Utah’s Short Sale Disclosure

Short SaleThis is a long overdue blog about the short sale disclosure we use as REALTORS® in Utah. Unfortunately many buyers and sellers enter the short sale process somewhat blind. Thankfully this mandatory disclosure is required in all short sale transactions in Utah.

Short sales are much more complicated than a standard real estate transaction. It is advisable that you become familiar with the process and also that you ask your real estate professional how many of these types of transactions they have completed.

Section 1 defines what a short sale is:

1. SHORT SALE DEFINED.  The term “Short Sale” is used in the real estate business to describe a situation where the current fair market value of the property is less than the debt owing against the property. In other words, the Seller can’t sell the property unless the creditors (“Third Parties”) agree to accept a payment that is less than (or “short” of) the amounts actually owed to those Third Parties. The Third Parties may include mortgage lenders, mortgage insurers, bankruptcy trustees, and federal, state and local taxing authorities (such as the IRS or State Tax Commission) or other lien holders. 

Try to find out who all the parties are that will be involved in the short sale process. The more players = more time to get approval.

Section 2 explains the condition applying to obtaining Third Party Approval:

2. THIRD PARTY APPROVAL CONDITION.  A Short Sale requires the written approval of the Third Parties. Consequently, the Seller of the property and any Buyer is advised that even if they reach an agreement with each other for the purchase and sale of the property the Buyer’s obligation to purchase, and the Seller’s obligation to sell, are respectively conditioned upon Third Party Approval of the Short Sale as defined in the Short Sale Addendum.

While it may feel great to get a signed contract, remember it’s just the first step, as all of those players we mentioned earlier will now need to sign off.

Section 3 discusses what happens if the Third Party rejects or changes the terms of the short sale offer:

3. THIRD PARTY REJECTION OR CHANGES TO THE PROPOSED SHORT SALE.  Third Parties may reject a proposed Short Sale. If however, the Third Parties do not reject the proposed Short Sale, they will usually send to the Seller a list of requested changes to the proposed purchase contract (“Third Party Modifications”). The Third Party Modifications may affect the Seller; and others may affect the Buyer. For example, the Third Parties may not permit the Seller to pay for any of the Buyer’s closing costs, or may require that the transaction close by a certain date. The Seller and the Buyer are not obligated to accept any of the requested Third Party Modifications – in which case, there will be no Short Sale. If, however, the Seller and Buyer agree upon the Third Party Modifications in an addendum to the REPC, then the Short Sale transaction may proceed to closing. 

It is very important to review thoroughly everything that the Third Party has requested in their approval letter! Even if you have it in writing, beware that Third Party’s can still hold a deal hostage at the closing table – see My Experience With SunTrust Mortgage.

Section 4 covers the likely event of a delay in response from the Third Party:

4. DELAYS IN RESPONSE FROM THE THIRD PARTIES.  Most purchase contracts for Short Sales impose a deadline for written approval by the Third Parties. The Third Parties may not meet that deadline or respond at all. The Seller and the Buyer should be prepared for significant delays in receiving any response from the Third Parties.

The best advice I can give you on a short sale is to plan for delays, and then plan some more for delays. You have to remember that the banks are sometimes working with FHA or investors and they have to get approval from those parties as well. Just think, how quickly you’d like to lose a substantial amount of money as you are being shorted…

Section 5 details the Third Party’s right to seek additional offers:

5. RIGHT OF THIRD PARTIES TO ENCOURAGE ADDITIONAL OFFERS. As a condition to considering any proposed Short Sale, the Third Parties may require the Seller to keep the Property on the market even after the Seller and the Buyer have agreed to the terms of a proposed purchase contract. The Third Parties want to obtain the highest possible price for the property. Therefore, some Third Parties require the Seller to keep the Property on the market, and to promptly submit to the Third Parties any additional offers that the owner may receive from other Buyers. The Seller and the Buyer should understand that the Third Parties may not respond to a proposed Short Sale transaction until they have had an opportunity to compare that offer with other purchase offers. That process may also result in significant delays for all parties.

If you are a buyer read this to mean that you should be out looking at other homes as well. If the seller is looking for other buyers, you should be looking for other homes. Otherwise you could be left with nothing if the Third Party accepts another offer.

Section 6 covers both buyer and seller’s right to cancel:

6. RIGHT OF BUYER AND SELLER TO CANCEL. Seller and Buyer are also advised that at any time prior to the Third Party Approval Deadline or the Third Party Approval, whichever occurs first, as defined in the Short Sale Addendum, Buyer or Seller may cancel the proposed Short Sale transaction in accordance with the terms and conditions of the Short Sale Addendum.

Which is why I told you to be out looking at other homes even if you have a signed contract. Either party can cancel…

Section 7 advises both buyer and seller to consult an attorney or tax advisor regarding any adverse legal or tax consequences:

7. TAX AND LEGAL CONSEQUENCES. The undersigned is advised that participating in a Short Sale transaction may have negative legal or tax consequences. You are advised to consult your attorney or tax advisor if you desire specific legal or tax advice. 

This is especially important as a seller! Again, remember to thoroughly review that acceptance letter from the Third Party as it will explain some very important terms of how or if the debt will be forgiven.

The key word to dealing with the short sale process is patience.
patience

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About utahREpro

Chris is the managing broker for Prudential Utah Elite Real Estate in American Fork, Utah. His passions include spending time with his family, Real Estate, Social Media, traveling, reading, movies, golf, dirt biking and so much more. Chris is a graduate of the National Association of REALTORS (NAR) Leadership Academy as well as the Utah Association of REALTORS (UAR) Leadership Academy. He has served in many capacities in the real estate industry at the national, state and local levels, including: 2013 Treasurer of the Utah Association of REALTORS 2011 President of the Utah County Association of REALTORS (UCAR) 2011 REALTOR of the Year – UCAR NAR Federal Political Coordinator assigned to US Senator Mike Lee 2011 NAR Strategic Planning Committee 2010 – 2013 NAR Public Policy Coordinating Committee 2011 Dean of the LeadershipUAR Program Chris has been a licensed REALTOR in the State of Utah since 2004. He has been recognized both nationally and locally by Prudential and was inducted into their Hall of Fame in 2010.
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3 Responses to Utah’s Short Sale Disclosure

  1. I enjoyed the post. It seems like you really know what you are talking about when it comes to short sales. My question is how can you find short sales? Are they all listed in the MLS?

  2. Pingback: Buyer Beware – Utah Short Sale Warning | utahREpro

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