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Short Sale

By
Real Estate Agent with Regency Real Estate Brokers

Short Sales

Short pay transactions or "short sales" are transactions where the seller owes more on his or her home than the home is worth.  The distinct nature of these listings enable a third-party  the lender to intervene in the terms of sale and the lender will dictate after a buyer may have had his offer on that home that the lender will want the seller to counter and sell the home for more than was originally agreed to by the buyer and the seller.
This is possible, because the lender will have to discount the note, so although the seller has signed a legally binding contract subject to lender approval of the short sale.

One other short sale MLS issue that frequently rears its head in this market is when to change the listing status from active to pending or some other intermediate status.  A seller may have accepted a buyer's offer, but the parties then have to wait - often at great length - to hear back from the lender to learn whether the lender has approved the deal.  In the meantime, the lender may require the seller to continue to solicit other offers.

Legally speaking, however, once an offer has been accepted and signed by both buyer and seller, a contract has been formed.  The contract is contingent upon approval of the lender, but there has still been "acceptance" by the parties which is what triggers the requirement to change the status of a listing in the MLS.  While this requirement can be frustrating for the parties in the short sale context, to do otherwise would be misleading, as there is, in fact, an accepted offer in place for the property.

Most MLSs have developed various subcategories of "active" and "pending" (ex: "active contingent", "pending show for backup," etc), and they could certainly develop one specific to short sales.  Whatever the status options are in a particular MLS, the key is to create a true picture of the status of the property, and one with an accepted offer in place is not an unencumbered "active." 
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Copyright© 2008, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.

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Comments (1)

David M. Childress
Howard Hanna Real Estate Services - Akron, OH
I would love to be your Realtor® in Akron Ohio!

Those are great points Margo. Our MLS has the contingent clause but once it goes there everyone treats it as pending and no more showings. I had a short sale off the market for a month and the deal fell apart. I lost a whole month with no showings.

Jul 14, 2008 12:31 PM