A short sale in regard to real estate occurs when the net proceeds that a seller will realize are less than the pay off amount of the existing loan or loans.  Short sales are becoming more frequent since the downturn in the real estate market has lead many homeowners to be "upside down"-when a homeowner owes more on his or her mortgage that the homes fair market value.

 

Short sales are a way to avoid foreclosure and a possible deficiency judgment.  A deficiency judgment can be entered when the property sells for less than the outstanding mortgage(s) at a foreclosure sale.  Short sales can be of benefit to a homeowner to preserve one's credit by avoiding a foreclosure and a possible deficiency judgment. 

 

If a homeowner desires to "sell short", he or she will have to get the approval of his or her lender(s).  When seeking the approval, the lender(s) will want many things submitted including but not necessarily limited to, the contract for sale, a copy of the listing agreement, a listing history, and perhaps financial information like tax returns, bank statements, a a preliminary Closing Statement showing all costs and expenses and payment of the entire net proceeds to the lender(s).

 

A lender is not required to approve a short sale but, if approved, the homeowner/seller will not be able to receive any of the sale proceeds--it will all go to the lender(s). 

 

A short sale can add much time to the closing process.  In my recent experiences, the additional time to obtain approval can add as little as 30 days to a "normal" closing process to as much as several months.

 

Caution:  in getting a short sale approved, make sure that you will be released from personal liability on any outstanding note (mortgage).  I recently saw an instance where a second lender (the lender for a home equity line of credit who is subservient to a first mortgage), approved the short sale and then turned around and sued the homeowner/borrower/seller not in foreclosure, but for breach of contract--failure to pay the note.  Thus, the lender allowed the sale to occur but still sought money from the seller.

 

From a legal fee standpoint, attorneys will generally charge much more than a typical closing due to the increased amount of work (from the sellers side) and time involved from start to finish. 

 

For more information, please contact our office.