What is a short sale?
A short sale occurs when a seller owes more than the fair market value of the home, faces a demonstrable financial hardship, and needs the seller’s lender(s) approval to close escrow.
Why must the seller’s lender approve the transaction?
The seller’s loan(s) is a lien against the property; in order for title to the property to pass to the buyer, that lien must be satisfied. Therefore, getting the seller’s lender(s) to accept less than it is owed is a critical step in a short sale. For the seller’s lender(s) to accept a short sale – and therefore less than what’s owed on the loan(s) – the seller has to demonstrate a financial hardship and inability to pay back the full amount of the loan(s).
What happens after the offer is written?
The offer will be presented to the seller, and if the seller wants to accept the offer, the buyer may receive a counteroffer or addendum containing “contingency” language. That is, the seller is willing to accept the offer, but the deal will not be final until the seller’s lender(s) approves of the transaction. Then, the seller’s agent will submit the signed contract, including any counteroffers and addenda, to the seller’s lender(s) along with other documents that the lender(s) may require.
How long will the process take?
It depends on the seller’s lender’s workload and requirements. Buyers who submit an offer on a short sale must be prepared to wait at least two to three months for the seller’s lender(s) to approve the transaction. Remember that after the seller’s lender(s) approves the transaction, other contingencies may have to be met (home inspections, buyer’s loan qualifications) before the transaction actually closes. The seller’s lender(s) approval is only one piece of the puzzle.
Why does it take so long?
Lenders are flooded with short sale requests. Multiply that by the amount of paperwork required to process and approve a short sale and you have a backlog. No one, including the Brokers and Agents involved in the transaction, can control the seller’s lender’s approval.
Will the house stay on the market?
If the property is listed in the Multiple Listing Service (MLS), it will be placed in “Contingent” status, meaning that a purchase agreement has been executed, but the deal is awaiting short sale approval. As a practical matter, listings that are in contingent status come up in property searches, and it is possible that another buyer will see the house and make an offer. The seller’s agent will be required by Nevada law to present other offers.
If my lender(s) agrees to the short sale, do I still owe the difference?
It depends on the lender. You may receive a deficiency judgment for the difference between the amount of the sale and the amount of your loan(s), which you will still owe. The lender may forgive the debt, and the IRS may treat that as income. There may be consequences on your credit report and credit score. You should seek professional advice from an attorney, certified public accountant or other professional as to the credit, legal.
What about foreclosure?
If you are behind on your mortgage payments, a lender may proceed to foreclose upon the house, either in court or through a “power of sale” clause in your loan agreement. The lender will record a Notice of Default and Election to Sell. Once that happens, Nevada law requires a three month waiting period which includes a right of redemption during which you may bring the loan payments current. If the lender moves forward with selling the home, Nevada law requires that a Notice of Trustee Sale be recorded at least 20 days before the sale. If the foreclosure sale occurs before the short sale is approved and closed, your will lose your rights, title and interest in the home. If you receive a Notice of Default while the property is listed, you should notify your agent and seek legal counsel, credit counseling or other assistance in understanding your rights and obligations.