By: Rick Sheppard
Before we talk about a short sale addendum, it’s a good idea to first talk about short sales. So just what is a short sale? In the simplest terms, a short sale is a negotiated settlement or short pay and occurs when a lender agrees to accept less than the total amount owed to pay off a loan against (collateralized by) real property.
Why would a lender who is owed money agree to accept less as payment in full? In most cases, when a short sale is approved, it’s been determined that the property is worth less than the amount owed on the loan (sometimes referred to as being “upside down” or “under water”). The lender has further determined that even if they foreclose and take back the property, they will eventually take a loss. They conclude, then, that they will be better off financially if they take less than what is owed now rather than taking the property back through foreclosure and trying to sell in later. In short, the lender has made a decision that the short sale is better for their bottom line.
As part of this decision, the lender’s short sale approval will likely include a lien satisfaction. That is, the debt is considered completely paid off at the time of the sale and the lien against the property, recorded in the local courthouse, is cleared or “satisfied”. Most home sellers are delighted with this outcome, of course. Just be aware that you may have some tax consequences as a result of the sale.
All that said, short sales are complicated and it’s very important that you have someone who knows what they are doing to guide you through the process. There are numerous documents required from both buyer and seller and these documents must be submitted to the seller’s lender in an accurate and timely manner. The lender often takes an extended period of time to process these short sale packages with no guarantee that they will ultimately be approved. Patience from all parties is key.
That brings us to the short sale addendum, which is one of the many documents noted in the previous paragraph. In addition to an agreement of sale, buyer mortgage documents, and seller financial documents, the short sale package will need to include an addendum. This addendum – the short sale addendum – spells out the details of the short sale agreement like:
- Seller name.
- Buyer name.
- Deadline for the short sale approval.
- Deadline for the sale of the property to close.
- Informational language on sale conditions, requirements and possible outcomes.
The point of the addendum is to make sure all parties – buyer, seller, real estate agents, and closing company reps – know their responsibilities and the responsibilities of the others involved in the transaction. And if there are questions or uncertainties, the time to sort these out is before the short sale is processed, not after.
The author, Rick Sheppard, is a licensed real estate broker with RE/MAX Achievers, Inc in Collegeville, Pennsylvania and a 33+ year veteran of the real estate trenches. He knows a lot because he’s seen a lot. If you have any questions about this or any real estate related topic, feel free to contact Rick and he’ll do his best to answer your questions.