Lenders are in the business of lending money, not holding or even selling real estate. The last thing lenders want is to have to go through the trouble of foreclosing on a property. Not only is the procedure time consuming and cumbersome, but the process can be very costly to the lender. In addition to the legal fees and other costs related to foreclosing, once a lender acquires the property, they have to pay the costs of maintaining that property until sold. Upon sale, there are more closing costs and commissions. The longer this whole process takes, the higher the lender's carrying costs are, while not receiving any payments from the person who borrowed the money in the first place. It is often better for the lender to accept less than what is owed and move on.

Not all lenders agree to do a short sale, especially when it makes more sense to them financially to just take the property back and resell it on the open market at a better price. In addition, not all sellers qualify anyway.

There are many hoops that a seller needs to jump through in order to qualify. Here are just some of the criteria needed:
1) The mortgage must be in default. If the borrower has been keeping up to date with payments, the lender will not agree to accept less than the balance owed.
2) The seller must be able to prove hardship to the lender. Several things do not qualify as a hardship, even though people think they might. Certain things that would qualify are divorce, death, sudden illness, loss of employment and of course, these need to be proved to the lender.
3) The seller must have no other assets which could be used to pay off the difference. The lender will get proof of this.
4) The property value must have dropped to less than what is owed.

There is substantial documentation that needs to be submitted, before a lender will consider a short sale.

One of the things that sellers need to know in advance of even starting this process is that if they were not totally honest during the original loan application (which is more common when people put down larger depoits and got a "stated income" loan, where less documentation was required), then the short sale application process is the time when things will come to light and could even put the borrower at risk for mortgage fraud.

Also, the lender has the right to issue a 1099 to the borrower for the amount of the debt that was forgiven. The IRS will consider this income as being taxable to the borrower, although since an act was passed in late 2007, there may be some instances of exemption from that.

A person's credit rating can also still be negatively affected by a short sale.

Even if a property and its seller has been "qualified" or "approved" for a short sale, the bank may take several weeks to actually approve a buyer's offer. During that time, the property may very well still be on the market for sale and other bidders will come along and complicate things, since the bank will now take time to consider those offers also! This can be extremely frustrating for most potential buyers, who tend to want to know where they stand, especially after a few weeks have passed and still nothing!

Not only that, but there are unfortunately many people out there, including some agents, who advertise the property as a short sale, without really knowing that the situation will not actually qualify as such. An unsuspecting buyer can go through the whole offer and even contract process and then after several weeks, discover that the seller doesn't even qualify, which can causes more delays and even sometimes a withdrawal of the property from the market.

At the end of the day, a buyer has to be prepared to wait it out and go the distance, often with hiccups and headaches along the way, perhaps for nothing at the end. If a buyer is going this alone without a Realtor (which is definitely not advisable, especially if the buyer is international or out of State), then this can be even more of a headache. The problem is though that the sales commission paid by lenders to agents on short sales can most often be so very little (and is often even up in the air until long down the road), that some agents are unhappy about working with them. After all, who wants to spend the amount of time working hard with a buyer, only to find that the commission earned is little to nothing at the end? The way to solve this is to work with an Accredited Buyer Representative.