The Long And Short Of It: A Short Sale Legal Primer
Welcome back to Attorney Richard D. Vetstein. Today, he looks at the wild world of short sales to tell buyers what they can expect...
A short sale is special type of real estate transaction between a homeowner, his mortgage holder, and a third party buyer. In a short sale, the homeowner’s mortgage company agrees to take less than what is owed on the outstanding mortgage, thereby being left “short.” In some but not all cases, the lender will agree to wipe out the entire debt. Many people believe that short sales offer bargain basement prices, but lenders will do their best to get as close to fair market value as possible so as to minimize their loss.Short sales are a unique type of transaction and far different from the typical transaction between parties of equal bargaining power. Likewise, the legal aspects of a short sale are unique.
Lender Approval Required The most important legal issue in a short sale is the very nature of the transaction: there is no short sale without the consent of the mortgage lender. Thus, albeit obvious, the buyer’s obligation to close is contingent upon the lender’s approval of the short sale, and must be so documented in the sale agreements.The Waiting Game
Another significant issue is timing. The typical timeline on a short sale can vary greatly from 45 days to 6 months or more from accepted offer to closing. The time variance is due to the time consuming process for the approval of a short sale and the negotiation for the reduction in the mortgage balance. There is a long, but manageable, list of documents that must be submitted by the seller/homeowner before a lender will approve a short sale. In a short sale, the trigger date, which starts the clock for the typical deadlines, is the short sale approval. Thus, closing, inspection, and mortgage contingency deadlines dates in the offer and purchase and sale agreement should start “x” days from the short sale approval. There should also be a end date for obtaining short sale approval and protection for the buyer’s rate lock so the agreement is not left completely open-ended and delays won’t adversely affect the buyer’s financing.Bring Your Toolbox
Also, cash strapped sellers are usually unwilling to do any repairs in a short sale situation. Inspections may be performed and “outs” may be negotiated for significant repairs, but most buyers must ultimately accept the property “as is.”In sum, the deal agreements in a short sale must be tailored quite specifically to the unique aspects of the transaction.
Lastly, There’s a growing perception that short sales are akin to the old Wild West. There are also reports of scams and illegal and unethical behavior by Realtors such arranging for illegal buy backs to the defaulting homeowners. The sage advice is to work with ethical Realtors and attorneys who have significant experience with short sale transactions.
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