With the state of real estate markets, coming to an agreement between buyer and seller is difficult enough. This difficulty is increased when a so-called short sale is attempted, usually by a borrower struggling with their home loan. In these situations the seller must also have the approval of their mortgage lender.

The term short sale refers to an owner attempting to sell a property for an amount less than the value of their loan. These types of arrangements are hard to accomplish in part because the mortgage servicing company must also approve of the diminished sale price.

In this situation, the parties involved are at the mercy of the institution in ownership of the loan of the seller. Even when a sale price is agreed upon by both buyer and seller, the company owning the loan could be hesitant to accept the offer and may take upwards of two months to make a decision in regard to the suggested figure.

Besides many deals falling through because of the time it takes, other contributing factors can add to the difficulty of this process. For instance, many loans are packaged into securities, which ensure the interests of the investors in ownership of the loan.

Another possible setback is the increase in the frustration of both buyer and seller because of the time companies take to give their approval. On average, loan services take 4 ½ weeks to decide on a short sale offer. This in opposition to the less than two it takes to respond to an offer on a foreclosure, according to a recent survey.

This short sale process also becomes increasingly difficult when an owner has taken out more than one loan on the property. In the soft market as of late, this is not uncommon, and is further complicated by buyers lowering their offers when a property is known to be distressed.

In order for this type of deal to succeed, a buyer must have a genuine interest in the property and be willing to wait 3 or 4 months if necessary. The problem, however, is agreeing on a price that satisfies all parties involved.

With the current trends in real estate, and the prices of homes taking a dive, a short sale passed up may turn out to be a missed opportunity. Recently, a property owner was offered $190,000 in a prospective short sale, and was refused the approval of his mortgage company. The four-bedroom house built in 2005, abandoned shortly after the proposal, is now in foreclosure and scheduled for auction in June. The market in the area has continued its downward trend with prices still dropping, says Mr. Schriver, at present the house would only sell for around $180,000. Wells Fargo & Co., which services the loan, denied no offer for a short sale and has "made several unsuccessful attempts to connect with the customer," says a spokesman.

The fact is, many mortgage-servicing companies are weary of short sales. The concern is that consumers hurry into these arrangements without researching their options. Unprepared, these people rush into deals without being aware that there are better alternatives. Lenders will tell borrowers that short sales would only be considered after talking directly to borrowers to try and find another way to keep them in their home.

Part of the problem lies in the recent increase in the number of bad loans, and mortgage servicers being unprepared for the situations these loans have put them in.

Gathering information in preparation for a short sale can also be time consuming. It is the job of a loan servicer to decide if a property owner is really unable to continue to making payments on their loan. They must then obtain the property's value through an appraisal or the opinion of a broker.

In addition, servicers are obligated to determine whether or not the proposed deal is both fair and equitable to all parties involved, as opposed to a bargain between relatives, for example. The servicer must then receive the approval of the investor holding ownership of the loan, and show them how a short sale would be better than any other possible course of action.

It is recommended that, to lessen the chance of delays, the homeowner considering a short sale contacts their loan servicer even before an offer is made. Doing this will begin the approval process thereby quickening the response of the mortgage company.

Some improvements have been made in making this whole process easier. Recently, mortgage companies have started to approve borrowers for short sale if they can prove they are in financial trouble, but are still making payments on their home loan. Until this began, lenders would not consider approval unless the property owner was at least 2 months behind on their payments.

Two companies that either own, or guarantee almost 50% of outstanding mortgages in the United States, Fannie Mae and Freddie Mac, agree on improving the short-sale process. According to Fannie Mae, they will begin plans to bring about a policy in which real estate brokers will be informed in advance the estimated minimum price to meet in order for a short sale. By doing this, the lender intends to eliminate offers that are too low.

In another move to make the short sale process easier, Freddie Mac has given top servicers much more flexibility in regard to accepting short sales if backed by loans owned or guaranteed by them. Mortgage-backed securities company, Lehman Brothers Holdings Inc. provides, in some cases, incentives for servicers to help prepare short sales or loan modifications.