Using the Short Sale Addendum

Short sales are becoming more and more prevalent in our current market, and they can be a bit confusing for those who don't regularly deal with them. It's important to remember that a "short sale" involves a borrower (the seller) who is asking his existing mortgage lender to take an amount less than is actually owed on the loan in exchange for release of the lien against the property. In other words, the lender is not gettng paid in full but is still being asked to release its lien. This necessarily implies that the payoff lender must consent to the closing before it can happen, regardless of whether there is a signed contract between buyer and seller. It also implies that the terms of the contract between the buyer and seller are subject to change by that lender (e.g. the lender may not allow the seller to pay all of the buyer's closing costs).

If you've had experience with a short sale, you know that it can be a very frustrating process. This is because the lender must basically go through a qualification process again, and examine things like the borrower's current financial status (e.g. income, hardship, etc.) and the property itself (e.g. appraisal, title search, etc.). It's like originating the loan all over again, only this time on the back end. What further complicates the process is that there are various players whose approval must be obtained, such as the investor and mortgage insurance company, who are typically not motivated with the same sense of urgency that you and your clients have. And Heaven forbid if there's a second mortgage holder to deal with.

So at the very least, if you are going to tackle one of these short sales, please use the Short Sale Addendum which can be found on the Crye-Leike Intranet (Form F49(c)). This form is perfect for letting all the parties (buyer, seller and new lender) know about the nature of the transaction and what they can expect, which should keep you from having to answer difficult questions about delays and lack of communication.

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