“Lenders are reining in short sales aimed at helping troubled mortgage borrowers.

Troubled homeowners may be losing a major lifeline: so-called short sales. To get bad loans off their books and spur home sales, lenders have been forgiving the difference between the outstanding mortgage balance and the purchase price. Banks were never eager participants in short sales, and now financial firms—even those that can offload losses to the government—are balking at such transactions. Some lenders are forcing the sellers to pay extra money at closing. Others want a promissory note for part of the amount due.

The situation could be a setback for the already wobbly housing recovery. A record one-third of borrowers owe more on their mortgage than their properties are worth, notes research firm First American CoreLogic. The number of underwater homeowners will only continue to rise since values are still falling. And if distressed borrowers can’t negotiate short sales, more may be forced into foreclosure, further depressing prices…”

Read the article: http://www.businessweek.com/magazine/content/09_41/b4150024719851.htm?chan=magazine+channel_new+business

“Debra and Arthur Scriven were served notice in June 2008 that their mortgage lender, a unit of Citigroup Inc., was preparing to foreclose on their home. Fifteen months later, the Scrivens are still in their home near Columbia, S.C., and battling to stay there, even though a dispute with the lender over how much they owe prompted them to stop making regular payments last year.

Legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing “shadow” inventory of pent-up supply that will eventually hit the market…”

Read the article: http://online.wsj.com/article/SB125366552480532521.html

“Home builders, real-estate investors and other home sellers say they have seen a boost in interest as a Nov. 30 deadline approaches for first-time buyers to receive a federal income-tax rebate of up to $8,000.

But one growing segment of the Phoenix-area housing market has not benefited from the impending buyer tax-credit cutoff.

Short sellers, financially distressed homeowners attempting to burrow out from under an unmanageable loan by selling the home to a third party, face greater challenges today because of a perception that short sales are time-consuming and likely to fail, local housing experts said.

However, real-estate agents who specialize in short sales said they currently offer the best deal for buyers and aren’t always as slow and shaky as people think…”

Read the article: http://www.azcentral.com/business/realestate/articles/2009/09/21/20090921biz-shortsales0922.html

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.

The lender can do one of several things:

• Ignore the offer. (This happens.)
• Refuse the offer, either with or without an indication of what net proceeds would be acceptable.
• Ask the seller to bring some or all of the shortfall to escrow. This is a typical first response. If the seller is unable or unwilling to do so, you will need to contact the lender immediately with a letter from the seller to that effect.
• Approve the offer.

If the lender refuses the offer, try to determine the net proceeds the lender would accept. Go back to the buyer and see if he or she will increase the offer to provide those proceeds. This process can be similar to any counteroffer situation, but it takes more time. If the buyer refuses, obtain a cancellation and go your back-up buyers (if any) in order. If there are no back-up offers, ask the lender to give you some time to place the property in the MLS as an “approved short sale” at the price and terms the lender will accept. If you then obtain a buyer who agrees to that price and those terms, you can proceed to close normally. Note that you may need a new approval from the lender even if the price and terms are exactly the same. Check with the lender.

If the lender approves the offer, it will typically be in the form of a demand to escrow (and possibly to you) to the effect that the lender will accept no less than X dollars in proceeds no later than X date. The lender may also attempt to reduce your commission. You can certainly argue with the lender about this, but ultimately, the lender will decide. Remember that the lender is not accepting the offer, but is simply agreeing to a smaller payment that the lender would otherwise be entitled to. This is why it is so important that the estimated closing statement be accurate.

If the lender approves the short sale, it will not care what problems you might have closing the escrow on time, or what unanticipated costs you face. There will simply be a dollar amount that will need to be available at the close of escrow. Once escrow has the approval letter, you can proceed to close in the ordinary way. The buyer may have requested in the purchase contract that the seller move prior to the close of escrow so there are no holdover or possession problems. Remember that the seller is responsible for all the usual disclosures in your state, county, and city. The seller is still the owner of the property and the seller will be conveying title. You will be responsible for all the usual duties of a real estate agent in your state, county, and city.

