What is a Short Sale ...
Behind on payments, creditors calling or you think you could get there? Work reducing hours, afraid you may lose your job or a major change with your personal situation has taken place? These could all be signs of trouble on the horizon.
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What is a Short Sale? A real estate transaction in which a Lender(s) attached to a property releases its lien against said property and accepts an amount less than the full amount owed. In addition, the Lender(s) can treat the debt differently than originally provided for in the evidence of debt (Mortgage, Note, Deed of Trust etc.). A Short Sale can only occur when the Lender(s), Seller and Buyer consent to all the terms of the sale.
What is Short Sale Acceptance? Short Sale acceptance occurs in stages. The first, acceptance - when the Seller and the Buyer come to agreement (by way of an accepted offer) and this acceptance is “contingent”. The “contingency” is, the Lender(s) subsequently approving the acceptance represented by the Sellers/Buyers agreement.
Note: The Short Sale Lender(s) can affect a change to the original acceptance by modifying or amending the terms of the agreement prior to issuing a written “conditional” approval.. The negotiation about the conditional approval is with the Seller, but can affect the Buyer because of the financial situation the Seller is in.In the event that any of the terms of the original agreement are modified, neither party (Seller or Buyer) are obligated to proceed.
A Binding Contract? Once the terms of the original agreement (offer with attached Short Sale Addendum) and a written agreement that incorporates any changes required by the lender(s) to the original agreement is accepted by both the Buyer and Seller evidenced by signatures , then the contract will be deemed accepted and Binding.
What are Material Changes? A Lender(s) acceptance of a Short Sale is made on very specific conditions, which primarily affect the proceeds that the Lender(s) will receive. None of these specific conditions (material changes) can differ prior to closing once accepted. For example: Any change in a Closing Date, Purchase Price, Commissions, concessions or net proceeds to be paid in connection with the Short Sale etc. If any such change would occur, this would be deemed a material change. Any such change will require the request for re-approval, which could ultimately result in delays or even denial of the Short Sale.
No Guarantees: There can be no promise or representation that the Lender(s) will agree to a Short Sale approval, agree to specific terms of a contract or how long it may take a Lender(s) to advise of a decision to accept, reject or modify a request for approval of a Short Sale.
Significant time may be required for a lender(s) to determine if it will grant an acceptance. Although most lender(s) are currently moving quicker than previously, it still takes time. Traditionally the process is taking 60-90 days once the lender(s) have all requested information in hand.
Note: Until closing of the short sale is completed this process will not prevent, hinder or delay the lender(s) from intiating, proceeding or any enforcement action they may have including but not limited to foreclosure.
Possible Seller Alternatives and Repercussions?
There are Alternatives to a Short Sale to be considered and may be better for a Seller. This debt could possibly be extinguished through foreclosure, bankruptcy or other loss mitigation options, including but not limited to foreclosure, voluntary Deed in Lieu, bankruptcy, refinancing, loan modification agreements, etc.
A Short Sale may have serious adverse legal, tax and economic consequences for the Seller. The Seller is strongly advised to seek Legal, Tax and Financial counsel and understand the implications associated with the Seller’s individual real estate situation and circumstance. The Seller’s duty and responsibility to themselves is to always make appropriate investigations of all aspects pertaining to alternatives and repercussions and to only use professionals with the appropriate expertise to provide the desired information being requested.
The responsibility to investigate these alternatives lies solely with the Seller and the Seller is strongly advised to do just that. Seek the assistance of Legal, Accounting and Financial advisors. Don’t rely solely on any Brokerage Firm nor expect a Brokerage Firm to provide exhaustive alternate information.
How is the Seller’s Credit Rating Affected? A Short Sale Acceptance by the Lender(s) will not repair or rehabilitate the Seller’s credit rating. Currently our information indicates that a Short Sale approval affects a rating less and ultimately for a shorter period of time than most other choices. Certainly each situation is different and diligent seller investigation is required and suggested. Armed with the right information this option could to be the lesser of many unattractive choices available to an individual in this type of financial situation. Keep in mind, the Lender(s) has no obligation other than fairly reporting the transaction or outcome to any credit reporting agency.
Possible Seller’s Outcomes: The best outcome would naturally be for the Seller to be released of a Lien and any additional liability. The Seller can altough be released of the obligation by approval while not being released of liability. This non-release of liability can take several variations leaving the lender(s) with the ability to file a judgment for the obligation at a later time. Bottom line is that there is a plethora of options and variations at the approval level and each one has consequences and repercussions. A point to keep in mind though is that the lender(s) do have considerable flexibility and all options should be explored and carefully considered.
Note: Any release of liability from a Lender(s), to be binding, must be in writing, must be executed by the Lender(s), and should strive to provide that the Lender(s) releases the Seller from any further liability or obligation.
If this information has triggered questions regarding your own unique real estate situation and you feel that a Private/ FREE/ No Obligation consultation would be in order, please don’t hesitate to call or email us at info@RunyanRE.com. We have an exceptional track record to boast of regarding short sale workouts and WE CAN HELP YOU TOO!