The lender’s “loan mitigation” department reviews the seller’s request and paperwork and agrees to review (this is not a guarantee of approval) a written purchase contract from a qualified buyer. As the lender, imagine $250,000 mortgage due with a probable sale price of $220,000. After property taxes, $5,000 and sales expenses estimated at $15,400 (total expenses = $20, 400+loss on sale of $30,000) the lender has to be willing to settle for $50,400 less than what is owed on the mortgage- or “short” $50,400. Not all lenders are willing to go this route. As the purchaser, you execute a normal purchase contract which will have an addendum stating something to the effect “contingent upon seller’s lending approving short sale payoff.” You and the seller agree to all the terms and the contract is signed by all. Unfortunately the lender’s approval does not come in a matter of hours or days- it may be weeks or months.
Be patient! The average time for the lender to review and respond to contract may run as long as 12 weeks. Once the lender has approved the short sale contract, you need to get your inspections completed and be ready to close- usually within a two week time frame.
This scenario is based on the homeowner only having one lender negotiation to handle; the time frames could change when multiple lenders are involved. There is definitely some well priced properties available in today’s market as long as you are not short sighted about the complexities of the short sale process.