Reprinted with permission from Realtor.org.

By Frank Dickens, 2007 AAR President

“Close 30 Short Sale Transactions a month!”
“Make $100,000.00 a year selling Bank Owned Properties!”
“Walk away from your debt free!”

Agents are inundated with claims that short sales and foreclosures are the new super-charged revenue generators. Homeowners who have a “Trustees Sale” notice filed receive daily junk mail with “we can help” claims. Do they work?

2009 AAR President Mike Wasmann has appointed a Presidential Advisory Group to identify current issues in the continuing short sale and REO market dominating our real estate economy. Members like J.T. Tsighis of Tucson are serving our NATIONAL ASSOCIATION OF REALTORS® by monitoring our current market and creating tools to assist our members.

In response to emerging trends we are proud to dedicate the next three issues of the Arizona REALTOR® Magazine to short sales, foreclosures, and REO properties. The March, April and May issues will provide information for our members to proactively approach the current market, reduce risks associated with transactions, and provide resources for your clients to obtain the best advice in how to react to their situation.

The fact is there is no magic fix to working with short sales, selling REO properties, or assisting homeowners in retaining their homes. Members must be aware of the potential in the emerging market and assisting property owners; however, our market is not without risks and the need for the best information and tools available.

In the coming months AAR will be aggregating already available resources like the “Short Sale Work Flow” available from NAR, and common links to the best information for your production. Industry partners, attorneys, E&O carriers and experienced brokers will share their expertise in the market.

Our goal is to provide the best information available to assist you in becoming productive, minimizing risks, and helping your clients in these turbulent times. Our hope is the AAR family will help you become the best you can be with the best tools available.

A new rule approved by NAR’s Board of Directors aims for calm when lenders cut commissions
By Robert Freedman

Are lenders getting more responsive to short sales? The view of real estate professionals is mixed, with some saying yes and others saying no, depending on the lenders they work with and where they are.
But one aspect of short sales that has proved troublesome across the board is compensation.

Some MLSs have a rule requiring listing agents to let their colleagues know if a listing is, or is potentially, a short sale, and thus subject to a possible last-minute change in the commission by the lender.

To encourage the adoption of such a rule by MLSs that don’t have one, the NAR Board of Directors in May approved model language for a rule specifying that if you know there might be a short sale, you say that, and put the selling agent on alert that a lender might want a change in commission rate. The goal of the new language is to make at least this one aspect of short sales less painful. Under the model language, MLSs can choose to make disclosure optional or required.

“The amount of time it takes lenders just to get back to you on your loan application is the real problem with short sales, and we can’t control that,” says Colleen Badagliacco, ABR®, CRB, chair of NAR’s Multiple Listing Issues and Policies Committee. “But this rule at least helps eliminate the conflict that arises when lenders come back and want to give us a haircut on our commissions.”

It’s not uncommon for lenders to demand a cut in real estate broker commissions as a condition of approving a short sale. Lenders reason that they’re being asked to accept a payoff of their original loan less than what’s owed.

For practitioners, conflict can arise when there’s no indication in the MLS that the property is, or is potentially, a short sale, and the buyer’s representative finds out only at the last minute.
If, under the offer of compensation, selling agents receive, say, 2.5 percent, listing agents can find themselves in a squeeze if the lender insists on limiting total commissions to, say, 2 percent.
Conflicts like this typically end up in arbitration. Although the rule passed by NAR is voluntary, Badagliacco thinks many MLSs will adopt it for their members.

Far less certain is the direction of lenders in speeding their processing of short sale applications. 

Robert Freedman is a senior editor of REALTOR® magazine. He can be contacted at rfreedman@realtors.org

By Richard V. Mack, Esq.

Short sales and foreclosures are becoming common place in our market. We are consistently asked questions by owners and agents alike about the Arizona anti-deficiency statutes and the tax consequences of a foreclosure or a short sale and deed in lieu. This article answers the two most common questions we receive.

