Short Sale Process for Buying a House in Foreclosure

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Your real estate agent shows you the perfect home but indicates that a lis pendens is on the property. This means that a lawsuit has been filed and the lien holder of the property, the lender, is attempting to reclaim the home. The house is on the market as a short sale, which is possible as long as the lender agrees to a specific purchase price. The clock is ticking on the foreclosure. A short sale won’t halt a foreclosure action and takes several months to conclude. Act swiftly to accomplish your purchase.

Contact the Asset Manager

The asset manager in the lender’s loss mitigation department has the information you need to track the foreclosure/short sale progress. Have your certified short sale real estate agent or attorney contact the owner's agent to verify with the asset manager that the owner responded to the foreclosure suit within the 20-day notice period. Once you know the timeline, you can proceed with your offer.


The lender faces losing money on its investment. A foreclosure is expensive to the lender. A short sale brings in more money, making it more favorable to the lender. Have your real estate agent do two sets of comparables: the first indicates short sales within the past six months on comparable properties in the same neighborhood; the second is a list of foreclosure sales with the same criteria. Make your offer on the high end of the short sale “sold” prices, and have your agent show through the comps that your offer can bring in more money than a foreclosure sale.

Purchase Offer

Attach your mortgage pre-approval to the purchase contract and also include bank statements showing proof of funds. Your deposit check should be at least $1,000, with the stipulation that you’ll increase this once the lender has approved the purchase. This gives the lender confidence that you’ll be able to conclude the sale.

Home Inspection

Hire a licensed home inspector to go over the house completely so you’ll know its condition. Don’t ask the lender to help pay for repairs, and don’t reduce your offering price to counter repairs that must be made. A smart buyer hires the home inspector before the purchase contract is written so he’ll know what to expect. Some lenders will agree to pay for the elimination of living organisms and mold.


Work with your real estate agent to clear all contingencies to the contract, especially the ones involving financing. Time is money to the lender, and paying cash is an incentive to make them move to a quick closing. Start exerting pressure on the title company to move the deal forward. Through your communication channels, alert the asset manager that you are nearing completion of the deal. If a foreclosure auction is scheduled, have your real estate agent work with the lender to have it withdrawn from the sale. Have the lender release the foreclosure action at settlement.