There's more than one type of short sale.

You should be aware by now that I am not a great fan of short sales.   However you also need to be aware that, like most things in life, the world of short sales is more complicated than it appears at first glance. So here is a "brief" analysis of the different types of short sale you may run across, and what it means to you as a prospective buyer.

Let’s start by separating them into to 2 main categories. APPROVED and UNAPPROVED.

UNAPPROVED means that the lender who has to agree to discount the loan in order to make the deal happen has not yet done so.

Within this broad category are 3 sub divisions we need to consider.

UNAPPROVED OWNER OCCUPIED. The owner of the property is still living in it but is “intending” to do a short sale. Note the quotation marks. If someone stops paying their mortgage, fairly soon the bank is going to start foreclosure proceedings. One of the best ways to put a hold on the foreclosure is to tell the bank you want to do a short sale. If the lawyers do their job the foreclosure goes on hold.

In order to start the process they need an offer from a buyer. The seller’s agent is going to set the price at a level which will guarantee an offer quickly, so they can get the process started. The seller is then required to submit piles of paper to justify the fact they stopped paying and show there is a genuine hardship. There’s a very good chance the contract price is going to be well below what the lender will accept, so even if you thought you had bought the property there might be a nasty shock waiting when the valuations and appraisals come in.

The other issue is that the owner is now living rent free, and has very little incentive to move this along quickly. They may send incomplete packages or respond very slowly to requests for information. They may also make it very difficult to get to see the property, and be unavailable for showings. They might also change their mind and decide to opt for a loan modification to delay matters even further. As a result you have no idea when you can close or what the eventual price will be.

There’s only one scenario worse and that’s an UNAPPROVED TENANT OCCUPIED short sale. Tenants have right especially if they have a lease and weren’t told their home is being foreclosed. It’s very difficult to get them to agree to show the property and the lender knows the deal probably can’t be closed until the lease runs out. There is also likely to be some issues about who the rent should be paid to, not to mention complications with taxes, HOA fees etc.

A slightly better situation is an UNAPPROVED VACANT short sale. In the case the owners have already moved out. With a bit of luck they are still in touch and are cooperating, so there is a chance the transaction will get closed. Comments about pricing still apply, and there is the risk they will leave town and the whole process will grind to a standstill, but at least you can be reasonably certain there won’t be further damage to the property.

The best scenario is an APPROVED short sale. Doesn’t really matter whether or not it’s occupied, because the most important factor is that the parties, especially the lender agreed to do a deal, and now we know what the price is. The only time (and it’s very common) we see an “Approved” short sale, is because the original buyer got tired of waiting and when the agent went back to them, they were no longer interested in proceeding.


Almost always when we are dealing with a approved short sale the first question is how much will they come down off the price. Here’s a hint. The short sale is APPROVED at a specific price, and that’s the price. You can offer less if you wish, but that’s going to start the whole process over again, and it’s likely one of 2 things will happen. Either someone else will come along and offer the APPROVED price, or time will run out and the property will get foreclosed