When do the Anti-Deficiency Statutes Apply?
For the anti-deficiency statutes to apply, three requirements must be met:

1. The property at issue must be a duplex or a single family residence;
2. The real property must be two and one-half acres or less; and
3. The loan at issue must be a purchase money mortgage.

A purchase money mortgage is one where the loan proceeds are used to acquire title to the property. A refinance of a purchase money mortgage is also considered a purchase money mortgage for purposes of the statute. A HELOC that is obtained after the close of escrow is generally not considered a purchase money mortgage.
  
Assuming all three of these requirements are met, the Arizona anti-deficiency statutes apply. What this means is that the lender’s remedy will be limited to regaining possession of the real property at issue through a foreclosure process or otherwise. If the anti-deficiency statutes apply, even if the amount due to the lender exceeds the value of the property, the lender may not pursue the borrower for the difference or deficiency.

What are the Tax Consequences of a Short Sale or a Foreclosure?
Generally, when a lender is unable to collect the full amount due on a note, this forgiveness of debt constitutes a taxable gain for the borrower. The theory is that the borrower is paying less than the full amount originally received when the loan was funded. Thus, where a lender is collecting less than the full amount due on the mortgage, either through a short sale, a deed in lieu of foreclosure or because of the anti-deficiency statutes, there will typically be a taxable gain for the borrower. The taxable gain is the difference between the amount owed to the lender and the amount received by the lender. Many lenders have been and will be issuing a Form 1099 to borrowers for this debt forgiveness. Under certain limited circumstances the Mortgage Forgiveness Debt Relief Act of 2007 may eliminate the consequences of this gain.

The information set forth in this article contains general rules only. It should not be construed as legal or tax advice. If you or your clients have any specific questions based on their specific circumstances, please consult your legal and/or tax advisor.

Richard V. Mack is a shareholder at Mack Drucker & Watson, P.C. He is a State Bar of Arizona Board Certified Real Estate Specialist and AV rated by Martindale Hubbell. Mr. Mack practices commercial litigation with an emphasis on real estate litigation.

Assuming that after full reflection and consultation with appropriate legal, credit, and tax professionals, the homeowner decides that a short sale makes the best sense. What are the factors that will lead to a successful short sale? The elements of a successful short sale are typically:

The property is worth less than is owed.
Establish this by doing a careful CMA or BPO, taking into account that the market may be declining. Pay special attention to similar properties that did not sell. The lender will need to see clearly that there is no chance that the property will sell for enough to cover all liens and closing costs. Short sales are considered by buyers to be distressed properties, and will typically command somewhat less than a non-distressed price. Remember that the lender may be thousands of miles away and not at all familiar with your market. Incorporate local newspaper articles about the local market and MLS statistics to strengthen your analysis.

The seller has some hardship that makes it impossible or extremely impractical for the seller to keep the property.
What are hardships as defined by most lenders? Most lenders focus on and require “changed financial circumstances”. Loss of job, unusual medical costs, death of an owner, natural disasters, even extended military service for reservists, can be hardships. There should be a nexus between the hardship and the need to sell. A job loss leading to a problem paying the mortgage is obvious, but an illness might require a family to move closer to specialized medical help, so even without an unbearable financial hardship, the homeowner simply cannot stay. Lenders do not consider a decline in value alone to be a hardship.

The seller is cooperative and willing to work with a real estate broker to package the short sale.
Is the seller cooperative and willing to sell? You will need the seller to help write a narrative of the hardship involved. The seller will be asked by the creditor to reveal all details of the seller’s financial situation. If there is a formal short sale application, the seller will have to complete it. This can be embarrassing, and some sellers simply won’t do it. Prepare them and make sure they are willing to do what is required. If they are uncooperative, you will not be able to help them.

