What Is A Short Sale

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Given the recent real estate climate over the past several years where in some instances the value of real estate has declined, there are now transactions occurring where the sales price of a home is such that it is not enough to pay all the outstanding liens encumbering the property and the seller is unable to pay the difference. This scenario is a short sale transaction or sometimes called a short payoff. In many situations the lender may have instituted foreclosure proceedings or is contemplating such action, wherein the Seller tries to negotiate with the existing lender to take a lesser amount. Why would a lender agree to take a lesser amount? The lender will be inclined to take a lesser amount as a means to avoid the costs of pursuing foreclosure and then having to sell the foreclosed property at a later date. From the view of a potential buyer the transaction generally works the same as if the selling price was greater than the amount of the liens.

Meridian Title is equipped to handle these transactions and here are just a few guidelines that we will be following in order to make the transaction close in a smooth and timely manner:

Written Payoff Letter

In any transaction that we are paying off a prior mortgage we always request this item. However in a Short Sale transaction the Payoff Letter needs to state the lender will accept the reduced amount in full satisfaction of its loan.

Approval of HUD-I

Usually in the normal transaction our escrow staff has to fax over a HUD-I for approval. Short Sale transactions are not any different. Our escrow staff will prepare a preliminary HUD-1 Settlement Statement showing the most accurate available figures, and to forward it to the existing lender. If there are any unusual charges or credits on the HUD-I it may cause the existing lender to decline to proceed with the transaction. Prior to closing, our closers will obtain both the new lender’s and the existing lender’s written approval of the final HUD-1 Settlement Statement.

Special Conditions

Since the existing lender is agreeing to take a lesser amount than what they are owed, there is a good chance that they will have special conditions listed on their written agreement with their Borrower such as Seller not to receive any proceeds, or maybe restrictions relating to broker’s commissions or payoff amounts to other creditors. Of course we will have to follow any special conditions.

Other Liens

Our staff will have to obtain written releases from junior mortgages and other liens before the transaction can be closed. This is not always easy even though there is usually insufficient equity in the property for the junior lien holder to receive anything.

Foreclosure

If the property is in foreclosure we will request written confirmation from the foreclosing attorney that the amount that we have received in the “short sale” payoff letter will be sufficient to dismiss the action with no additional fees or costs.

Andrew Drake, Vice President and Counsel adrake@meridiantitle.com

Please contact your Meridian Title Account Manager for additional assistance or questions.

800.777.1574 • meridiantitle.com

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The American Land Title Association has made available a web portal that will answer many questions related to the home sale and purchase process.  Take and look, let us know if you need additional information.

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