Real estate values seem to have stopped their free fall. There’s data to prove it from simple anecdotal evidence to calculated data analysis from the S&P Case Shiller Index. And these value increases don’t appear to be a blip, either as month to monthshort sales and real estate increases have been recorded in 22 straight months according to the Case Shiller national index.

But that doesn’t mean there are no more properties considered “underwater” where the amount owed is much more than the property is worth. In fact, in some cases appreciation rates will take years before the loan balance is paid down enough to equal the property’s current market value.

That means there’s still a considerable opportunity to snatch up a property with a short sale. A short sale is when a bank agrees to accept less than what is owed and release the current owner from paying the remaining balance. You, the buyer in a short sale, don’t have the authority to request a short sale directly, that must come from the property owner. Banks don’t want to accept less than what is owed but they also don’t want to have a home in their REO department collecting financial dust.

A property owner must show the bank why a short sale is the only way out short of foreclosure. The bank will want to review:

  • The borrower’s current financial situation including bank statements, pay stubs, W2s and two year’s tax returns
  • A hardship letter explaining why the owner needs out from under the mortgage
  • A listing agreement signed by a real estate agent and the property owner
  • A thorough comparative market analysis or property appraisal showing the current value of the property
  • An executed sales contract from a buyer for the short sale amount

Once the bank reviews the request and issues the approval to accept the lower amount, a buyer can make an offer based upon the new payoff. Most banks today have streamlined their short sale department and getting a short sale evaluation takes much less time than it did a mere year or two ago. Those deals are still out there. Short sales are alive and well.