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SHORT-SALE DEFINED. The term “Short Sale”
is used in the real estate business to describe a situation where there is more debt owing against a property than the property
is worth. In other words, the owner can’t sell the property unless the creditors (“Third Parties”)
agree to accept a payment that is less (or “short”) of the amounts actually owed to those Third Parties.
The Third Parties are usually mortgage lenders, mortgage insurers, bankruptcy trustees, and federal, state and local
taxing authorities (such as the IRS or State Tax Commission).
NO
BINDING CONTRACT WITHOUT THIRD PARTY APPROVAL. A Short Sale requires the written approval of the Third
Parties. Consequently, the owner of the property, and any interested buyer, are advised that even if they
reach an agreement between themselves for the purchase and sale of the property, that agreement will not be binding until
the Third Parties approve the terms of the Short Sale.
THIRD PARTY REJECTION
OR CHANGES TO PROPOSED SHORT SALE. Based upon the obvious financial loss, Third Parties will often reject
a proposed Short Sale. If however, the Third Parties do not reject the proposed Short Sale, they will usually
send to the owner a list of requested changes to the proposed purchase contract. Some of those changes
will affect the owner; and other may affect the interested buyer. For example, the Third Parties may require
that the property be sold in “As-Is” condition. Also, the Third Parties will normally not permit
the owner to pay for any of the buyer’s closing costs, repairs, etc. The owner and the interested
buyer are not obligated to accept any of the changes requested by the Third Parties – in which case, there will be no
Short Sale. If, however, the owner, the interested buyer, and Third Parties reach a written agreement with
each other, then, at that pint, the Short Sale transaction may proceed to closing.
DELAYS IN RESPONSE FROM THE THIRD PARTIES.
Most purchase contracts for Short Sales impose a deadline for written approval by the Third Parties. As
a practical matter, the third parties rarely meet that deadline. THE OWNER AND THE INTERESTED
BUYER SHOULD BE PREPARED FOR SIGNIFICANT DELAYS IN RECEIVING ANY RESPONSE FROM THE THIRD PARTIES.
RIGHT OF THIRD PARTIES TO ENCOURAGE
ADDITIONAL OFFERS. As a condition of considering any proposed Short Sale, the Third Parties will usually
required that the owner keep the property on the market, even after the owner and the interested buyer have agreed to the
terms of a proposed purchase contract. As a reminder, the Third Parties are being requested
to accept payment that is less than what is owed to them. Under those circumstances the Third Parties want
to obtain the highest possible price for the property. Therefore, is to their advantage to require that
the owner keep the property on the market, and to promptly submit to the Third Parties any additional purchase offers that
the owner may receive from other interested buyer. THE OWNER AND THE INTERESTED BUYER SHOULD UNDERSTAND
THAT THE THIRD PARTIES MAY NOT EVEN RESPOND TO A PROPOSED SHORT SALE TRANSACTION UNTIL THEY HAVE AHD AN OPPORTUNITY TO COMPARE
THAT OFFER WITH OTHER PURCHASE OFFERS. THAT PROCESS MAY ALSO RESULT IN SIGNIFICANT DELAYS FOR ALL PARTIES.
RIGHT OF BUYER TO CANCEL. The owner will usually be required by the Third
Parties to continue to market the property even after the owner and the interested buyer have entered into a purchase agreement.
Based upon that requirement, the owner and the interested buyer are also advised that until the owner, the interested
buyer, and the Third Parties reach a written agreement, the interested buyer may cancel the proposed Short Sale transaction
for any reason, or for no reason, by providing written notice to the Seller.
We recommend working
with a real estate attorney and licensed real estate company on short sales. Visit our affiliate company, Quinsigamond
Realty, at www.QuinsigRealty.com for more information about real estate sales.
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