Looking to buy a home? Be careful of short sales

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As the real estate market continues its decline, the number of short sales -- a sale of a home for less than the amount owned on it, with the lender forgiving the differences -- are booming. The National Association Realtors estimates that short sales currently account for about 18% of all home sales nationwide.

While you might be able to find bargains in this segment of the distressed real estate, it can be a minefield full of long waits, confusion, and red tape. In a normal home sale, the buyer and the seller simply have to agree on a price. In a short sale, the institution servicing the loan must agree on the price, and sometimes takes months to approve the offer. If they approve it at all. The Wall Street Journalquotes (subscription required) Molly Kay Hamrick, president of Coldwell Banker Premier Realty in Las Vegas, as saying that 20% of short-sale offers in the area lead to completed sales, compared with 85% for traditional sales.And if waiting months for one lender to approve the deal sounds bad, try dealing with a homeowner who has multiple mortgages from multiple companies. That can quickly deteriorate into a word that starts with "cluster" and ends with a four-letter word that I can't write on WalletPop.

But help may be on the way. The Journal reports that "Fannie Mae says that it plans to introduce a policy in the next few months under which real-estate brokers would be given an advance indication of the approximate minimum price that would be acceptable in a short sale, a move designed to quickly weed out offers that are too low. Freddie Mac says it has already given its top servicers more flexibility to accept short sales for homes backed by loans it guarantees or owns. "

If you're looking through real estate listings, some descriptions will disclose the short sale problem. I recently found one affordably priced Cape Cod condo with this ominous warning: "Sale Subject to lenders approval of a short sale."

Nothing wrong with looking at short sales, if you find a great home at the right price: just be aware that you could be in for a hassle.
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