Important Note:  Many troubled loans today are “subprime loans” and/or “stated income loans”. Be especially careful to explain in writing to all sellers that any representations of the seller’s financial status that were made on the initial loan application will be scrutinized in the short sale application process. Sellers may expose themselves to charges of loan fraud if the short sale application information they provide is inconsistent with the material provided on the initial loan application. In other words, if the seller represented on the original loan application that his income was $10,000/month, but on the short sale application represents that his income recently dropped from a high of $5,000/month to $3,000/month, this will raise the question of loan fraud. If the seller is concerned or has questions, it is advisable for the seller to consult with an attorney before completing a short sale application.

The lender is contacted and expresses willingness to entertain a short sale.
Contact the lender’s “loss mitigation” department. Ask for the person who will be responsible for processing the short sale application. Try to speak with the same person each time you call. You will need an authorization letter from the seller verifying that you have permission to speak with the lender on the seller’s behalf. Let the lender know the situation and your proposed short sale solution. Ask for a list of documents that the lender will require. This may vary with each lender. Ask for copies of any proprietary documents the lender specifically wants to see, such as a particular short sale application form or an income and assets sheet. These also will vary by lender. The lender may ask you and other area brokers to do a Broker Price Opinion (BPO) to verify your evaluation. If there is more than one loan subject to a shortfall, you will need to contact multiple lenders and go through the same process. Some lenders are proactive and will immediately send the short sale requirements to you. Others will be non-committal. Even institutions go into denial when faced with bad news. Unless the lender indicates that it will categorically refuse a short sale under any circumstance (a rare occurrence), you can proceed with the next steps.

The property is listed with appropriate caveats and protections for the seller, properly priced, and effectively marketed.

• Seller Protections: When you list the property it is important to have a record of the discussion you have had regarding the short sale with the seller. The listing agreement should state that the seller’s acceptance of any offer will be subject to the lender’s approval of the offer without requiring that the seller bring cash to close escrow, and an agreement by the listing broker to accept the commission as approved by the lender. Offers to purchase the property would need the same caveat regarding lender approval. This protects the seller against agreeing unconditionally to sell the home, only to have the lender disapprove the short sale. In such a case, the seller could be sued for specific performance or damages by a frustrated buyer. The seller should also explicitly acknowledge that the seller will receive no proceeds, that there are significant tax, credit, and legal ramifications to a short sale, and that the seller has been strongly urged to consult with an attorney and a tax advisor before signing the listing.
  AAR produces a Short Sale Addendum to the Listing Contract. For more information regarding this form, go to AARonline. www.aaronline.com/RM/Aug08.aspx
• Pricing: It makes no sense in a short sale setting to start with an unreasonably high price. Some sellers will ask that you price the property at a “break-even” price for them initially. Use your best judgment, and follow your broker’s policies and procedures, but know that a price that attracts no offers will hurt your seller. If the foreclosure clock is already running, you may run out of time. Price the home at a realistic market price today. Adjust the price quickly if you see no activity or if you have no offers. To make the short sale work, you will need to get an offer to the lender quickly.
• Commissions: Short sales present a special problem with conditional compensation being offered to a cooperating broker. As a listing agent, you are not entirely sure what your commission will be until the terms of a short sale are approved by the lender. Your MLS may have adopted NAR-approved language such as the following based upon changes adopted by NAR at the May 2008 meeting:

Lender Approval Listings
Multiple Listing Services must give participants the ability to disclose to other participants any potential for a short sale. As used in these rules, short sales are defined as a transaction where title transfers; where the sale price is insufficient to pay the total of all liens and costs of sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies. Multiple Listing Services may, as a matter of local discretion, require participants to disclose potential short sales when participants know a transaction is a potential short sale. In any instance where a participant discloses a potential short sale, they must also be permitted to communicate to other participants how any reduction in the gross commission established in the listing contract required by the lender as a condition of approving the sale will be apportioned between listing and cooperating participants. All confidential disclosures and confidential information related to short sales must be communicated through dedicated fields or confidential “remarks” available only to participants and subscribers.

