How Long After Approval Does a Short Sale Close?
A short sale is one alternative to a foreclosure. It occurs when the property owner lists real estate for less than the amount needed to pay off all the loans on the property. The sale price is "short" of the loan balance. In some cases, the lender forgives the unpaid balance, and in other instances, the seller is responsible for repaying the difference between the sale price and the loan balance.
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Function
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Short sales typically occur when property values have dropped below the loan amount due, and the property owner needs to liquidate the real estate. Since the property value is less than the loan amount, it is difficult for the property owner to list and sell the property for an asking price sufficient to pay off the debts on the property.
Features
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Unlike a foreclosure, the borrower (property owner) is the seller, while the lender is the seller during a foreclosure. Yet, the lender must give the seller permission to list the short sale, and the lender gives the final approval for the buyer's offer. Before giving permission, the lender typically requires the borrower to prove the current market value is less than the loan balance, by way of a comparative market analysis, broker's price opinion or an appraisal.
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Misconceptions
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During the process, the seller typically approves the buyer's offer before receiving the lender's approval. If the buyer fails to understand the process, he may believe his offer is officially accepted. The time between the buyer's approval and the lender's approval can vary, depending on the lender. It might take days, weeks or months for the lender to respond to the buyer's offer after the seller accepts.
Significance
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The actual close day of the escrow will depend on the terms between the lender and the buyer. The lender may set the close date, or accept a close date offered by the buyer. A lender may demand a quick close, or require a longer one. Each close date is as individual as the buyers and lenders involved.
Warning
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Since a short sale is an alternative to a foreclosure, it is possible the property owner has a threat of a foreclosure looming in the future, and is trying to speed a short sale through in order to avoid the foreclosure. The buyer should communicate with his real estate agent to determine if there is a possibility of a foreclosure before the property successfully closes escrow.
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References
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