[Editor’s Note: The is the last installment on a series about short pay sales, which are when an owner pays off a loan by paying less than what is currently owed on it. A short sale is the sale of a property such that it results in a loan being short paid by the owner. Both occur when the property is sold and the sale price is less than the loan currently owed by the owner. Enjoy!]
Some real estate agents do not prefer to take the time to do the short sale negotiating themselves and hire a “third party negotiator.” There are several issues arising in this case, namely whether the third party negotiator is a California licensed real estate agent who is authorized to do such work and also whether they have signed an agency disclosure with the seller. Without this they would not owe the seller the fiduciary duty of care which their real estate agent does. Furthermore, the fiduciary duty is a non-delegable duty.
It is your agent’s responsibility from that point on–to follow up with the person to whom the package was submitted. The package may move from person to person before it is in the hands of the negotiator who will send it off to the investor for a final review and approve the short sale. You hopefully will then receive a counter offer or short pay approval letter.
After reaching an agreement with the bank you will be able to formally open escrow with the buyer and start the more conventional process of having their inspections done and their appraisal ordered and their own loan process started.
The short-pay approval letter is usually only good for a certain number of days, and they typically allow 30 days to close escrow. If there was a notice of default filed and a possible trustee foreclosure sale scheduled, the escrow must either close before that sale date or, if it is practically impossible, then the negotiator will typically postpone the trustee’s sale 30 days or more if necessary to allow you and the buyer to close the escrow. There is a very narrow margin of error, which means that if the buyer you are in escrow with does not complete the sale within the allotted time, there is a good chance that you may not have a second opportunity to market the property and start the process again with another buyer before the trustee’s sale occurs.
Another factor for you to consider and be prepared to address is that most lenders will require a borrower contribution before approving a short sale. This is true especially if you refinanced a few years ago and took cash out at the time. Another consideration is that junior lien holders may agree to a “lien release” during escrow for a certain amount, but only if you agree to sign a promissory note for the balance or a portion thereof.
There may be tax ramifications as a result of a short sale that vary from those of a foreclosure. Therefore, before you decide to go with a short pay, you must consult with your tax advisor about any tax liability.
Michael Edlen and his team are experienced distressed property owner specialists, certified by the National Association of Realtors as a short pay and foreclosure resource. They may be reached at 310.230.7373 or Michael@MichaelEdlen.com.