Multiple Listing Services that permit, but do not require participants to disclose potential short sales should adopt the following rule:

Section 5.0.1: Participants may, but are not required to, disclose potential short sales to other participants and subscribers. When disclosed, participants may, at their discretion, advise other participants whether and how any reduction in the gross commission established in the listing contract, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating participants.

Alternatively, Multiple Listing Services that require participants to disclose potential short sales should adopt the following rule:

Section 5.0.1: Participants must disclose potential short sales when reasonably known to the listing participants. When disclosed, participants may, at their discretion, advise other participants whether and how any reduction in the gross commission established in the listing agreement, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating participants.

• Marketing: Both for the seller’s sake and to generate lender confidence, your short sale listings should be aggressively marketed. Whatever you would do for an ordinary listing, you should do for a short sale listing. Use multiple pictures, virtual tours, websites, and advertising as appropriate. You may want to accelerate the marketing if there is a foreclosure deadline looming. The lender will need to understand that you have done everything possible to sell the property at the highest price. The lender is not your client. You represent the seller, but everybody should understand that the lender is the true decision-maker. You will want to include the marketing history in the short sale package. Once again, if you have no offers within a reasonable time, adjust the price.

The lender is presented with an offer, accepted by the seller, along with a completed short sale package, hardship letter, and narrative explaining why the short sale is necessary and desirable.

• The Offer
  1. The ideal offer should be from a prequalified or preapproved buyer, with no unusual contingencies, such as the sale of the buyer’s existing residence. It should be flexible in terms of closing. The ideal offer might provide “The close of escrow to occur 30 days after buyer’s receipt of acceptance of the short sale by the lender”. The ideal buyer is willing to be patient. Of course, not all offers will be ideal. If you receive a very low offer, you may wish to attempt to negotiate it between the seller and the buyer as in an ordinary sale setting. Certainly you should counter terms that affect the seller in a negative way, such as early possession without compensation or inclusion of seller’s personal property. Remember that it is the seller who “accepts” the offer. Once the offer is fully negotiated between buyer and seller, it should be signed by both, subject to the approval by the lender as discussed elsewhere in this document. Recognize that lenders will want to see “as-is” offers without credits for repair or closing costs paid to buyers. Policies regarding short sale counter offers vary widely around the country, and also between brokers. Experience suggests that if you receive an offer on the low side of “reasonable” from a qualified buyer, you may still want to pass the offer along to the lender. In a short sale it is more important to get the lender a bona fide offer than it is to negotiate the perfect sale price. The very fact that an offer is presented to the lender for approval may persuade the lender to put the foreclosure process on hold, at least temporarily. The lender will have every opportunity to disapprove the offer and request a different price. Of course, just as in a traditional sale, all offers you receive must be presented to the seller throughout the course of your agency agreement.
  2. AAR produces a Short Sale Addendum to the Residential Resale Real Estate Purchase Contract. For more information regarding the use of this form, go to AARonline. http://www.aaronline.com/RM/Aug08.aspx
  • The Completed Hardship Letter, Short Sale Package, and Narrative
    Every lender is different, and each short sale package can be different as well. You may choose to submit most of the package to the lender when you obtain the listing, and then pass along the offer, or you may wait until you have an offer to submit a complete package. The following are the most common elements. Some will be required, and some are advisable because they help you explain to the lender why the short sale is a good alternative to foreclosure:
    1.  A hardship letter written by the seller describing the seller’s circumstances.
        The seller should be as persuasive as possible in describing why the seller is in no position to continue with his or her financial obligations to the lender. This letter can make or break the short sale. The reasons given by the seller should be compelling and the seller should be both honest and frank in their disclosures to the lender. Include corroborating material. If the seller was fired, include the termination letter. If the seller has medical bills, summarize them. If the seller is ill or disabled, the seller should explain how that has made it impossible for the seller to keep the property. If there are tax problems, the seller should describe and document them. If the property was damaged and not covered by insurance, as in several recent natural disasters, the seller should document the damage and the denial of the claim.
    2. A copy of the purchase contract and all supporting documents signed by both the buyer and seller.
    3. Written proof of the buyer’s ability to purchase the property, i.e., a completed loan application, pre-approval by a lender or evidence of cash on hand (a current bank statement).
    4. A copy of the certified escrow instructions.
    5. A preliminary title report.
    6. An estimated net/closing statement (HUD-1) certified by an escrow officer who is acceptable to the lender. It is very important that this estimate be as complete and accurate as possible.
        Many lenders will reference the closing statement in their acceptance or rejection. You may receive an approval that states “Lender will accept net proceeds of no less than $273,565 no later than November 30, 2009.” If the estimate of net proceeds is wrong for any reason, you may have to attempt to renegotiate with the lender.
    7. A completed and signed IRS Form 4506, “Request for Copy of Tax Form”.
    8. A completed and signed personal financial worksheet. This will include assets such as other real estate, stocks, bonds, 401Ks, etc.
    9. Tax returns for the previous two years.
    10. Employment paycheck stubs for the past two months.
    11. Profit and Loss statement (if the seller is self-employed)
    12. Bank statements for the past two to three months.
    13. A completed Short Sale Application if the lender provides one. Many don’t.
    14. Your CMA/BPO with supporting sales data. You want to show that the offer you are presenting is the best market price offer the lender is likely to receive.
    15. A short narrative, written by you, about the market and market trends in the immediate area of the property being sold. Highlight such data as average time on the market, number of short sale and REO listings in the MLS and price trends. Support your conclusions with material such as recent economic data and newspaper articles. The decision maker may well be in another state and will not necessarily understand why the property is suddenly worth less than the loan.
    16. Your marketing history, showings, and feedback. Here again, you need to show the lender that you have made a real effort to get the highest price. They must understand that you have done a better job than they would have and that you have presented them with a quick and attractive solution to a deteriorating situation.
    17. A formal request signed by the seller that the short sale be approved as submitted.

