What’s a Short Sale, and why can they Take Longer to Close?

While the name might imply that a short sale is a quick transaction, it can be anything but. Short sales differ from foreclosures. The “short” part of a short sale refers to the bank taking a loss on the property, since the selling price is short of the amount that the seller owes. The impact on your credit is a bit different with a short sale, and while both can cause a significant dip in your credit score, most short sellers recover in just a couple of years, while a foreclosure sticks with you for up to 10 years.

Part of what makes this process take so long is that the bank doesn’t tell you how much it wants for the property. Waiting to hear back from the bank is the first of the delays in the short sale process. If the bank accepts the offer, things can start moving along pretty quickly, but if they reject it, you’re back to the drawing board. Instead, they look at the offer from the buyer and decide whether to accept or reject.

If the seller has to negotiate with any other lenders, it can draw the process out since those banks tend to take a greater hit in the short sale. The other big thing that you can do as a buyer to speed things along is to make sure your financing is in order. This is one area where you might even see things move more quickly if you work with the existing lender. The paperwork can be a bit time consuming for you as a buyer: You’ll need to fill out and probably have notarized an authorization letter, and you may need to fill out a short sale application from the lender. Being proactive with any paperwork can help save you time and stress.

Paperwork can often mean the difference between taking several months to close and missing out on the sale all together. You can’t complete a short sale unless these junior lenders are also on board, and failure to contact them early can hold up the process or even cause the sale to fall through. As the seller, you’re also responsible for making sure that you get approval from all lenders that have a lien on the property, which applies if you have any other loans against your home, such as a second mortgage or home equity line of credit. If you’re the buyer in a short sale, protecting yourself is the top priority.

Because short sellers are in dire financial straits, there’s a good chance the property is in some degree of disrepair. While it’s up to the seller to get approval from all the lenders involved, you want to know what you’re getting into. It’s worth the $300 to $600 to hire a good, thorough home inspector that you trust. You’ll also want to find out if there are any second mortgages, home equity lines of credit or other liens on the property.

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