Legal implications of a short sale.
Short sales allow a homeowner to close on the sale of property worth less than the debts secured by it. Typically, the lender agrees to accept the net proceeds from a closing in exchange for releasing its lien. Lenders are not agreeing to a short sale to be generous, they are convinced that it will come out better than it would by foreclosing on the home and pursuing the borrower for its losses. While the procedures for a short sale will vary from lender to lender, most lenders need to be convinced of the following:
The sales price of contract is equal to what they would be able to sell the property for after a foreclosure. While the lender may review the market analysis provided by the agent, they will often confirm the market analysis by contacting its own sources, such as an appraiser.
The commission for the transaction is equal to the commission it would pay its agent for selling the home after foreclosure. The lender will need to know as precisely as possible the amount of proceeds it can expect to receive from the sale.
The lender will want an explanation of the circumstances which caused short sale in the first place. These usually include death, medical problems, divorce, loss of a job, or a job displacement requiring a move.
The seller doesn't have the resources to make up the mortgage shortfall on their own. The lender will require a full assessment of the financial condition of the seller. Financial statements, income and expenses, tax returns and the seller's paycheck stubs should be provided. The seller's financial condition is a tricky proposition. While the lender will be reluctant to approve a compromise without reviewing strength of the seller, this information will help the lender in pursuing the seller for a post-foreclosure deficiency if the short sale does not take place.
A seller with few assets, little or no income, and a willingness to file bankruptcy has little to lose by providing this information. Those with other assets, a good job with garnishable wages, or a desire to avoid bankruptcy will put themselves at risk in the process. Those considering a short sale need expert legal advice regarding the wisdom of submitting financial information to the lender.
2 comments:
Hmmm... another good article on the topic.
Have you seen a short sale rejected just based on the financial info. Like if they're making too much money or have too many assets?
Or rejected based on something they didn't like in the hardship letter?
I wonder how closely they look at it. Seems like a lot of that is just formality.
Or maybe not?
I heard a case recently where the short sale fell through solely because the seller looked a little bit too rich on paper.
That's a tough one. I mean, in this economy a person may look like they have assets but those assets may not be easy liquidate. Even having a ton of equity in another home doesn't mean you can easily tap it any more like we used to back in tha day.
So if I have assets and tell the bank that they may either:
1) reject the short sale
2) or even worse, now have ammunition to after you after the foreclosure (actually the second could, the first probably wouldn't in CA)
Investors with multiple homes could be taking a risk by going the short sale route because of that.
But what's the alternative? Lie and say you're really broke?
I bring this up because I think many people who are well off are still holding on to their underwater properties where it doesn't make business sense anymore.
But they're afraid to short sale those houses because of credit score implications and possible deficiency judgment by the second.
Seems like a tough choice.
Do you have examples of any investors you have done short sales for that own multiple houses? I wonder how they made that decision.
But then again, most people you're dealing with probably don't have any assets to worry about. Right?
Sorry for such a long comment. Perhaps it will add some angles for discussion.
I have worked with several investors on short sales. The bank looks at every situation differently. Most investors that want out have several properties. It all depends on if a first and second is involved on the property. The good thing is at this point the investor gets a chance to negotiate. Once you close and the bank accepts the short sale they report as paid in full to your credit. If you foreclose you never know what the outcome will be.
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