Short Sale FAQ's

Please be advised that I cannot provide you with legal or tax advice. Any legal questions should be directed to an Attorney. Any transaction involving a short sale may have significant tax implications and the you are encouraged to meet with a tax professional.

Q: What is a "short sale?"

A: This phrase is typically used to describe a situation in which the Seller's debts secured against the property exceed the sales price.

Q: Does this mean the Seller is unable to sell or transfer the property?

A: No, not necessarily. The Seller can often work out agreements with the Seller's Creditors to allow for the sale to move forward. However, this process often involves many participants and can make the transaction longer in time than your standard transaction. All parties need to be aware of this fact. moreover, even if a Seller is able to convey the property for less than the monies owed, the Seller may still have to pay the Creditor's back the remaining balance from monies other than from the sale of the property.

Q: Does it make a difference as to whether or not a foreclosure action has actually been filed?

A: Yes. If a foreclosure action has actually been filed with the Court, then that means a Lis Pendens has been filed against the property that will, without consent of the Creditors, effectively make it impossible to sell. The foreclosure action also means that everyone who has an interest in the property must make an apperance in the case to assert that interest. This includes, but is not limited to, mortage holders, judgement lien holders and tax lien holders.

The Seller, or the Seller's Attorney, will have to negotiate with all thse parties and/or their Attorneys in order to work out a settlement of their claims that will allow a transfer of the property to the Buyer. This is not the responsibility of the Real Estate Agents or Closing Agents.

Moreover, the Seller should update the Seller's Disclosure Statement to reflect that the property is now involved in a lawsuit.

Q: What if the Seller is not in foreclosure?

A: If the Seller's secured debts against the property exceed the sales price, but an actual foreclosure action has not been filed the Seller must still negotiate with the Seller's Creditors to allow for the transfer. However, this will often mean that the Creditor's have not currently engaged any Attorneys.

This may allow the Seller to avoid additional Attorney fees and negotiate directly with the Seller's Creditors. This could make the process much more simple.

However, the Seller should consider contacting his Creditors even before placing the property on the market in order to set parameters on the sale price. The Seller, when working out a sale price, must factor in the costs of paying the Real Estate Broker's commissions, because they too have a potential secured interest in the property.

Q: What if the Seller signs a contract but is unable to perform under the contract because of the secured debts against the Seller's propety?

A: Then the Buyer may sue the Seller for Breach of Contract. Depending on what disclosures are made by the Seller, the Buyer may also be able to sue the Seller for other claims, including, Fraud and/or Misrepresentation. These could potentially make the Seller liable for Attorney fees, costs and punitive damages.

The Seller may also become liable for payment of the Real Estate Broker commissions.