A short sale is not a distress sale, it’s actually when the amount owed on a property, the total of all the mortgages, all the mortgages recorded on title, that amount is greater than the value of a property. For example, the first is $500,000, the second is $200,000 and there is a third for $50,000. So that’s $750,000 in total debt that’s owed. If that property is only worth $600,000 in the marketplace, then that’s a short sale. It means that to sell the property and actually clear title, the lenders have to approve to take less than the total amount owed on their loans. In this scenario, the first is going to be covered. They are going to get all of their $500,000 because ideally, the property is going to sell for more than $500,000. It’s the second and third that are going to have to compromise.
In most situations, the second is going to get some money as they will in this scenario and then the third is in pretty bad shape. They are just going to kind of get what’s left over, whatever the second and the first will approve them to get and have to really take the hit. Short sales can be complicated and I’ll tell you why. They are complicated because the lender has to give you permission to sell the property. In a normal sale, you just find a buyer, agree on a price, get a payoff from the lender and then escrow wires them the money and it’s done but in a short sale it’s different. You have to go through the whole first part of the process. Advertise the property, find a buyer, agree on a price but once you agree to a price, you have to then submit that to the lender and get the lender to approve it.
Have the lender say to you that sounds like a fair price. So you get this other 3rd party involved in the transaction who has to be negotiated with and convinced that this is a good price. The other complication to a short sale is obviously you’ve got two lenders in the scenario that I mentioned who are not going to get all of their money and they are not happy about that. So they start looking to different places as to where they can recover some of that money. In a typical short sale, they often make that effort to try and get money from the borrower down the road but it’s not a good idea to ever offer anything as far as seconds and thirds. It’s usually not necessary. They’ll agree to take the money that’s on the table most of the time and it’s just a negotiation.
It’s hard to make generalizations because sometimes maybe it’s a good idea to offer them just a little money out of pocket just to make them go away and not sue you but most of the time if the transaction is true and the property is really being sold for what we are telling them and everything is straightforward, they’ll agree to waive the deficiency. It just takes a little convincing and that’s why it’s a great idea to have a real estate attorney work with you on your short sale. We do short sales, we do the negotiations, we do the contracts, we make sure that the borrower isn’t going to have any risk or isn’t going to have any lingering debt down the road.
Once the short sale is finished, that’s it. If you have short sale questions or you want to talk to an attorney about a short sale, we are very happy to speak to you about it. Just call our office or email us at any time. If it is a good fit, we are happy to list your property for you and frankly, we don’t even charge a legal fee to do the short sales. We treat it just as a contingency fee type case if we can get the lender to pay us some money out of the transaction for our legal work, we’ll take it but if not, the borrower doesn’t owe us any money down the road. So it’s a great way to get free legal advice and free counsel which is something you really don’t hear every day. So it’s something to take advantage of.
For more information on Short Sales In California, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (888) 728-0044 today.