A GUIDE TO SHORT SALES

By
Services for Real Estate Pros with Old Republic Title & Escrow

 

What is a "Short Sale"?

A "short sale" is a term that is commonly used when a property is sold for an amount which is insufficient to pay the existing liens, encumbrances and costs associated with the sale of the property. The seller is often said to be "upside down" in the property.

The Scenario:

The current market value for the property is $400,000.00. Closing costs are estimated to be $40,000.00 and the current balance on the loan secured by the property is $390,000.00. The sale proceeds will be insufficient to meet the seller's obligations at closing by $30,000.00.

Possible Solutions:

Seller can deposit the additional $30,000.00 required into escrow at closing or the seller can contact the existing lender to determine if the lender is willing to reduce the amount required to release their lien from the property.

Contacting the Lender:

Seller should contact the existing lender to determine the documentation required to start the "short sale" approval process and the amount of time necessary for the lender to provide a preliminary determination, once the seller has provided the required documents.

The Purchase Agreement:

The lender may not provide final approval for the short sale until the seller has entered into a purchase agreement with a prospective buyer and seller's acceptance of this agreement should be contingent upon the successful negotiations with seller's existing lender to reduce the amount required to release the lien of record.

The Escrow:

If the short sale is approved, the lender will provide the escrow holder, upon request, with a written statement reflecting the amounts required to release the lien of record and any final conditions which must be met before the lender will authorize the escrow to close.

Possible Lender Conditions:

The lender may require the seller to sign an unsecured note for any additional amounts required to pay the loan in full with payments to be made by seller after the close of escrow. The lender may require the seller to assign to lender, any refund due on any existing hazard insurance policy being cancelled or any remaining balance in seller's impound account.

Tax Consequences:

The seller should contact a tax attorney or certified public accountant to determine the tax consequences of participating in a short sale.

Warning:

Short sales often present challenges which go far beyond the possible tax consequences. It is strongly recommended that all parties seek the additional legal advice from a qualified real estate attorney before participating in such a transaction.

Comments (4)

John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate

This is a good overview - I have posted similar articles in the past and am now perceived by many in my market, and elsewhere as some sort of short sale guru - so keep posting and you will get business from stuff like this.

Now Have a Blessed Day,

John Occhi, Hemet REALTOR®
Mission Grove Realty

Nov 27, 2007 01:06 PM
Chul KIM McGuire
CorpusTV.com - Corpus Christi, TX

Napua,

Nice, sweet, and short blog educating on Short Sale.

Great job!

Cheers, Mr. C. KIM McGuire.  N. Padre Island, TX.  Great place to live and raise a family.

Nov 27, 2007 01:46 PM
Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

I'm sitting here with a friend who works for Old Republic Title in Tucson, and his wife has paintings hanging in your town!  The artist Sylvia Herrera is represented by a gallery near the old Wally Amos Cookie Company in Kailua.  Has the cookie company changed its name?  Kailua Cookie Company?  Can't remember the name of the gallery.

Mike in Tucson

Jun 07, 2010 06:24 AM
Christine Gerbehy
Berkshire Hathaway Home Services Fox and Roach Northfield - Egg Harbor Township, NJ
Making waves, one home at a time...

Hey!  Scanning through people that haven't been on in awhile,wondering why you haven't been back?  Lots of good info here on Active Rain, stop by!

Nov 28, 2015 12:08 AM