Slide 1: A PRIMER
ON
SHORT SALE
Perhaps the most important thing to keep in mind with respect to short sales is that a lender is not required to take less than the balance owed. Moreover, when the lender receives a request to consent to a short sale, the lender is not required to respond quickly or even at all. Because the approval of a short sale is wholly discretionary, a lender can ignore the request, reject the request, or approve the request subject to a whole list of conditions. If the lender approves the sale, in order for the transaction to proceed, the sellers and the buyers must agree to any conditions imposed by the lender. Sellers and buyers frequently ask under what
WHEN THE SALE PRIC HOME, TH E OF A HO E SALE CA ME IS NOT N ONLY CL MONEY TO ENOUGH T OSE IF ON THE CLOS O COVER T E OF T WO ING OR TH HE M OWED. W THINGS H E SELLERS’ HILE IN BO APPEN: EIT ORTGAGE(S) ON TH LENDER A TH S THAT IS CO E HER THE S GREES TO T MMONLY R ITUATIONS, THE SALE ELLERS BR AKE LESS T ING PRICE IS “S EFERRED T HAN THE A O AS A “SH HORT,” IT IS MOUNT ORT SALE THE SECO ND SITUAT ION
circumstances a lender will approve a short sale. There is no correct answer to that question. Different lenders apply different rules. Employees within the same lending institution may look at the same rule differently. Lenders themselves often change their own rules from month-tomonth or even week-to-week. In a perfectly rational world, lenders would always approve a short sale in those instances where the proceeds that the lender will receive from the short sale exceed the amount that the lender would receive if it foreclosed the home and pursued the sellers for the shortfall. But even in this rational world, in order to make
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Slide 2: A PRIMER
ORT SALES ON SH
lender to change any of these provisions; nonetheless, such an analysis, a lender must be comfortable that it has a party needs to understand these “conditions” when accurate information both as to the value of the home and analyzing the transaction. For example, a buyer who has the sellers’ financial condition. Typically, much of the short negotiated what he believes to be a great short sale price sale process is focused on convincing a lender that it has on a home should take into account the seller’s expenses accurate information and that based on this information, that he is being required to assume when comparing that the short sale should be approved. transaction to a standard home purchase. In some cases, a seller may accept multiple offers It is also likely that a short sale buyer will be to purchase, making them all contingent upon approval by purchasing a home that may need numerous repairs. A the seller’s lender and the seller’s approval of the lender’s lender’s conditions for terms. While this practice approving a short sale is discouraged because of typically provide that the potential inherent risks to the buyer has no recourse in seller in accepting multiple le; the event that there were approve a short sa offers, it does occur. The simply t m i s r e p r e s e n t a t i o n s a lender will never buyer making the higheste the short sale subjec he lender will approv instead, t ment made as to the cash offer or what that buyer ons. Often the docu whole list of conditi to a may view as the best offer, may ons” is longer than condition of the home the lender ’s “conditi is and/or material defects setting forth believe they are entitled by lf. Keep in mind that th rchase agreement itse law to purchase the property. the pu late” and that the sellers did not ment is not “boilerp That is not the case. The lender e disclose. Moreover, nder approval docu le oth the buyer and th sellers who have been e read carefully by b can approve any offer based should b m negotiable, e “conditions” are seldo on numerous factors other seller. While thes the facing foreclosure for well-advised to seek many months typically are than the offering price. There buyers and sellers derstand have not had the l in order to clearly un is no law requiring the lender to to assistance of counse funds (or the desire) should they choose accept the highest or best offer ations their rights and oblig to properly maintain in the eyes of a buyer. nditions. accept the lender ’s co the property. A short sale buyer is well-advised Remember, there are to have the home carefully inspected. few laws that regulate the terms of a home sale transaction; rather, the transaction is
THE REAL WORLD, IN
governed by the terms of the sales contract. Over the years, many terms have become so standard that many people assume that they are dictated by law, when in fact they are nothing more than typical contract terms for the purchase of a home. Often times the “conditions” that a lender imposes when it approves a short sale expressly alter some of these typical contract terms. It is therefore critical that these “conditions” be reviewed very carefully. Again, it is unlikely that a party will be able to get a
Finally, the lender’s approval of a short sale typically
includes a provision which states that the lender can terminate the transaction for any number of reasons right up until the time of closing. For this reason, a short sale buyer is well-advised to keep his options open until the transaction is finally closed. A buyer with a moving truck in the driveway the day before closing will be in a very difficult position if the transaction fails to close.
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