Recently we had a case where an agent reported that the homeowner of a home being sold as a short sale had just died.  What happens then?  Can the home still be sold in a short sale?

I receive a number of inquiries concerning the steps to take when the homeowner dies before the short sale transaction can be completed.

The answer is very straight forward and easy.  Yes, the property can still be sold in a short sale...except when it cannot.

When the homeowner dies with a will, there is only one heir or all heirs agree, and not other creditors other than mortgage holder(s), it is very simple to appoint someone to continue the short sale process to closing.

Actually, this is the one of the most common scenarios:  an elderly homeowner dies with no debts other than the mortage(s) and few or only one heir.

In some states, the Probate Court has a simple process whereby the heir goes to the Probate Clerk's office, pays a fee, completes a fill-in-the-blank form, is interviewed by the Probate Judge, or Clerk & Master, and is granted the letters of administration.  Other states have a statutory process of completing and filing an Affidavit For Transfer of Real Property in small estate cases, having a deed prepared to transfer the property to the heir, who then transfers the deed at closing to the short sale buyer once lienholder approval has been obtained.  Other states have variations of these procedures where the estate is small.  If your state does not have a simple, inexpensive process for small estates, then a lawyer must be hired to open the estate and obtain the letters of administration.

When you are in the middle of obtaining approval for a short sale and the homeowner dies, do not panic.  Usually the solution is simple.  

Best Wishes,

Ken Lawson, JD