What the heck is a Short Sale, anyway?

Scene: a typical day. The phone rings. It's another inquiry about my listing at 7710 25th Avenue in Sacramento. And I have to say, "Well, it is still available - technically. But we have a full price offer - multiple, really."

Silence.

"You know it's a short sale."

That is really when I know if the person on the other end of the line is a Realtor. So what the heck is a short sale anyway?

Simply put, a short sale is the sale of a property where the sellers owe more on the house than the amount the house will sell for in the open market. The lenders in most cases would rather take a "short payment" than foreclose on the property because, well, something is better than nothing and there are added costs in a foreclosure for the lender.

As such, anytime a property goes on the market as a short sale, it requires the lender's approval after an offer is received. Until the lender approves the sale (the seller's lender, not the buyer's) in writing, the listing is considered "active." All timelines, including inspections, begin with the lender's approval.

There are approximately 1700 short sales in Sacramento County on the market and most of them are below market. However, a short sale can be a lengthy process, both for buyer and the seller.

If you're a seller thinking about selling your home as a short sale, consult your CPA. You might just get a 1099 for the amount of forgiven debt, since the lender considers it income. Discuss all consequences with your accountant before you go through with it.

If you're a buyer looking for a short sale in particular, you should ask yourself why. There are plenty of good deals out there on the market right now without you needing to get involved in a short sale or bank owned property. Which is not to say that I would discourage anyone from buying such a house. Just make sure they really are good deals.

And oh, get a home inspection.