A short sale means a home sale that falls short of the amount owed on the mortgage. Short sales happen when the seller can’t come up with the cash to pay off the difference and the lender agrees to accept less than what is owed on the mortgage. Most important, though, is that they can happen only when the lender agrees to accept the shrunken payoff.

Desperate sellers pursue them to avoid a foreclosure, buyers pursue them in hope of snagging a home at a significantly reduced price.

It is important that you work with a Realtor who is a Certified Distressed Property Expert because you could end up wasting your time.  Short sales are tricky and it is important to gather some intelligence about the sellers, their financial situation and the Realtor they’ve hired.  Sometimes a short sale may never get the lender’s approval, thus it is important to only focus on those that have the lender’s approval.

Lenders aren’t in the business of accepting less than they are owed.  Their approval of a short sale is always slow in coming — if it ever comes at all.  It is important to learn whether or not the bank knows the seller is trying to sell their home as a short sale.

Too often, sellers and their agents are calling a listing a “short sale” or saying that “offers are subject to third-party review” without even having talked with the lender.  They plan to get a live fish on the hook before they try to tempt the lender.  Do you want to be that fish?

When the homeowner cannot come up with the cash to pay their mortgage, the homeowner’s pain becomes the lender’s problem. The lender’s options are either to agree to a short sale and forgive the unpaid debt, or to foreclose on the home and re-sell it.  This is a choice the lender makes, not the seller.

There are lots of things that can derail a short sale.  Lenders lose a lot of money when they foreclose, the payout from private mortgage insurance could reduce that loss enough to make the lender choose foreclosure.

Lenders holding second mortgages, such as home-equity lines of credit, can also kill the sale. Second-mortgage lenders are supposed to be at the back of the line to collect loan payoffs, but they can nix a proposed short sale if they don’t think they’re getting enough out of it.

If you try to buy a home through a short sale, be prepared for the deal to fall apart. Don’t spend money on appraisals or inspections until you have received some sort of commitment from the bank. You certainly don’t want to give notice to your landlord too early. And keep looking for other, easier deals, just in case one takes too long or falls through.