How do you avoid pitfalls in the short sale transaction?

Now that you are armed with some short sale basics and may have made the decision to pursue this solution, there are several steps you can take to minimize your personal losses.

1.  Consult an attorney and your accountant and find out how the potential negative ramifications can affect you.  Real estate agents cannot advise you on legal issues.

2.  Choose a competent real estate agent.  The dynamics of the short sale transaction can be extremely complicated.  Make sure you choose a Realtor who has the specific with short sales.  The agent's knowledge can minimize the time and potential losses involved.

3.  Be prepared to give the lender all the documentation required to qualify.  The information requested will be similar to the needs of your origional loan package with the additional proof of hardship.  Information usually requested included tax returns, pay check stubs, bank statements, copies of debt balances and payment schedules.  ALL INFORMATION GATHERING SHOULD BE ACCOMPLISHED PRIOR TO OPENING ESCROW.

4.  Be prepared to sign a statement authorizing your agent to deal with the lender on your behalf.

5.  Be sure your agent used an experienced and qualified escrow provider.  The escrow function is a critical element in a short sale close.

*It should be noted that lending and foreclosure practices and laws vary from state to state.  This posting is based on the laws and practices of the State of California.  Although they are similiar throughout the United States, there are differences.  There are also differences between Trust Deeds and Mortgages, although we collectively all refer to them as mortgages.  In California we use Trust Deeds and do not use Mortgages.  Most of the western states use Trust Deeds, however the eastern states generally use Mortgages.  The redemption period during a forclosure is different with Mortgages.  Also the lenders ability to collect delinquencies varies with the type of loan and the choice of the foreclosure process.  To collect delinquencies the lender must use a judicial foreclose.  Few lenders do as this takes more time and involves additional legal expenses.  Most use the non-judicial forclosure method.  Also with purchase loans taken out at the time of purchase, delinquencies cannot be collected.  They can be collected on refinance loans.  On a short sale the delinquency is waived by the lender. Thus there are differences even in California.  Please consult with a real estate attorney and CPA in your state for specific details.

Mike Stankewich, Realtor, Huntington Beach, Orange County, California

ZipRealty, Inc.

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