I typically don’t reprint publish mass-distributed items, but the mass in this case is the Charlottesville real estate community, courtesy of Bill Tucker of Tucker, Griffin and Barnes. Short sales are becoming more common in the Charlottesville market. We’re not nearly as bad off as other markets, but a little bit of education never hurt anybody.
1 – If the Seller has a second mortgage and/or home equity loan, that means another lender needs to approve the short sale. Also, depending on the facts, the holder of the first mortgage may not agree to any discount, which means the second lender may have to take the full discount. This is still possible, because the alternative may mean that the first lender eventually forecloses resulting in the second lender getting zero.
2 – Short sale contracts may contain a clause making the transaction contingent upon the Seller’s lender’s approval of the short sale. This approval, however, is taking much longer than anyone estimates. One strategy to shorten the time for the approval is to include a clause in the Real Estate Contract giving the Buyer an option to terminate the contract if the short sale approval is not obtained by a certain drop-dead date. You may also want to include a clause allowing the Buyer to extend the termination date.
With this “drop-dead” date, the short sale negotiator may put your contract to the “top of the stack.”
On another note, whether a property is in a short sale situation is not a required disclosure, and is not easily searchable via the MLS (in this case, the Charlottesville MLS) – I cannot speak to other MLS’ policies.
Short Sale Listings: Leaving Out Key Details is Like Telling a Lie – Rain City Guide – Read the comments!
Update 12 February 2009: More from Frank Llosa