Recently, I have had a lot of buyers as well as sellers ask me about "short sales." Recently the Oregon Real Estate News-Journal published what I believe to be an excellent article on the subject of short sales. With their kind permission, I am reprinting it for you.

SHORT SALES

We frequently receive questions concerning the issue of "short sales" and sales of properties that are in foreclosure.  We are not able to forecast all the issues that will arise from these transactions resulting in complaints that the agency will receive.

In general, these types of sales are characterized by a sales price that is not high enough to clear all debt, liens, and costs of the sale; and which require approval by a third party or other parties not in title to the property. Short sales are only one type of third-party contingent transaction.

In many instances, approval by a lender is required to complete the transaction.  Naturally, the lender wants to minimize their loss by making sure they receive the best price possible, and so may delay giving their approval until the very last minute in order to consider additional offers. If the property is in foreclosure, there is also the looming date of the Trustee's Sale where title to the property will revert to the lender.

If the third party is a bankruptcy trustee, the executor of an estate, or the like, then a court hearing and a decision by the judge may be required before the contingency can be removed.  the requirement for a hearing can add significant time to the process.

A few of the possible risks to either the buyer and/or seller that are inherent in short sales are:

• The deal is not final until approved in writing by the third party even though the buyer and seller have signed reaching mutual acceptance.
• The third party approval may not be granted until the very last minute.
• The third party may require that the property remain on the market, resulting in additional offers.
• The third party may refuse to give consent thereby causing the sale to fail.
• If the buyer pays for inspections and other forms of due diligence prior to third party written consent, the buyer may not recover these funds if the sale fails.
• Multiple offers may result in multiple escrows with earnest money deposits.  Therefore, multiple termination agreements are required to return earnest money deposits for unsuccessful transactions.

These transactions can be complicated and unpredictable, resulting in a high risk for failure.  Therefore, please proceed with awareness and caution.  Obtaining the advice of your Principal Broker or an attorney skilled in real estate and contract law is highly recommended. Licensees need to ensure their clients thoroughly understand the inherent risks involved in third party contingent transactions.  Certainly, licensees should advice their clients to seek competent professional advice.

Article printed with permission of the Oregon Real Estate Agency

Written by Selina Barnes and Ralph Harding, Oregon Real Estate Agency Volume 62 #4 December 2008