    *Important Note: If there are multiple loans, you will repeat this process for each lender. It can be especially difficult to obtain a short sale approval from a second trust deed holder or other junior lienholder that is “wiped out” in a short sale. You will probably need to request that the first trust deed or mortgage holder offer at least a symbolic sum to the second trust deed holder to secure an approval. Anecdotally, second trust deed holders have recently been accepting partial payments as low as $5,000 on trust deeds of $100,000 or more.

  • Following Up. Once you have submitted the short sale package, stay in touch with the lender every day if possible. Make sure they acknowledge that the package is complete. Try to talk to the same person in the Loss Mitigation Department each time and document your conversations. This is not a happy decision for the lender. It will get shoved to the bottom of the to-do list over and over again. Lenders are infamous for “losing” short sale paperwork. Keep the seller and the buyer’s agent up to date. If there is a drop-dead time limit to the offer, remind the lender of it often.
  • Subsequent Offers.
    1. There are different opinions and practices concerning whether to submit all offers received to the lender, or whether to limit the submission to the first offer the seller accepts. Many lenders will require in writing that all offers be submitted, as a condition of reviewing the short sale package. Consult with your broker concerning the broker’s policy regarding subsequent offers. Remember, once again, that all offers must be submitted to the seller, even if they are not then submitted to the lender.
    2. In some areas, agents are simply submitting all offers to the lender without having the seller negotiate or accept any particular offer. Recognize that, without an accepted offer signed by both buyer and seller, you will not have a contract even if the lender approves. This approach presents certain practical and risk management issues. Consult with your broker about this practice if it appears to be common in your area, or if you are inclined to follow the practice. 

Reprinted with permission from Realtor.org.

By Christopher A. Combs

Find answers to the questions and more Hotline questions and answers addressing the following topics by clicking on the category in italics above each question. Visit AARonline for more hotline topics.

Short Sales

SELLER MUST AGREE TO LENDER’S REQUIREMENTS FOR APPROVAL OF A SHORT SALE

Q: The seller and the buyer executed a Contract with the Short Sale Addendum. The seller submitted this Contract to the lender for approval. The lender has furnished a notice of approval of the Contract, provided that the seller pay the short sale difference in monthly payments over five years. The seller now wants to cancel the Contract with the buyer. If the seller wants to cancel the Contract with the buyer because the lender’s approval requires monthly payments over five years, can the seller cancel the Contract?

