Foreclosure occurs when the mortgage lender/bank sues the property owner for failure to pay their home loan, and if the bank prevails, they will then own the property and can sell it at a Sheriff’s sale. Short sales are where the owner of the property is selling the property to a buyer for an amount of money that the seller’s mortgage lender will accept, even though it is less than what is owed on the home loan. The bank takes a loss but does not own the property as in foreclosure.
While a short sale can make the best of a bad situation, it also carries a potential negative impact on the seller’s credit report. Additionally, the difference between the remaining balance on the mortgage and the fair market value of the home can sometimes be classified as income for the seller, depending on the bank and how they pursue it.
In order for a short sale to happen, the bank which originated the first mortgage has to approve the short sale contract and other documentation from the seller. There are a number of supporting documents that have to be provided by the seller, including but not limited to:
- Hardship letter
- Financial budget
- Assets and liabilities
- Tax returns
- Pay stubs
From the buyer’s perspective, it is sometimes a problem to obtain a mortgage of their own for the purchase. There is a time frame that the short sale lender approves which must occur within the same time frame dictated by the buyer’s lending institution. Because of these reasons, short sales have the potential to be burdensome to bring to fruition. As the attorney I must coordinate these time intervals, approvals and clearances accordingly.
When purchasing a home through a short sale, be prepared to see certain things that you would not ordinarily expect to see when purchasing a home. If the short sale transaction is a multi-family family house and the seller does not obtain any proceeds of the sale, the seller may leave the deal with unfinished business still at hand – such as retaining collected rents and security deposits.
If the home in question is a condominium, there may be accrued maintenance fees in arrears for thousands of dollars. Often the buyer refuses to pay, the seller refuses to pay, and the condominium association refuses to write off the debt. A situation like this could significantly increase cost on the buyer’s side or cause the deal to be terminated.
There are many benefits to the buyer, the most obvious being the purchase price of the home. Usually the homes are sold for below fair market value.
Here at Winograd and Schwartz I handle short sales from both the buyer’s and seller’s perspective. With over 30 years of experience, I can help you understand the often confusing world of real estate law.
How has your property value been holding up? Do you feel like “Something has got to give”? Call today for a consultation and we can find a solution together.by