What is a Short Sale?
In tough economic times, there are
numerous ways to lose a home. A short sale can be an alternative for lenders
and owners of real estate; however, it may not be a pleasant transaction. For
many homeowners who can no longer keep their mortgage payments current, a short
sale is an alternative to foreclosure proceedings or bankruptcy. Short sale
transactions are now more prevalent than ever before and are highly
scrutinized. This type of transaction can be highly successful for all parties
Closing short sale transactions
presents many unique challenges to title closing agents, realtors, sellers,
lenders and purchasers. A short sale means that a lender agrees to accept a
lesser amount than the total amount due under the terms of the note and
mortgage. Not all lenders are willing to participate in a short sale
transaction, especially if it would make more financial sense for the lender to
foreclose. In addition, not all sellers or all properties qualify for the short
sale transaction. If you are considering participating in a short sale
transaction, the following are important items to keep in mind, whether you are
the seller, closer, or buyer:
legal advice from a competent real estate lawyer since a lender may subsequently
pursue a deficiency judgment or claim.
an accountant to discuss short sale tax consequences, if any. The IRS may consider
debt forgiveness as income.
the assistance of a real estate agent that specializes in short sale
your lender to open the doors of communication. Be sure to find the real estate
short sale or work out department.
your written letter of authorization giving the lender permission to negotiate
with the real estate agent, purchaser, closing agent or lawyer and to disclose
personal information about your loan.
and send a hardship letter that explains your financial bind and will act as a
plea to the lender to accept less than full payment. Your present situation may
be the result of illness, job loss, disability or uncontrollable circumstances.
of your income and assets must be submitted to your lender.
comparative market analysis from your realtor can substantiate the loss of
market value that created your need for a short sale.
your lender with a purchase agreement or listing agreement when available. Be
ready to negotiate repairs, etc.
for the lender to approve the short sale transaction.
Title or Closing Agent
Closing short sale transactions
present many challenges. Title must be updated to determine the existence of
current foreclosure proceedings, bankruptcy, additional lien holders or
judgment creditors which will need to be part of the title clearance issues. The
title or closing agent must obtain a comfort level in regards to the following:
not negotiate the terms and conditions of the short sale. You must remain an
independent facilitator only.
sale estoppel (a bar to denial of previously stated truths) letters must be
obtained from all existing lien holders of record setting forth the strict
guidelines upon which the existing lender and all other lien holders have
approved the short sale. These letters are to be strictly construed and
followed without any variance from the guidelines.
approval of the short sale must be obtained. Confirm that the estoppel letter
and approval cannot be revoked after closing due to any condition including but
not limited to review of closing documents or discovery of additional
information about the parties, transaction or property values, by the lender or
estoppel and approval letters completely. Some may place resale restrictions.
releases must be addressed in the estoppel letter. Make sure that all lien
holders agree to accept a reduced payoff and agree to release the mortgage or
judgment or to dismiss any pending foreclosure proceeding. Once the lender or lien
holders receive the agreed amount they must file the appropriate form of release.
specific attention to the terms of the approval as to price, closing costs,
real estate agent commission, and amounts payable to junior lien holders. These
terms must be followed precisely.
the advice of a competent real estate lawyer to review all the seller’s
documentation from the lender or lien holders.
the advice of an experienced real estate agent specializing in short sale
an Owner’s Title Insurance Policy and review the Title Commitment prior to closing
to insure the validity of the short sale transaction and that the property will
be sold free and clear of prior liens.
for resale restrictions in the documentation which may prohibit a subsequent
conveyance or “flip” within a defined time period.
sale must be an arm’s length transaction. You must advise all parties of
material fact change regarding the resale, ownership or property valuation.
short sale buyer must not in any way be related to the short sale seller nor be
party to a repurchase or reacquisition of the property in any form.
The above items represent some
helpful hints when a short sale transaction is contemplated. Most importantly,
seek professional advice, be patient and be thorough with information and
documentation required by the respective parties to the transaction. Remember,
the existing lender, lien holders, seller, the closing agent, the real estate
agent, the buyer and the buyer’s lender all must be included in the loop for a
short sale transaction to work smoothly and efficiently.
This article was
written by Dan L. Oliver,
of counsel, with Rudolph, Fine, Porter
& Johnson, LLP in Evansville,
Indiana and an attorney for Lockyear Title, LLC. For additional
information, you may contact Dan L. Oliver at (812) 422.9444, (812) 421.8405 or
His practice areas include real estate and title insurance.
This article is
intended solely as an information source and its contents should not be
construed as legal advice. Readers should not act upon the information
presented without professional counsel. Information contained in this article
was provided in part by the Underwriting Department of First American Title
Insurance Company Alert No. 2010-11 and other sources.