There is a lot of information available about how a short sale works. Much of this information is geared toward either a homeowner who is trying to avoid a foreclosure or a would-be buyer of residential real estate.
The other party who has an interest in the short sale option is the bank which holds the mortgage to the property. In this respect, and as this blog has mentioned, our law office represents banks who are evaluating their options for how to handle a loan that is under distress.
In many aspects, a short sale is like the sale of any other property. The buyer and seller have to negotiate a price and other terms of the sale.
However, if the suggested sale price is less than what the seller owes on his or her loan, then the bank must also approve the sale for closing to go forward. If the bank does approve the sale, then any outstanding balance on the loan is waived once the bank takes the proceeds of the sale and applies them toward its loan. Obviously, this involves a give-and-take on the part of the bank.
There are many requirements that all parties, including the bank, must follow during the course of a short sale. For instance, there must be no equity in the house, meaning that the balance of the loan is more than the suggested sale price. Also, a seller will need to prove that they are experiencing some sort of significant and ongoing financial problem such that they really cannot continue to make their house payments.
An experienced attorney can make sure a bank has a short sale program and process that is both legal and effective. Moreover, assuming a short sale can be considered, an attorney can also help the management of the bank decide whether, under all the circumstances, it makes more sense to pursue a short sale as opposed to foreclosure or another legal option.