Short Sales, Portland, OR | FAQ | Michelle Maida Real Estate

Short Sale FAQ’s

Frequently Asked Questions About Short Sales

The following summary is intended to briefly address some of the practical and legal issues that can arise in a Short Sale transaction. This Summary is not intended to be a complete explanation of Short Sales, does not constitute legal advice, and should not be relied upon in lieu of securing competent legal, tax and consumer credit advice.

1. What is a Short Sale? The term “Short Sale” is used to refer to those real estate transactions in which the agreed-upon purchase price is insufficient to pay off all of the secured debt on the property (such as mortgages, trust deeds, state/federal income taxes, liens, property taxes or other local assessments) including the costs of closing, such as escrow and recording fees, title insurance premiums, real estate commissions, etc. If the seller is in bankruptcy, a trustee for the seller’s creditors will take control of the sale. In most Short Sales, the seller must secure an agreement from one or more third-party creditors to accept from the closing proceeds something less than the remaining amount of the debt due them. In other words, the debt is “shorted” or reduced. The one thing common to all Short Sales is that the final decision on price and terms of the transaction, as well as the identity of the ultimate buyer, will be in the control of third parties, usually creditors, whose consent to the transaction is required in order for the seller to convey clear title to a buyer.

2. What does it mean that the “Transaction is Contingent on Third-Party Consent”? Since a Short Sale requires approval from one or more creditors who are not parties to the pending real estate sale transaction, the seller’s agreement to sell must be made subject to (or “contingent upon”) third-party consent. This generally means that if the seller is unable to secure the necessary consent, the transaction fails and all earnest money is to be promptly refunded to the buyer.

3. What kind of changes can a Third Party Creditor make to the transaction and do I have any control over changes or decisions made? In Short Sales it is not unusual for a creditor whose consent is sought to insist that other creditors who would be paid from the closing also share some of the cost. They may also insist that the sale price be increased, or require removal of provisions for the seller to pay certain repairs, etc. Some creditors may require an appraisal of the property before making any decision. Thus, in Short Sale transactions, seller and buyer must be prepared for delays resulting from changes to the price, terms and conditions agreed upon in the original transaction responses from third-party creditors, as well as other events outside of the seller’s and buyer’s control.

4. Do I have to wait for approval from the bank who owns the property before proceeding with appraisals and inspections on the property?. In Oregon, the statewide sale agreement form contains several contingencies dealing with such things as (a) buyer financing; (b) buyer’s satisfaction with the marketability of seller’s title; and (c) buyer’s inspection and testing rights. Some of these contingencies may require the buyer to expend money for such things as loan application fees, appraisals, inspection fees, testing, etc. For this reason, in Short Sale transactions, the deadlines for completion of buyer contingencies may need to be suspended pending third-party creditor consent. However, if consent is slow in coming and the buyer wishes to proceed anyway buyers must understand that there is a risk they could expend their funds only to later learn that the necessary creditor’s consent to the Short Sale cannot be obtained. Normally, buyers have no recourse for recovery of these expenditures.

5. What happens if someone else makes a higher offer for the bank-owned property I want to purchase? Since most third-party creditors will want to secure the highest and best offer for the property, they may insist that it remain on the market, notwithstanding a pending transaction. As a result, a creditor may withhold final consent until they have had an opportunity to compare one offer with other potential offers that may come in the future. In some Short Sales, a creditor may refuse to give consent to a pending transaction because they want the seller to accept another offer, or potential offer, with a better price or terms. As a result, the entire Short Sale process may involve a significant risk of delay or failure.

6. Should I secure additional professional advice from a lawyer or accountant before entering a Short Sale transaction?. Short Sale transactions can be complicated and time consuming. They raise important issues, including income tax implications, liability issues for unpaid mortgage indebtedness, credit rating issues, bankruptcy issues, legal issues, and a range of others. Your real estate broker is not an expert in these areas. Sellers and buyers are strongly encouraged to secure additional competent professional advice before entering into a Short Sale transaction.

Exerpted from @ Oregon Real Estate Forms, LLC Rev 02/08 – Short Sales – a Brief Summary OREF O27A-1

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