Pitfalls of the Short Sale

I'm beginning to see short sales pop up in our MLS--not as many as buyers are looking for but enough to attract attention. For a buyer, the home can be a good buy at some tens of thousands of dollars less than what the sellers got it for. The lender has agreed to take less than what is owed (provided that the sellers have real hardship). However, the property generally won't be 100k under market.

There are certain matters to take into consideration first, and this can be problematic if the sellers haven't done all their homework.

1) The lender has to approve the short sale and will have final say on the buyer. I saw a house fall out of escrow several times because the lender wasn't happy with the buyer's contingencies.
2) Buyers should remember that if the lender hasn't already approved of the short sale, the whole process may take up to 6 months.
3) If the sellers admit that their income isn't as high (without a job loss or death) as they said it was when they applied for their loan, they may have committed fraud.
4) While the lender may "forgive" the amount of the loan lost, this amount is then considered taxable. For instance, if the lender accepts 50k less, the sellers will have to pay taxes on this amount.
5) In the case of a VA loan, the seller will have to repay the lost amount before being able to get another VA loan.
6) Buyers' agents should be check to see if the dual commission is marked "yes," meaning that the lender will want them to take a reduced commission.

Short sales can be a good buy for buyers who don't have to sell a house first, aren't picky about condition, and who can be flexible. For sellers, it certainly isn't an easy way out, and they need to make sure they understand all of the ramifications.