darrenscooter.jpgThink of a Short Sale as a mortgage in reverse…… 

~

 

 

There is a Seller Performing Short Sale Memorandum on Ameriforms that repeats these issues. {i} 

 

 

What is a short sale?  It is a sale wherein the property is sold and lender agrees to accept a discounted payoff, in other words not all of the underlying mortgage or mortgages are paid in full.

 ~

 

 

Have your seller talk to a tax or legal professional.  The rules concerning a ‘short sale’ are complicated and may come with unexpected financial and tax consequence, as the Note is no longer under the rules of foreclosure (there is not house to foreclose on), but the Lender may still pursue the Seller.  See my blog on deficiency in Nevada.  Instruct your Seller to make a thorough examination of their personal financial situation with an experienced tax professional and/or attorney prior to a ‘short sale.’  THE LENDER MAY SUE THE SELLER AFTER CLOSE OF ESCROW for up to SIX (6) Years.  If it is an owner occupied propety, the tax consequences on the first (not the second) may be waived see this IRS MEMO on Tax Relief from Short Sale 1099 Income from December 2007.

 ~

 

 

Time is not on your side.  Remember it may require three (3) weeks or more to get an answer back from the lender and the lender is not under any obligation to approve a short sale.

~

 

 

There is no time like the present.  Get started on communicating with the lender right away, even before you have any offers.  The lender’s involvement is crucial and the purchase agreement should be “subject to bank approval,” here is the mandatory Short Sale Addendum to Purchase Agreement that is most important that you to the Buyer to a.) inform them that the lender must approve the short sale; b.) allow you to continue to market the property; c.) allow the Buyer the ability to cancel in certain time frames, without penalty if you cannot get the lenders (all of them) to accept their short and that the first Buyer has a 3 day first right of refusal.

~

 

 

Murphy’s Law in Lending.  He who is owed the least will cause the most problems.  You must get approval from EACH lender AND the CIC (HOA).  All lenders that hold notes on the property must approve what they are receiving.  Unless you are paying the note in full, including late fees if applicable, you must have approval. Do not get confused with reasonableness vs contractual right.  For example if the second note on the property is only a small amount of money and the second is facing losing their position in the event of foreclosure, that DOES NOT mean the second has to be reasonable.  No lender has any obligation to be ‘reasonable.’  There is a promissory note attached to all deeds of trust and the terms within that note are rules of the game.  After that you must get creative.  Threats of litigation will go on deaf ears.  The second and third may also be insured and have no incentive to take less.  Stay in communication and remember that ‘all you can do is ask.’

~

 

Think of it as a ‘reverse mortgage.’  You know how important getting a loan is when buying property?  Well a short sale is the reverse.  The lender(s) will want to ensure some items such as the true current value of the home and true financial condition of the Seller.  This can take a great amount of time, some times weeks and may require numerous interactions with the lender.  So unlike a normal sale where you simply ask for a “pay off” from the lender, in a short sale your must ‘apply’ for a short sale.  Sellers may have to supply i.)  a Letter of Authorization ii.)  a Hardship Letter iii.)  Proof of Income and Assets.

 

Consider a Multiple Counter Offer Scenario.  As you know Americana’s current Counter Offer on Americana Listing contains a ‘multiple counter offer’ clause.  In the event your list price and short sale scenario is causing interest in multiple Buyers consider using the multiple offer clause whereby you solicit multiple offers, all of which would be presented to the lender(s) and only after your Seller ‘reconfirms’ the offer do you have a binding purchase agreement.

~

 

Escrow Requires “C” Status – Keep in mind that upon opening escrow you have two (2) days to change the status of the Listing with the GLVAR MLS{iv}.  You can add agent remarks that back up offers are being considered, but the C status is required and may very well remove your listing from many buyer’s consideration.  If you have the right offer this is not an issue.  But remember that your Seller is going to want to ask for as short of a short as they can procure.  The lower amount of debt the Seller is asking forgiveness, the more likely the lenders’ acceptance equating directly to your Seller having less liability for unpaid debt.  This is another reason that you should consider a multiple counter scenario, to avoid opening escrow up and until you can find your ‘best’ offer.  Again, if your sales price, as a result of the short sale is desirous, you may want to consider not accepting the offer until you have lender approval, thereby allowing your self more time not in “C” status.

~

 

Request that the Lender “forgive” the debt.  If your Seller gains approval by their lender to not have to pay the entire mortgage in order for a sale to occur keep in mind there are financial Consequences.  You should request that the debt is ‘forgiven’ and although the forgiveness of debt is deemed income to the Internal Revenue Service, the alternative is for the lender to come after the Seller directly for breach of contract for nonpayment of the promissory note.


{iv} MLS Rules (See P. 14)

Advertisements