I have been using the term short sale regularly on our blog as this type of listing increases in frequency. In using this term, I have made the assumption that most understand the term short sale. That is probably an incorrect assumption. Going back to square one, according to the Hawaii Association of Realtors a short sale is defined as “a sale where: 1) the liens of a property combined with the associated costs will exceed the purchase price of the property and 2) the seller will be asking the lien holder for a release of the lien on the subject property without a complete payoff”.
The seller does not necessarily have to be late on payments. They can be fully up to date. If a seller is at risk of foreclosure, delinquent in their payments, has a lien for nonpayment or is at risk of a lien, this is defined by the state of Hawaii as being a distressed property. It is worth reiterating that short sales and distressed properties are not mutually exclusive. You can be a short sale without being distressed. You may also be a distressed property without necessarily being a short sale.
What does this all mean for buyers and sellers?
For sellers, you need to be aware that a short sale may have legal, cash, credit and tax consequences. Prior to listing your property, you should talk to a qualified Hawaii attorney and/or a CPA. Once your property is listed it will be the responsibility of the owner / seller to communicate with the banks. You may get some assistance from a title and escrow company when you accept an offer. Your real estate agent will not be able to talk to or negotiate with the bank. The process of working with the bank can be lengthy.
For buyers interested in short sale properties, I think it important that you keep in mind that this can be a lengthy process. Bank response times on offers vary widely. Some banks have become more efficient and can respond within a month. I have seen other banks where the length to respond stretches over 6 months or more. There are no guarantees that a bank will accept an offer either. You may receive a counter from the bank or in some cases an outright rejection. Sellers may submit multiple offers to the bank so it is possible that other buyers may trump your offer. The good news is that you can structure your contract in manners such that you have no real obligation to the property prior to the banks acceptance. Even then, you are still likely to have contingency periods for inspection.
There are some well priced short sale listings on the market, so the process and the uncertainty should not necessarily be a deterrent. We recently helped a buyer close on a great short sale in Haiku. If you have additional questions on short sales and distressed properties, feel free to contact us for further clarification.