Short Sales

AFTER CONTRACT WITH SHORT SALE ADDENDUM IS EXECUTED SELLER CAN ONLY ACCEPT BACK-UP OFFERS

Q: The seller and the buyer executed a Contract with the Short Sale Addendum. The lender says that it may take four weeks to determine if the lender will accept this Contract. Three days after the seller and buyer execute the Contract with the Short Sale Addendum, the seller receives an all-cash offer to close in fifteen days. Can the seller cancel the Contract with the Short Sale Addendum in order to accept the all-cash offer?

Short Sales

BUYER’S BROKER MAY NOT CONTACT SELLER’S LENDER

Q: The seller and buyer #1 execute a Contract with the Short Sale Addendum. This Contract is submitted to the lender for approval. The seller rejects an offer from Buyer #2. Can the broker for buyer #2 contact the seller’s lender directly to present buyer #2’s offer?

Short Sales

SELLER MUST SUBMIT ACCEPTED SUBSEQUENT OFFER TO LENDER

Q: The seller and buyer #1 execute a Contract with a Short Sale Addendum, and submit this Contract to the lender for approval. Two weeks later the seller and buyer #2 execute a “back up” Contract with a Short Sale Addendum for a $10,000 higher purchase price. The seller then realizes that, if the Contract with buyer #2 is sent to the lender for approval, there may be additional delay. The seller now does not want to submit the Contract from buyer #2 to the lender. Does the seller have to submit the Contract from buyer #2 to the lender?

Short Sales

SELLER CAN SUBMIT “SHORT SALE” BACKUP OFFER TO LENDER

Q: The seller and buyer execute a Contract with the Short Sale Addendum, and this Contract is sent to the lender. The seller has now accepted a back up Contract with the Short Sale Addendum at a higher price, and is planning on submitting this backup Contract to the lender. The buyer on the original Contract is objecting to the submission of this backup Contract to the lender. Can the seller accept a back up Contract and send this backup Contract to the lender?

Short Sales

BUYER’S BROKER DOES NOT HAVE TO REDUCE COMMISSION IN SHORT SALE

Q: In the MLS the listing broker offers a three per cent co-broker commission. The listing broker is the owner of the home and is not taking any commission. The lender has now approved a short sale, but demands that the co-broker’s commission be reduced to two percent. If the co-broker commission is not reduced to two percent, the lender says that they will not approve the short sale. Does the co-broker have an obligation to reduce the commission from three percent to two percent in order for the short sale to close?

Short Sales

SELLER IN SHORT SALE DOES NOT HAVE TO SUBMIT SUBSEQUENT OFFERS TO THE LENDER

Q: The seller and buyer #1 execute a Contract with the Short Sale Addendum. The Contract is submitted to the lender. Three weeks later while waiting for the lender to approve the sale to buyer #1, the seller receives an offer with the Short Sale Addendum from buyer #2. This offer from buyer #2 is $10,000 higher than the offer from buyer #1. The seller refuses to accept this higher offer because of concern about more time delay. Does the seller have an obligation to submit the higher offer from buyer #2 to the lender?

Short Sales

SELLER REQUIRED TO WAIT REASONABLE TIME FOR LENDER APPROVAL FOR SHORT SALE

Q: The seller and the buyer execute a Contract with the Short Sale Addendum. The Contract is submitted to the lender. After two weeks the lender has still not responded regarding approval of the short sale, and the seller has now received a much better offer from another buyer which will not even be a short sale and the seller will receive $5,000 proceeds at closing. This buyer will not accept a “backup”position. How long does the seller have to wait for the lender to approve the short sale to the original buyer?

Phoenix attorney Christopher A. Combs is a partner with the firm of Combs Law Group, P.C., and is on the AAR Hotline team.