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Short Sale Info (REO)

What's a short sale?


  •       A sale where the existing lender agrees to accept less than the mortgage balance when a seller wants to sell their property.


  •      Short sales are not a new procedure.  Short sales have existed for a long time.  They are just more popular again with the rising rate of foreclosures in the market.   Major events both natural and economic bring on short sale environment.

Why would a lender agree to a short sale?

  •     Cost of foreclosure to the lender is high.


  •        Lenders don’t necessarily want to hold inventory (REO) property.


  •        Future costs and liability of REO property can be high. (Assessments, natural disasters, vandalism on vacant property, marketing property for resale, etc.)

Why would a seller want to do a short sale?

  •        It may be easier to re-establish bad credit than to have a foreclosure hanging over them for many years.


  •        They have tried to sell for a while and are now behind on mortgage payments, taxes and other assessments.

 What’s next?

 A second mortgage may end any plans for a short sale. If the second mortgage is not held by the same lender as the first, they are usually not inclined to go along with a short sale. They lose.


  •       Seller must give negotiation rights to deal with lender to realtor or short sale negotiating companies.


  •       Buyer must be motivated and willing to wait.  Most short sales take 2 to 4 months to complete.

What a short-sale lender may require:


  •      Copy of the contract signed by all parties, together with any addendums.


  •        Hardship letter from the seller.


  •    Proof of income and assets.


  •        Purchase agreements and/or listing agreements.


  •       Bank statements.


  •        Comparative Market Analysis.


  •        Agreement by any PMI holder on the terms of the short sale.


  •        Property Appraisal.


  •        Copy of commitment revealing all recorded liens and judgments affecting the property and the owners.



What a Seller must know:

  •      The difference between the full amount of the existing balance and the amount agreed upon for the short sale is TAXABLE by the IRS.


  •        Seller should make sure lender will waive any deficiency judgment rights in writing.


Where does the TITLE COMPANY fit in the short sale picture?

  •        They will need full copies of the contract and all addendums.


  •       They will need a negotiated payoff from the short sale lender or attorney representing the lender in writing by a PERSON IN AUTHORITY!


  •      If buyer is an investor, facilitator, or any other 3rd party that then has another buyer, any fees or assignments must be in writing as part of the contract and placed on the HUD.


  •      If investor, facilitator or any other 3rd party wants to take title and then “flip” the property to another buyer, this will be TWO SEPARATE transactions with money coming to the closing table for both deals.


  •       The end lender for the ultimate buyer, not the mortgage broker, must agree to the transactions (including assignments, flips, or fees) in writing by a PERSON IN AUTHORITY.


  •    Appraisals should be approved by or ordered by the end lender of the ultimate buyer, not ordered by investor, facilitator or other 3rd party including the mortgage broker.


  •       No funds should go back to seller or buyer.


  •       Investors, facilitators or other 3rd party should not be related to buyer or seller.


  •       Relate anything unusual or suspicious to TA immediately so that legal counsel can be consulted if necessary.


 If you have any questions on the process or need help, Email us and we will be happy to assist in your acquisition.

Short sales are a viable way to acquire property at a reduced price. Just be prepared to document everything and expect to wait 30 to 90 days to close.

  Carmel Mortgage
29 Navajo Drive
Salinas, CA 93906
Phone (831) 275-0380
Fax (831) 536-1803

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