Understanding the Short Sale


When the lender agrees to accept an amount lesser than the mortgage amount, a short sale has been created.  Short sales often occur when the subject property is in the pre-foreclosure stage but these transactions can occur at other times.  With one of every 355 homes in the United States currently in the foreclosure system, more short sales are taking place than at any time in history.

 

Concluding a short sale does not necessarily alleviate the burden of the obligation from the seller, but usually this is negotiated between the seller and the lien holder.  Debt forgiveness can lead to complicated tax matters on the seller’s side so an accountant should be consulted.

 

In the ideal short sale here are the five necessary steps:

 

·                     The seller signs a listing agreement with a real estate agent.  The agreement to sell is contingent upon approval by a third party. 

 

·                     The agent finds a buyer and secures a contract for the purchase and sale of real estate.

 

·                     The seller accepts the offer contingent upon third party approval.

 

·                     The offer is submitted to the seller’s lender who accepts the buyer’s offer.

 

·                     The transaction closes when the buyer delivers the funds and the existing lender releases the line and the seller delivers the deed.

 

Ah, were short sales just that easy!

 

The buyer should understand that lenders are taking a loss.  These lenders will not bear many of the standard expenses a conventional seller might bear.  As such, the buyer is expected to buy the property in “as is” condition.

 

The buyer should perform all inspections prior to validating the purchase and sale agreement.  This includes pest, roof, sewer and water, plumbing, electrical, chimney, septic and fireplace inspections.  The old adage “let the buyer beware” definitely applies to short sales.  Buyers need to protect themselves with strong contingency language regarding these inspections.  Investors avoid surprises by having a certified home inspector on their short sale team.

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