A Short Sale refers to the situation in which the amount of money a seller receives at close of escrow, after paying off existing liens and all costs associated with the sale of the home, is insufficient to cover repayment of all existing liens against the property.
All existing liens must be paid in order to convey clear title. This includes lender liens against the property as well as other liens that attach to the property such as property taxes, creditor judgment liens, IRS liens and even unpaid child support payments. The seller must negotiate with one or more of the lenders (lien holders) to accept a payoff “short” of the amount owed to the lender by the seller.
Typically, the lender(s) will not process an owner’s application for a short payoff until the seller has procured a qualified buyer to purchase the property.
Lenders do not normally approve short sales unless the seller can prove that they have no assets with which to cover the shortfall between the sale proceeds and the amount of the outstanding lien(s). Accepting a short payoff is voluntary on the lender’s part. It is therefore possible that the lender(s) will not agree to the short sale and that the transaction will have to be aborted
The short pay approval process can take as little as sixty days or as long as six months or more, depending on the lender(s) involved. Typically, the lenders will require the seller to provide a copy of the buyer’s offer, an estimate of the anticipated seller’s proceeds, a letter of explanation regarding the seller’s financial situation, financial statements, profit & loss statements and copies of tax returns. Most likely, the lender will want to perform an appraisal of the property to insure the reasonableness of the buyer’s offer and the legitimacy of the short sale request.
In most cases, the property is likely to remain on the market, with the seller soliciting additional offers for submission to the lender(s), until the short sale is approved by the lender(s). Thus, there is no guaranty that a prospective buyer will be able to purchase the property.
There most likely will be credit and, possibly, tax consequences for the seller when a short sale is accomplished. Sellers are therefore advised to consult with professional advisors such as attorneys and tax consultants when contemplating a short sale transaction.
Claude Braunstein has been listing and selling homes in San Diego for over 30 years. He is affiliated with Windermere Homes & Estates. Claude has been recognized in San Diego Magazine as One of the Best Residential Real Estate Agents in San Diego County. Claude can be reached by telephone at 858-271-7770, or by e-mail at Claude@ClaudeBraunstein.Com.