Other Impediments for a Short Sale

Other Impediments for a Short Sale

Other Impediments to a Short Sale

  1. Why does a short sale become more difficult when there are more lenders involved?

    A short sale can only happen when all lien holders on the property agree to the short sale. Lenders holding second mortgages on the property (such as home equity lines of credit or piggyback loans) are also taking a loss on the sale. They will want to receive a certain amount from whatever is left after all costs are paid. Often, there will not be enough funds left to payoff junior lien holders. Here is where the delays and negotiations take place.

    If the loan was sold to an investor, such as Freddie Mac or Fannie Mae, the investor will have to approve the short sale.  Investors will have their own requirements and review process before they approve a short sale.

  2. Can the seller impede the short sale process?

    Yes, when a seller is uncooperative and slow to gather/submit the required documentation, this may stall the review process.  This sometimes happens when sellers – who know that a short sale can adversely impact their finances – are reluctant to give up their homes.  They may have very little motivation to cooperate.

    Also, sellers may be required by one of the lenders to make a payment, usually called a “contribution”, at closing to help reduce the lenders losses. Some sellers wait until the last minute and then refuse to make the contribution or think that the buyer will make it for them. When this happens, the short sale is not approved and will not close. The seller has to understand up front that he/she is receiving a financial windfall and a small payment to reduce the lender’s losses is expected.

Short Sale Contracts

  1. What is a short sale addendum?

    A short sale addendum is a critical document in many short sale transactions because it provides the details regarding some of the following:

    • Contingencies upon which a contract can be canceled or executed.
    • Bank’s approval of the short sale.
    • Specific time period the buyer is willing to wait for short sale approval.
    • Release of the buyer’s earnest money deposit.
    • Property inspections.
    • Costs that the buyer and seller may be responsible for as a result of executing the short sale contract.
    • Consideration of multiple offers on the property.

    It is important to work with a real estate professional with experience in short sale transactions to ensure the short sale addendum includes the items that will protect the buyer’s interests during the short sale review and execution process.

  2. Can the home seller cancel the short sale contract?

    Yes, a seller may cancel the short sale contract because:

    • The seller’s situation changes and he/she decides not to sell.
    • A foreclosure action prevents the short sale.
    • The seller accepts a higher offer.
    • The seller has filed for bankruptcy.
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