In todays market 1 in every 8 transactions that close is a "Short Sale".  So that everybody understands what to anticipate when entering into this type of transaction, everyone should first understand exactly what a short sale is and why a bank would want to consider one.  A "Short Sale" is a transaction where the lender accepts less than the loan amount from the seller and releases the mortgage so that a clear title is given so the propety can be sold to another party.  

Banks will do just about anything to avoid a foreclosure.  With so many people in arrears with their mortgage payments, banks are trying to devise strategies in order to avoid the costly process of forclosing on their clients.  Most banks will try to make accomodations to alter the terms (interest rates) of the note so the borrower might find it easier to make smaller payments.  Some banks are taking the amount that the borrower is late with and tacking it on to the principal (loan amount).  This way the borrower doesn't have to make double payments in order to catch up and bring the loan current.  And then there is the short sale.  This is usually the last step before a bank will foreclose.  Remember banks don't want to foreclose so this is a better choice to them if the conditions are right.

What You Should Expect If You Are Buying A Short Sale Property

• The bank or mortgage company will take at least 60 days to approve or reject the offer made on the house.  This is not the type of transaction a buyer should consider if they have time constraints.  Such as their lease expires in 30 days and they need to move, or they are closing on their house and need to be out in 45 days.
• Once approved the bank or mortgage company will expect you to close in 30 days.  There are no exceptions.  They do not want to carry a house on their books any longer than necessary.
• How much money the seller owes on the property DOES NOT MATTER.  The bank or mortgage company pays an independent broker to do a broker’s price opinion and will accept  about 80% of the FAIR MARKET VALUE AFTER ALL CLOSING COSTS ARE PAID.  That means after the agents commissions, the doc stamps, the title insurance, the title fees, the legal fees for any pre-foreclosure proceedings, and any other miscellaneous fees that are applicable.  A general rule of thumb is the closing costs will total up to approximately 10%.  So buyers can expect to pay 90% of the fair market value.
• The contract should be “AS-IS”.  The bank will not let the seller pay for any repairs.  Remember the seller is asking the bank to accept a short sale because they are financially insolvent.  If they have money to pay for repairs, then that money should be going to the bank to pay for the mortgage.