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Short Sales & Home Buyers
—Learn what you need to know if you are considering purchasing a short sale property

1-2-3 Credit & Me: Learn how you can Stabilize, Improve & Maintain your credit throughout your lifetime (Part of the Real Estate & Finance 360 Degrees Series of Books Book 6) by THOMAS (TJ) UNDERWOOD  | Sold by: Services LLC | Oct 19, 2020, updated Summer 2023

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If you are considering purchasing a home or refinancingyou can go to or along with local mortgage lenders in your areato determine what loan will best suit youand your family.  You can compare closing costs, APR's and Par rates to determine what loan will best serve yourand your family's long-term interests.

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In the current market short sales are marketed by realtors and banks more than ever. In a short sale the lender basically agrees to accept less than what is owed on the property or mortgage loan(s).

Recent e-mails and conversations of late have asked about the short sale process.

Even though our company does not offer short sales, I feel that it is important that you know the facts whether you are considering purchasing your home as a short saleor if you are considering selling your home as a short sale. 

Please weigh and consider the short sale purchase process appropriately
so that you know what you are getting intoif you are considering purchasing a short sale property nowor in the future. 

What You Should Know If You Are Considering Purchasing Your Home Using The Short Sale Method

First and foremost, you must realize that all offers are contingent upon “bank approval.”

Before you even consider looking at short sale properties you should get pre-qualifiedor preferrablypre-approved.

In many cases the seller will have to submit paperwork with the offer showing that purchaser has the meansand is qualified to purchase the propertyso as to not tie up the property.

In some cases the lender (the home seller's lender) may request a tri-merged copy of your credit report along with your FICO score.

Your Offer may be one of many offers being reviewed and the seller is under no obligation to accept any offer, or even the highest offer.

The Seller or mortgage company will usually not furnish a Property Disclosure Statement or Termite Letter in most states.

In some cases closing must be done with the “Sellers” attorney.

There may be inspection stipulations, especially if the seller is no longer in the house.

Short Sale contracts are usually never assignable to third parties.

The property is usually sold “As-Is” as the Seller is usually in a difficult financial situation.

Keep in mind that if closing goes beyond 3 months your loan documentation and approval may have to be re-submitted.

After the bank approves the selling priceis usually the best time to submit and finalize your mortgage paperwork.  Short sales can take a long time to close.

Credit Reports and Credit Scores are usually only good for up to 90 days or so, therefore you don't want the clock to start ticking until you absolutely have toobased on the terms of the offer.

It is also more prudent to start your lock-in period on your interest rate after the sales price has been determined.

Be sure to check with your lender to see if the lock-in period can be extended—if neededeven if a fee is involvedas interest rate movement is "more likely" due to the long drawn out process of short sales.

The process can be DIFFICULT and TIME CONSUMING.

If it is urgent that you purchase and close by a certain datea traditional seller or bank foreclosed property that is listed by a real estate companymay be a better option.

Be sure to have your real estate professional write up the offer contract in a manner that will protect you as much as possibleto enhance your interests and negotiating position.

In the short sale process patience, persistence, and the fact that an urgent closing is not necessary in your situationalong with an agent who looks out for your best interest is the key.

You could lose several months in the home search process if the deal falls through.  However, with the market over-saturated with short sales and distressed propertiesand the fact that you have timemeans that a great deal on your home purchase is still within your grasps.

Key Points to Remember:

Be sure that your agent utilizes contingencies and special stipulations to your advantage!

Key areas are the property condition, flood zone, high lead/mold levels, unacceptable title condition (such as unpaid judgments/liens, association fees or city code violations etc.).

Be aware that the short-sale process can beand often isa frustrating process.

Be sure to utilize competent professionals and don't be afraid to seek a number of opinions.

An agent with experience can speed up the process. Be sure to use an agent who will protect your negotiating position and work in your best interest.

