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UNDERSTANDING SHORT SALES

 

If the asking price on the property looks to good to be true, it probably is...

 


1. THE TERM "SHORT SALE" is used in the real estate business to describe a situation where there is more debt owing against a property than the property is worth. In other words, the owner can't sell the property unless the creditors ("third parties") agree to accept a payment that is less (or "short") of the amounts actually owed to those third parties. The third parties are usually mortgage lenders, mortgage insurers, bankruptcy trustees, and federal, state and local taxing authorities (such as the IRS or state sax commission).

 

2. NO BINDING CONTRACT WITHOUT THIRD PARTY APPROVAL. A short sale requires the written approval of the third parties. Consequently, the owner of the property and any interested buyer are advised that even if they reach an agreement between themselves for the purchase and sale of the property that agreement will not be binding unless the third parties approve the terms of the short sale.

 

3. THIRD PARTY REJECTION OR CHANGES TO PROPOSED SHORT SALE. Based upon the obvious financial loss third parties will often reject a proposed short sale. If however the third parties do not reject the proposed short sale they will usually send to the owner a list of requested changes to the proposed purchase contract. Some of those changes will affect the owner and others may affect the interested buyer. For example, the third parties may require the property be sold in "as−is" condition. Also the third parties will normally not permit the owner to pay for any of the buyer's closings costs or lender required repairs. The owner and the interested buyer are not obligated to accept any of the changes requested by the third parties in which case there will be no short sale. If however the owner, the interested buyer and the third parties reach a written agreement with each other then at that point the short sale transaction may proceed to closing.

 

4. DELAYS IN RESPONSE FROM THE THIRD PARTIES.Most purchase contracts for short sales impose a deadline for written approval by the third parties. As a practical matter the third parties rarely meet that deadline. The owner and the interested buyer should be prepared for significant delays in receiving any response from the third parties. More often then not a buyer and seller can wait many months and never recieve a response!

 

5. RIGHT OF THIRD PARTIES TO ENCOURAGE ADDITIONAL OFFERS. As a condition of considering any proposed short sale the third parties will usually require that the owner keep the property on the market even after the owner and the interested buyer have agreed to the terms of a proposed purchase contract. As a reminder the third parties are being requested to accept payment that is less than what is owed to them. Under those circumstances the third parties want to obtain the highest possible price for the property. Therefore it is to their advantage to require the owner to keep the property on the market and submit to the third parties any additional purchase offers that the owner may receive from other interested buyers. You may find your offer being rejected due to a higher offer.

 

6. RIGHT OF BUYER TO CANCEL. The owner and the interested buyer are also advised that until the owner, the interested buyer, and the third parties reach a written agreement the interested buyer may cancel the proposed short sale transaction by providing written notice to the seller.

 

7. IF THE BUYER AND SELLER GET PAST ALL THE ROADBLOCKS OUTLINED ABOVE THIS DOES NOT ASSURE BOTH PARTIES THAT THE TRANSACTION WILL CLOSE! Typically when a seller is in default on his or her mortgage, they will be in default on other debts as well. Such debts include child support, alimony, auto loans, consumer debt, federal or state taxes etc. These debts can be filed as a "judgement" at any time prior to closing the transaction. These judgements "cloud the title" to the property, and if the seller cannot pay them in full or negotiate a release the transaction fails! Be aware this could happen even up to the day of closing......