by Peter N. Brewer, Esq., The Law Office of Peter N. Brewer
A buyer may wish to ensure that contingencies remain open and the time within which contingencies must be removed will commence upon the bank’s approval of the short sale. That way if circumstances change during the waiting period, the buyer will still have the opportunity to withdraw from the deal if unacceptable conditions are discovered.
Because the short sale process takes a long time, a buyer should also consider what might happen to the value of the property while waiting. If the value continues to go down the buyer may nonetheless remain contractually bound to purchase. Is this a risk the buyer is willing to accept? Will it affect the buyer’s ability to qualify for a loan if the value goes down but the purchase price is already established in the contract – it may mean the buyer will have to come up with more down payment.
Another stumbling block that is showing up is that many banks are conditioning their approval of the short sale on their borrower (the seller) agreeing to be personally liable for the shortfall or waiving any defenses to the bank pursuing the shortfall in a later action. If this comes up at the last minute and the seller is unwilling to agree to that, it may cause the transaction to fall apart. A buyer may want to inquire whether this is the bank’s policy, before wasting a lot of time waiting for an approval.
A buyer may also want to ask the listing agent for some financial information about the seller’s loans. How many loans are against the property? If there is more than one it is far less likely that both lenders will agree to each accept some of the shortfall. The senior lender will want the junior lender to take all the shortfall, and the junior lender will be unwilling to walk away with little or no repayment on its loan. How short is the sale? If the seller is hugely underwater it is less likely that the lender will accept a sizeable loss. The buyer should ask these questions of the listing agent.
These are only some of the issues that can affect a short sale, and this article is written from the buyer’s point of view. A short sale seller has additional issues, not the least of which are tax and credit ramifications. If our office can help you or your clients with these or any real estate legal matters, please give us a call.
You can contact The Law Office of Peter N. Brewer at 350 Cambridge Avenue, Suite 200, Palo Alto, California 94306, phone: (650) 327-2900 , or on the Web at www.BrewerFirm.com.
Peter N. Brewer, Esq., is a California real estate attorney with thirty years’ experience, and is the owner and managing partner of The Law Office of Peter N. Brewer, in Palo Alto, California. The firm serves the legal needs of homeowners, real estate and mortgage brokers, agents, brokerages, title companies, developers, investors, and other real estate professionals and their clients.