Be aware that in a "short sale" you will normally receive a "general warranty deed" at closingwhich if given an optionis usually the best for a purchaser.  The type of deed really depends on how the seller (homeowner) has the deed recorded at the time of sale. 

Try to get the bank to start your short sale file earlythis too can speed up the process.

Try to find an agent who is familiar with the short sale process and knows how to get things done as it is a frustrating and daunting task for those who don’t have a history of dealing with lenders and short sales.

Be sure to factor any repair costs that are required or needed into your offer price. 

In addition to a standard home inspectionyou may have to do a special inspection on certain itemssay a pool, septic system, lead, mold and other items that area not included in a standard inspection.

Also, if a 2nd mortgage is involvedthe lender in the 1st position may have to give (some of the proceeds of the short sale) somethingto gain the cooperation of the lender in the 2nd position. 

Remember that by law the documents must spell out that the short sale approval is dependent upon bank approval.

If you are a home buyerlook for short-sale properties that have already been approved (lender has approved a sales price)realtors will normally include this fact in their marketing.

Remember that if you are not paying cashthe home will have to be financed and must past appraisal.  That means the property must be in fairly decent condition.

If the house is missing plumbing fixtures, pipes, copper etc.or walls and windows have been severely damagedthe appraisal process may nix the closing.  Determine the property condition as best you can early in the process.

Remember that the "Seller" may accept your offer but their "Lender" MAY NOT accept your offer.

Always remember that the "seller" receives no moneyand the "lender" will be losing money.

As a home buyer it is important to show the seller and mortgage company right up front that you are serious about your purchase and plan on closing the deal.

You may have to get an FHA 203k (rehab loan) to close on a property that needs repairs or possibly set up an escrow account for repairs if the lender(s) agrees.

Make sure you have a quality inspector (ASHI or NAHI certified) and be sure to ask the right questions and get the right answers.

If you don’t get the right answers you might want to consider another propertyand consider the money spent ($300-$500) as money well spentas it prevented you from possibly buying a property that was not in your best interest.

Your greatest benefit as a purchaser of a short-sale is the hassle and time involved in purchasing using the short sale methodis that you will get a property at lower than market valuein some cases much lower.

If you are not in a rushand you utilize a highly competent real estate agentyour patience may be well worth the waitas you could possibly get a great deal.

Other Key Points You & Your Agent Should Keep In Mind

  • Try to find out how the property is titled.

  • Has the foreclosure notice been filed?

  • How much is owed to the lender(s)?

  • Are the home owners currently living in the house? 

All of the above can help you determine the offer price

  • Also you (purchaser) may have to send a copy of Earnest Money Deposit to the Lender.

  • The lender may on occasion ask you to increase the Earnest Money Deposit.

  • You (purchaser) will have to submit a pre-approval letter to the lender.

  • Your agent should also submit "comps" (comparable properties in the area) if they will support the price you are offering to pay.

  • Be aware that the seller's "Lender" pays the commission and the "Lender" may try to reduce the commission.

  • Be sure to make your offer contingent upon "Lender's Acceptance" and use special stipulations and other contingencies to maximize your negotiating position.

By keeping the above factors in mindyou could possibly find a great deal on a property that is being sold as a short sale. 

Always begin with the end (selling in the futureas most home owners sell within 10 years) in mindand know the quality of the community that you are moving toas well as the quality of the school systemsand other amenities that are in the area.

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Thomas (TJ) Underwood has been providing financial advice as a tax practitioner since the mid 1980’s and began his financial planning career (while earning a Bachelor of Science Degree in Business Administration/Finance/Marketing), in Detroit at Wayne State University.  From 2010 up to the present he continues to provide visitors timely personal finance and wealth building advice and articles—including real estate advice—on 3 sites that he has created since 2010. 

Even though he is an active real estate Broker in the Atlanta Metropolitan area, he continues to blog consistently to help visitors and those who desire lasting financial and life changing success the opportunity to change their life for the better in a more efficient way. 

You can learn more about him and gain access to all three sites that he has created by going to Who is the creator of page.

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