By Bob Stephens, CRB
Not much! Let’s look at it this way. A regular normal sale contains an offer and an acceptance by the seller. The contract then is packed with contingencies that are pretty much in favor of the buyer. They can walk from the deal in many ways as the deal progresses. The seller does not have this ability unless the buyer breaches the contract. Most notable of the contingencies, usually, is that the buyer must borrow money to buy the house and has a financing contingency to obtain a loan from a lender.
Now let’s look at it in the “short sale” mode. Everything is the same including an OFFER by the buyer and an ACCEPTANCE by the seller, except there is a contingency regarding lenders for BOTH the buyer and the seller. The seller owes MORE to the lender than the house is worth and must now ask the lender to “forgive” some of the money owed to them to be able to close the deal.
As you see, there are two lenders involved in this transaction — one for the buyer and one for the seller. And as always, the lenders make a lot of demands on paperwork to clear their deals and be able to close. The paperwork is just a little different: the seller must be able to prove hardship and document WHY he cannot pay what he owes the lender. On the other hand, the buyer must prove WHY and how he can pay back the lender.
Neither of these lenders OWNS the house and never will unless they are forced to foreclose on it. The seller’s lender has a lien on it that must be released so that the buyer’s lender has clear title and can then place a new lien on the house.
There is a misconception that the seller’s lender seems to be the only one that has any power. Yes, of course they have some power, but so does the buyer’s lender: the buyer’s lender makes loans as a business to make money; the seller’s lender wants to make the deal so they don’t have the great expense of foreclosure. Too many foreclosures and they will have a real problem getting their loans insured.
I hope this different look at the transactions will make them a little clearer.
Bob Stephens, CRB, is managing broker of West USA Realty.
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© 2009
March 16th, 2009 at 5:56 pm
Yes, “regular” sales and “short-sales” are similar in the ways mentioned but that is where the comparison ENDS! It would be irresponsible for a real estate broker to suggest to a buyer (or a seller for that matter) that these kinds of sales are very similar. It’s like saying that a lion and a kitty are the same because both have fur, both have teeth and both come from the cat family. Short sales are hard on the buyer, the seller, and both agents. Short sales take a long time to get an answer from the bank because lenders have not developed a workable process to facilitate the sale. In my opinion, the comparison ends with both are sales. And sometime they’re not even that! Doug Hill, Coldwell Banker