Understanding Short Sales in Real Estate

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Learn everything you and your client need to know about short sales in real estate, including what they are, the issues for sellers and buyers, tax sale foreclosures, and practical considerations during the process.

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Uploaded on Apr 04, 2025 | 0 Views

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SHORT SALES WHAT YOU AND YOUR CLIENT NEED TO KNOW

What is a Short Sale? Short sales have no legal existence, not created or regulated by statute Product of negotiation between buyer and seller, subject to lender approval Lenders will want approximately 80% of outstanding debt Commercial lenders are typically easier to work with than government lenders Driven by market conditions short sales are more likely in a declining or depressed market Emphasize that this is a win-win-win situation buyer gets a bargain, seller unloads a debt, lender turns a non- performing loan into a marketable property

Issues for Sellers Process will take longer than a standard sale Sellers may need to make minor but essential repairs, or may have to bring cash to closing The worse a seller s overall financial picture, the more likely the bank will approve the sale A short sale may be consummated during a bankruptcy, but will be subject to Court approval Mortgage debt relief act has been extended through the end of 2017

Issues for Buyers Be prepared to wait the interplay of the approval process, plus TRID requirements, make this a long haul. The situation is ideal if you have somewhere to live during the process. Strictly as is ! Consider an FHA 203K loan or a Fannie Mae Homestyle that includes repairs. Lender will require its own appraisal. Lender will be calling all the shots with regard to the Closing Disclosures Now more than ever, no side or under the table deals!

Tax Sale Foreclosures Check for an outstanding tax sale certificate. Verify if a foreclosure action is pending. If a foreclosure action is pending, you will need Court approval for a short sale, a complication that may make your buyer look elsewhere

Practical considerations Most lenders have a package of forms for short sale, usually available on their websites. Sellers will be expected to submit hardship letters (handwritten is still best!), hardship affidavits, IRS 4506T forms and financial worksheets. Some lenders use online portals like Equator and do not accept paper documents. Real estate agents may be asked to cut their commissions. Bear in mind that this is a long, arduous process if you are a seller s attorney, price your services accordingly!