What Every Buyer Should Know About A Short Sale

Published May 3, 2012 | By Jessica Sales Cohen

In this housing market, many buyers are out looking for the best deal possible. When you find a property that appears to be listed far below the local market, it may be a short sale.

What is a “short sale”? A short sale occurs when a owner of real estate seeks to sell a property where the outstanding amount due on the mortgage is more than the agreed sale price. In order to complete this type of transaction, the seller’s mortgage holder must be willing to accept less than the outstanding mortgage amount in order to release its lien on the property. For example, the lender may approve a short sale to avoid a lengthy and expensive foreclosure process, especially if it anticipates that the proceeds from a foreclosure auction may be less than from a short sale. Ultimately, the short sale process results in the lender accepting a reduced payment and the seller receiving no proceeds from the sale.

Hire professionals with experience. When dealing with a short sale, it is important to have an agent and attorney experienced not only in transactional work generally, but also specifically in the short sale process, which is intricate and time-sensitive. You will do yourself a service by surrounding yourself with professionals who have successfully closed short sales in the past. An experienced agent will know how to best submit the paperwork to expedite the process. An experienced attorney will ensure that you are meeting the sensitive financing and closing deadlines, and will help you avoid legal pitfalls specific to short sales.

Know the process. The short sale process is considerably more complicated and lengthy than a normal purchase. Once the seller has accepted your offer, the offer must then be submitted to his lender for approval. Unless and until the lender completes a sometimes lengthy analysis of the transaction, and approves it, you do not have a deal. An experienced agent will send the offer to the lender right away, along with a copy of your earnest money and pre-approval letter. Along with your offer, the seller will need to submit documentation that he or she has no equity in the property and is unable to repay the loan due to hardship. Once the short sale is approved, the seller’s lender dictates the conditions of the release of its mortgage. Meanwhile, despite the lengthy approval process, you as buyer will be expected to do everything necessary to get your financing in order in a timely manner – even with no guarantee that the short sale will be approved ultimately.

Do your homework. Do some research before making an offer to purchase a short-sale property. A quick search of the records at the Registry of Deeds can tell you who owns the property, how many mortgages are outstanding, and whether a complaint to foreclose has been filed. This up-front research will help you formulate an offer that the lender is most likely to consider. Ask your attorney to assist you with this as necessary.

Have an inspection. Property purchased in a short sale is usually sold “as is”. Generally, the lender will not negotiate the purchase price or provide credits based on property defects. As such, it is extremely important that you obtain a home inspection early on in the process to avoid surprises later on. If you are not comfortable with any major element of the property’s condition, consider walking away from the deal early.

Prepare to wait. A short sale can take several months to complete. It is not unusual for a lender to respond to an offer from weeks to months after it is submitted. An experienced agent and attorney will find out the right contact person at the lender to keep the process moving, but ultimately the timeline is in the lender’s hands. If the lender does accept your offer, it will issue an approval letter, setting forth very specific conditions which must be met at the closing in order for the lien to be released. It is critical for your attorney to be experienced with short sales and understand the approval letter in order to ensure that all conditions are satisfied in full at the closing.

There are certainly great deals to be had through short sales, as long as the buyer is informed about the process, does his homework, and surrounds himself with competent, experienced real estate professionals who will help guide him away from pitfalls.

Sol J. Cohen is a partner at Cohen & Sales, LLC, a Waltham based law firm with a combined 30 years of experience in Real Estate Conveyancing and general litigation. For more information contact Cohen & Sales, LLC at (617) 621-1151 or info@cohenandsales.com.

Leave a Reply Cancel reply

What People are Saying

You Have Been Wonderful to Us... My wife and I recently used Sol Cohen as our attorney for our first home purchase, and let me just say, we could not have completed the process without Sol's expert knowledge, patience, and thorough approach. We had a very tricky and drawn out closing process and Sol was always happy to answer any of our questions (in easy-to-understand detail) and was always accessible by phone or email. I always felt that he was looking out for our best interests only, which is a good feeling, considering the amount of people involved in these types of transactions. Whether you are a first-time home buyer or seasoned in real estate purchase and sales, I would absolutely recommend Sol Cohen's legal services. I plan on using Cohen & Sales in the future, whether it is to refinance or in other real estate related transactions.

Steve S.
Boston, MA

I Recommend Them
Without Reservation I have been an active real estate broker in the Greater Boston area for the last ten years. Over that period of time I have had the opportunity to meet and work with many real estate attorneys. Of all of the attorneys that I have worked with, most of whom are quite competent, there is none that I feel more strongly about recommending to my clients than Cohen and Sales. The combination of accessibility, intelligence, hard work, and trustworthiness truly makes them stand above the competition. I recommend them without reservation.

Craig F.
Melrose, MA

Above and Beyond...
Five Stars!! I recently used Sol Cohen as my attorney in my first home purchase. The transaction was particularly difficult and he worked very hard to make my closing happen on the scheduled date (even when our lender had told me it was going to be rescheduled). As a first time buyer, it was very important for me to have an attorney who was accessible, able to answer my questions and explain the process. Sol did all that and more going above and beyond what I had expected. Sol and his paralegal, Laura, worked tirelessly on my closing - even staying after hours to complete the closing documents. Sol has his client's best interest in mind and gives wonderful advice. I definitely plan to use Sol again for any real estate closings and I highly recommend his service. Five Stars!!

John B.
Billerica, MA

Levelheaded and
Easy to Work With...
I have worked with both Jessica Sales and Sol Cohen on real estate closings and highly recommend them to anyone who needs a real estate attorney. For the last few months I have been working with Sol on back to back closings (sale and purchase) and he was very responsive to me, the mortgage lender and my broker. My mortgage lender said he is great to work with. My broker said he is very levelheaded and easy to work with. By the end of the several month long transactions and paying everyone from brokers to construction workers to inspectors to movers etc., Sol Cohen was the only person who more than earned his money. I highly recommend both Sol and Jessica -- they are great to work with.

Amanda K.
Essex, MA