Selling Short Sale Property
The term “Short Sale” is used to refer to those real estate transactions in which the listed sales price is insufficient to pay off all of the secured debt on the property. Secured debt includes mortgages, trust deeds, state/federal/property taxes, liens or other assessments. In most short sales, the seller must secure an agreement from one or more third-party creditors to accept from the closing proceeds something less than the amount of the debt due them. In other words, the debt is “shorted” or reduced. The final decision on price and terms of the transaction, as well as the identity of the ultimate buyer, will be in the control of third parties whose consent is required in order for the seller to convey clear title to a buyer.
A Short Sale is only one alternative when facing foreclosure. Before agreeing to a Short Sale, sellers need to explore all options. For example, there may be private parties, such as family members who may be willing to provide interim financial assistance. A current lender or government program refinance option may also be available. Additionally, there may be legal options such as a deed in lieu of foreclosure or bankruptcy. While a real estate broker will be helpful in directing the seller to sources of information, they should not be relied upon for legal, lending or credit advice.
To determine if a Short Sale is a viable option, a seller must meet lender Short Sale qualifications. These qualifications include but are not limited to hardship such as the loss of a job or other income, relocation, illness of borrower or co-borrower, death of co-borrower or declining property values; a monthly income shortfall (if at the end of the month there is not enough income to pay all obligations) no additional savings available to pay down the loan. To verify financial hardship, creditors will require documentation including, but not limited to 2 months bank statements, 2 years tax returns, paycheck stubs, other income receipts.
The seller must also take into account any tax consequences such as deficiency exposure and credit rating declines. Each situation is different and must be evaluated on an individual basis with an expert such as a lawyer, accountant, mortgage broker, lender, or credit or consumer counseling expert.
Since a Short Sale requires approval from one or more creditors who are not parties to the transaction, the seller’s agreement to sell must be made subject to (“contingent upon”) third-party consent. This generally means that if any of the creditors refuse consent, the transaction fails.
It is not unusual for creditors to insist on specific terms, a higher sales price or a change in provisions from the original contract. Therefore, the seller and buyer must be prepared for delays resulting from any changes to the original contract as well as other events outside of the sellers and buyers control.
In Short Sale transactions, the deadlines for completion of buyer contingencies may need to be suspended pending creditor consent. However, if consent is slow and the buyer wishes to proceed anyway, buyers must understand that they have no recourse for recovery of these expenditures should creditor consent be denied.
Since most creditors want to secure the highest and best offer for the property, they may insist that it remain on the market. As a result, a creditor may withhold final consent until they have had an opportunity to compare one offer with future offers. As a result, the entire Short Sale process may involve a significant risk of delay or failure.
Short Sale transactions can be complicated and time consuming. Your real estate broker is NOT an expert and cannot give legal or financial advice. Sellers are strongly encouraged to secure additional competent professional advice before entering into a Short Sale transaction.
Oregon Bay Properties, LLC does not give legal or financial advice. Information provided is not a warranty of any kind and all information should be verified.