Notes from the MAR Legal Hotline
Steve Ryan, MAR General Counsel
Michael McDonagh, MAR Associate Counsel
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
Q. What are the biggest challenges identified by REALTORS® when working through short sales?
A. Limited Experience. Many REALTORS® are new to the short sales process, a difficulty which is compounded by many lenders' lack of sufficient and experienced staff to process short sales. Even if the REALTORS® are experienced, many servicers are understaffed and still not adequately trained, making negotiating a short sale particularly difficult.
Absence of a uniform process and application. Currently, both short sales documents and processes are lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions.
Multiple lenders. When more than one lender is involved, the negotiations are much more difficult. Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will often get nothing.
Q. Is it possible for a seller to receive short sale approval when there is more than one lien on the property? What happens if approval of the second lien holder is not received?
A. If the second lien holder does not approve of the sale, the seller might not close on the property. If more than one lender must accept less than its full payoff, each of the lenders being asked to take a short payoff will process the request independently. For example, if there is a $300k first mortgage and a $50k second mortgage, and the gross proceeds to the seller total $325k, the first mortgagee will expect full payment regardless of the second mortgagee who may not agree to this.
Even though the primary lender agrees to a short sale other creditors may not. So as you negotiate the short sale, be aware of other outstanding fees like secondary mortgages or tax liens. If there is a second mortgage or equity line, they should also be contacted regarding the possible payoff of a loan. Keep in mind that there is no obligation for a lender to agree to a short sale.
For more information and resources on short sales please visit the Massachusetts Association of REALTORS® website at www.marealtor.com and click on “Online Training and Webinars.” You can view a free one-hour webinar on short sales which includes many frequently asked questions by REALTORS®. On the website you can find more information about MAR’s “Loss Mitigation Certification” course which focuses on short sales, REO sales, and auctions. Finally, visit www.realtor.org for the National Association of REALTORS® Short Sales “Field Guide.”