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Web Articles
                        Analysis of Short Sales of
              Residential or Commercial Property

The term “short sale” has recently become prevalent within the
general lexicon of many people involved in real estate or who
own real estate.  Short sales are affecting the entire real estate
industry as they are being utilized for both residential and
commercial property.  And while this vehicle for the debtor has
always been an option, it has only recently been thrust to the
forefront.  It is now serving as the impetus for an expanding
niche of the real estate market.  Short sales can relieve a seller
of the burden of debt and provide a buyer with a good deal on
property.  However short sales are not without risks and
significant hurdles.  A clear understanding of the underlying
process and procedure is essential to not only evaluate a
potential short sale but to accurately predict if the seller
qualifies for a short sale and if the buyer or seller are even
suited to try to navigate a short sale transaction.

To begin, a short sale is the sale of a parcel of property that is
securing a loan, but the sale price is less than the total amount
of the loan.  The proceeds from the sale are not enough to pay
off the loan that is secured by the property and therefore the
lender that holds the loan must accept a discounted payoff
when they release their lien on the property at closing.  But the
lender must agree to this discounted payoff of the loan.  Thus a
short sale can only be done with the approval of the lender that
holds the loan that is secured by the property and it is entirely
within the lender’s discretion whether they will agree to a short
sale.  The willingness of lenders to approve short sales varies
but generally lenders are not going to approve a short sale if
they believe that would receive more from foreclosing on the
loan and selling the property at a later date.  Therefore the time
and cost associated with a foreclosure is factored into the
lender’s decision.  And both the time and cost of foreclosure is
increasing with the recent proliferation of foreclosure defense
services and the courts becoming bogged down with
foreclosures therefore lenders may be more likely to agree to
short sales which will serve to increase the prevalence of short
sales.

Therefore a short sale is essentially a sale of real property, and
the process of
listing property and making an offer for a short
sale property is similar to that of a traditional sale of real estate
but the seller and the buyer should be familiar with some subtle
differences for a short sale.  

Once the listing has resulted in an offer to purchase the
property and the seller has approved it, then the lender must
approve the offer.  Obtaining the lender’s approval of the short
sale is the primary, procedural difference between a traditional
real estate transaction and a short sale.  Because the lender
must ultimately approve the short sale, the
lender approval
procedure must also be clearly understood because, to some
degree, the lender approval procedure drives the entire
transaction.

But while a clear understanding of the short sale listing process
and the lender approval procedure is vital to anyone
considering entering into such a transaction, there are other
unique aspects of short sales that impact the
seller and the
buyer that are not part of traditional real estate transactions,
which must also be carefully considered.

So while short sales have always been available to property
owners, the newly prevalent place they are taking in the market
place puts on importance and emphasis on them not seen
recently.  This prevalence is causing the short sale transaction
to evolve.  For example, some lenders, particularly commercial
lenders, are permitting conveyances of properties securing
loans with simultaneous modifications of the loans and
assignments of the loans to the new owner.  This is a
modification of the short sale transaction where the original
lender remains in the deal and the outstanding principle of the
loan is reduced as an enticement to bring in the new
owner/debtor.

And short sales will continue to evolve as recent legislation aims
to promote short sales.  However the true affect of such
legislation is unclear because most of the proposed incentives
are cash payments to the short sale seller but, as has been
previously described, it is the lenders who ultimately control the
short sale transaction.  Therefore any legislation that does not
provide incentives to the lenders may have limited affects on the
marketplace.

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Craig W. Little, P.A.