Short Sale Basics And Tips

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July 2011- Download the PDF 

When a seller has exhausted the possibility of remaining in the home through a loan modification program or needs to sell due to other circumstances and they have mortgages, liens, and expenses more than the home’s present value, the solution may be to apply to the Lienholders for a “short sale”. A short sale allows a borrower to sell the home for less than the total amount of the mortgages, liens, and expenses. It helps the borrower avoid foreclosure and reduces some of the lienholders’ loss by avoiding or minimizing foreclosure activities. The borrower’s credit also may not suffer as much as experiencing a full foreclosure. The borrower usually does not receive any of the proceeds of the short sale (unless special circumstances apply).

Unfortunately with high unemployment, declining home values and other factors, the number of short sales has overwhelmed the banking industry and the result is an approval process that is very time-consuming and lengthy. Below are some tips to help you avoid the short sale issues that may or could delay your sale:

  1. Seller should contact their servicer early and provide all financials as well as a hardship letter in PDF format.
  2. All documentation should be completed thoroughly and accurately.
  3. Submit a signed Seller authorization for their Bank to discuss and release information in regards to the Short Sale transaction to both you and Meridian Title.
  4. Confirm the purchase offer is legitimate, fully executed and a fair market value.
  5. Verify that Buyer is not a related party to the Seller and look for red flags of Short Sale fraud. An Arms Length Affidavit may be required by Lender.
  6. Use of a Short Sale Addendum to the Contract to Purchase is helpful in providing pertinent language.
  7. Set realistic expectations with the Buyer of the time frame involved in getting an approval and make sure the buyer’s financing will allow for such delays.
  8. Address in the contract or addendum who is to pay fees that may not be allowed by the Short Sale Lender — these may include deed preparation, wire fees, closing and processing fees, TIEFF, county water certifications fees, etc., regardless of terms agreed to by buyer and seller in the Contract to Purchase.
  9. Buyer may have to agree to pay fees not allowed by Seller’s lender.
  10. Provide listing information and comparables to support the purchase price, including data, pictures of damage and true condition.
  11. Avoid changing the buyer information as it may start the process all over.
  12. Order a preliminary search of title from Meridian Title at time of listing so you are aware of any liens junior to the Short Sale Lender avoiding any delays upon receipt of an offer.
  13. Release of payoff information on Junior liens must be received prior to issuing an approval letter – remember that a junior lien holder is not required to release even though they may not receive any money if property goes to foreclosure.
  14. Request a preliminary HUD from Meridian Title’s Short Sale Department and provide to Bank detailing all fees that may be associated with the transaction including commissions, administrative fees, home warranties, etc. Again keep in mind these fees may not be allowed by the Bank but can not be removed or waived in most circumstances.
  15. Keep in contact with Bank negotiator on continual basis and comply with the lender’s procedures regarding follow- up frequency.
  16. Review and forward Approval Letter upon receipt to Meridian Title Corporation. Confirm approval matches the current terms of transaction in regards to allowable fees, tax prorations and minimum required and SET CLOSING!

Frank A. Antonovitz Vice President/Senior Counsel

800.777.1574 • meridiantitle.com

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The American Land Title Association has made available a web portal that will answer many questions related to the home sale and purchase process.  Take and look, let us know if you need additional information.

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