed the process for buying a foreclosure. And as you might have read, unless there is a unique situation, the process ultimately runs parallel to the normal mortgage process. And while many people put foreclosures and short sales in the same group in just about every sense, from a “getting a mortgage” perspective, the two could not be further apart.

As I explained last week, short sales are properties which are still owned by the homeowner, but the homeowner is in distress and will likely soon be in foreclosure. Unfortunately, the homeowner has ended up upside down on the house and therefore cannot sell the house outright. So, the homeowner is trying to sell the house for less than he or she owes the bank.

Because of this situation, the bank must approve the sale price, and usually will not tell the homeowner what the magic number is that they will agree to before the house is in contract. The bank will only say that they are willing to accept a short sale. So, if you are looking to buy a short sale and the bank has not approved the sale price, you can find yourself in the very difficult position of negotiating with the bank, not knowing if/where the agreed price will be.

Realtors can usually do a pretty good job of figuring out what an acceptable price will be, but some banks are tougher than others in this process. And don’t be fooled – just because a bank has previously accepted an offer that fell through does not mean the bank will accept the same offer again, even if it is only a few days later. I recently had a client in Brighton who spent 6 months negotiating a sale price, after offering $5,000 more than a previously accepted offer from another potential buyer which fell through. This client finally found a price the bank would accept, but wound up $12,000 higher than the offer which had been accepted only a week before he made his offer.

So what all of this means to you is that if you are looking to buy a short sale, consult with your realtor to make sure that the house makes sense, but also consult with a qualified mortgage consultant to be sure that a mortgage can even be written on the house. Because if the bank decides to play hardball with you, or if they are unwilling to put the agreement in writing, it will obviously bring the mortgage process to a grinding halt.

If you are looking at buying a short sale, or if you are already in contract and have questions about the process, please contact me and I will advise you on the best course of action to protect yourself and your earnest money, while helping you to finance your new home. If you have anything to add about the process for buying a short sale, please leave a comment.