Short Sales Can Be a Good Way to Go

In a slow market, a home can drop in value below the mortgage balance—in mortgage-speak this is called upside down equity—and if the homeowner needs to sell, it can get ugly fast. One way to deal with this is a short sale. To get this option going, the homeowners need to contact the bank’s customer service department and see if they are willing to talk.
Next, you’ll need to write a purchase offer and include a prequalification letter from your lender ready to fax to the bank’s representative who is assigned to the case. It’ll go to a committee that will think it over and get back to you with an acceptance, counter, or rejection. Whether the sellers’ bank accepts the offer depends on the market, how many payments the sellers are behind, and if your deal is less than the costs of a foreclosure.
The bottom line is that you can sometimes get a good deal with a short sale, but you’ll usually need a lot of time and patience. Sometimes the sellers are cooperative because they want to save their credit. Other times they’ll give up part way through, and the deal will fizzle because the bank can’t deal with you as long as the sellers own the property.
But it’s an option to keep in mind if you run across a seller with upside down equity.