Short Sales: The Roles of the Parties

The Attorney

When should an attorney get involved and what is the fee? A qualified attorney should be involved in the transaction immediately! We receive numerous calls from potential clients who have spent a lot of time and energy attempting to negotiate with the bank directly only to become frustrated with the process.

There is no consultation fee whatsoever. Our attorneys are expereinced short sale expert negotiators. There is no transaction fee whatsoever; the lender will pay our entire fee! In no event, will the attorney seek reimbursement from you should the lender reduce the  legal fee. 

The short sale process cannot begin until an executed Contract has been submitted to the lender. Contrary to what others might say, there must be an accepted offer which is then turned into a formal Contract along with a downpayment held in escrow. It is important to understand that the lender will continue to foreclose until the short sale closing takes place.

There can only be one Contract executed at the same time. The Contract is a legally binding document which will contain a short sale contingency similar to the standard "buyer financing contingency". That is to say, the Contract is "subject to" the short sale lender's consent. If they fail to do so, the transaction is rescinded and the downpayment is returned to the purchaser. 


The Real Estate Agent

The real estate agent has a very important role in the short sale process. They are responsible for listing the home; however, they must do so in a particular way so as to inform all parties as to the nature of this transaction.

In other words, if prospective purchasers are not initially advised that the transaction is a short sale they may become unnecessarily frightened and shy away from making an offer. Alternatively, if the purchasers are educated as to what a short sale entails from the beginning all concerns may be properly addressed.

Additionally, the role of the real estate agent is especially important when it comes to realistically listing the home. An overpriced home in a market with flooded inventory can be time consuming in receiving offers. The short sale process cannot begin until an executed Contract has been submitted to the lender therefore time is of the essence for the qualified real estate agent to solicit a legitimate offer.

Most clients want to know what the average percentage a short sale lender will reduce the outstanding principal when considering a Short Sale offer. The answer is it does not matter whatsoever. 

When deciding whether to accept a short sale offer the lender will compare the offer to the alternative: simply letting the home go to foreclosure. At a foreclosure auction potential bidders will take the "fair market value" into consideration; not the outstanding principal balance owed by the homeowner.

The short sale lender is aware of this fact and will apply the same principle to the offer that is presented. As long as the offer reflects the current appraised value the lender will ignore how much of a cut the deficiency is because that is what will happen at a foreclosure sale.

The real estate agent will prepare a Comparative Market Analysis which will show prices of similar homes. This is necessary in order to support any offer which has been submitted to the foreclosing bank.
The lender will also send out their own independent appraiser to verify whether the submitted offer is reasonable. 
Best of all, similar to attorney's fees, the lender will also pay for the entire real estate commission.

The Homeowner

Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give the homeowner a pretty good idea of what to expect:

•Last Statement for All Loans: This is necessary so that we may verify the amount necessary to payoff the loan. If the homeowner has defaulted for an extended period of time the payoff must reflect all default interest, penalties, attorney's fees and escrow deficiencies.
•Hardship Letter: This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized, etc.
•Proof of Income and Assets:
•2 Weeks Paystubs: If you are unemployed, a simple letter explaining your circumstances will be sufficient.
•2 Months Bank Statements: Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
•Last Year's Tax Returns: If you did not file taxes last year, a simple letter explaining your circumstances will be sufficient. 


The Purchaser (Investors)

If you are considering purchasing a short sale, there are some inherent risks which must be taken into consideration. Our information at Chicago Short Sale is based on the experience gained in successfully closing countless short sale transactions thus rendering it efficient and reliable.

Additionally, the timeframe necessary to complete the transaction must be contemplated. For instance, the buyer must make a wise decision when deciding whether or not to lock the mortgage rate.

Also, it is your attorney's job to draft and review the Contract to ensure that your rights are protected. The Contract should contain a contingency that if the short sale is not successfully negotiated within a certain timeframe (usually 60 days) that the Contract can be cancelled by the purchaser at any time for any reason with the entire downpayment being returned to the purchaser.

If you are considering purchasing a short sale, please Contact Us at Chicago Short Sale so that we can assist you in the process. 

.