There is a sense in which the term short sale is a bit of a misnomer. That is because short sales often take a very long time. This is just one of the things that principals and their agents need to be aware of if they are intending to be involved in a short sale -- i.e. a sale in which the proceeds will be less than the balance owed on the mortgage loan(s).
Recently, the California Association of Realtors® (CAR) published a Short Sale Addendum (SSA) that may be used with an offer or counter offer in a short sale situation. The addendum is useful because it provides a reminder to agents and principals, who might not normally deal with such situations, of things they might not think (or remember) to address.
The SSA covers six topic areas. Two of them require the principals to make a decision. The remaining ones are advisory in nature.
The first section notes that the sale agreement is contingent upon the seller receiving written consent from all existing secured lenders who will be required to reduce their loan balances in an amount sufficient to permit the sale proceeds to pay, not only the reduced balances, but also other costs of the transaction such as escrow fees, title charges, and brokerage commissions. This paragraph provides a space for buyer and seller to agree on a date by which such consent must be obtained. It stipulates that if consent is not obtained by that time, either party will be entitled to cancel the agreement and the buyer's deposit shall be returned.
In this regard, some experience and/or some pre-negotiation work by the listing agent with the lender(s) will be important. All need to know that it is going to be weeks, perhaps months, not days, before lender consent is obtained. Putting down an early date is not going to force the lender to move any more quickly.
The next section addresses the issue of the time periods for inspections, contingencies, and other obligations of the parties. Will those time periods begin to run at the time a sale agreement is reached, or after a set time, or not until lender consent is received? Most will probably want to wait for the latter. Few buyers will want to go to the expense of having inspections before they know whether or not the lender is going to accept the deal.
The third section advises the buyer that the lender(s) will not be obligated to accept this particular offer. Moreover, it is noted that the lender(s) "may require Seller to forward any other offer received; and (iii) may accept other offers." Just because the owner of the property is agreeable to the offer made doesn't mean that the lender(s) will be. Another section of the addendum specifically notes that the seller may continue to market the property and to submit other offers to the lender(s), unless there is a specific agreement to the contrary.
Both buyer and seller are also advised that they may incur other costs -- such as those associated with a loan application and appraisal -- for which they will be responsible even if the lender(s) ultimately reject the transaction.
Finally, the SSA informs the seller of that which the seller should already have been informed, namely, that there may be tax, credit, and legal consequences from a short sale, and the seller should seek advice on those matters from experts in the fields. It isn't something a real estate agent should be giving advice about.
Short sales are going to be around for a while. Those who may be involved with them would do well to be aware of the various considerations raised by the Short Sale Addendum. And be prepared to spend some time.
