A short sale is a form of property repossession and occurs when a home is sold at a lower amount than what the homeowner owes on their mortgage. It is a type of foreclosure alternative, generally when the seller has defaulted on their mortgage loan.
Short sales may be favorable for borrowers as they can avoid various fees and other issues associated with foreclosures. However, the borrower may still have a negative credit report.
The unpaid balance that is owed to the lender is referred to as a deficiency. Some states allow the lender to recover these unpaid amounts through a deficiency judgment, while other states maintain anti deficiency laws. These laws prevent lenders from collecting more than what was initially put up as security for the home.
What are Short Sale Homes?
Short sale homes, then, are homes that are being sold at a potential loss with the proceeds going to the lender. Because of the pressure to sell the home in a short period of time, short sale homes are often sought after by investors. However, it is because of this that several issues can arise, especially in regards to the pricing of such homes.
How is the Price of a Short Sell Home Determined?
As the lender holds an interest in the sale of the home, they are generally involved in the sales process. The lender will likely be especially involved in pricing the home. Most lenders utilize a broker price opinion (BPO), or best price offer analysis. This analysis is conducted by the lender in order to learn some specific facts about the home. This information could include but is not limited to:
- The age of the home being sold;
- The location of the home being sold;
- Whether any renovations were done to the house;
- Previous offers made on the house; and
- The fair market values as well as going rates for similar homes in the area.
One of the main issues with a broker price opinion is that it is conducted entirely on the lender’s terms. It uses their own forms and their own calculation process. This process is different from an appraisal, which is conducted by a professional appraiser. The appraiser must conform to various state and local real estate standards which could make them more impartial and unbiased.
What are Some Legal Issues to Consider with Short Sales and Short Sale Homes?
One of the most common legal issues in regards to short sale homes is short sale fraud. Short sale fraud may be conducted by the homeowner, the lender, or an outside third party. This sort of fraud typically involves using false or misleading information, or withholding information, to coerce a homeowner into conducting a short sale. It may also be to defraud the lender of money owed under the mortgage.
Some examples of short sale fraud include but may not be limited to:
- Undisclosed payments;
- Predatory short sale fraud;
- Falsified documents and certifications;
- Dishonest appraisals of the home’s value; and
- Non-Arm’s Length transactions.
In order to avoid short sale fraud as much as possible, it is important to check for credentials and licenses. Additionally, you will need to verify all contact information. Short sale fraud is considered to be a crime and may be punishable by fines, suspension of professional licenses, and potentially even jail time. The crime could lead to a civil lawsuit in order to recover the defrauded funds.
Other legal issues may include approval, which can sometimes cause delays lasting up to three months. Another issue could be tax implications for both seller and buyer, which may affect credit and the title of the home. In the event of a dispute, hiring an outside appraiser may provide some clarity and resolution. The appraisal process determines the value of the property using market value and other factors. An appraiser can be hired if the value of the property cannot be easily calculated, and can be designated by the court if a judge considers it appropriate.
The value of hiring an appraiser is that they are required to provide a neutral and unbiased conclusion as to the price of the property. The final valuation is written in a detailed report which can be used as supporting evidence in some cases, such as a short sale fraud dispute.
Do I Need an Attorney for Help With Short Sale Homes?
Whether you are interested in purchasing a short sale home, or are finding yourself needing to short sell your home, you could benefit from contacting a skilled and knowledgeable real estate attorney.
However, keep in mind that a short sale can be accomplished without legal help if there aren’t any extra complications. Like issues with the title or question as to who has the current ownership of the home. If you have concerns and any reason to believe why it would be more complicated, then contacting a local real estate attorney can save you a lot of future grief.