If you are considering the acquisition of property from a seller in connection with a short sale, have you reviewed the short sale agreement the lender entered into with your seller? Does your contract of sale allow you to terminate and get your deposit back if the seller and lender amend the short sale agreement without your consent? How is the short sale price the bank accepts defined in the short sale agreement? Is the bank only agreeing to the short sale at the stated price or will they allow for reduction of that price for closing costs, adjustments, and prorations? These are just a few examples of things buyers should consider in the short sale deal. Believe it or not, a few years ago a buyer came to me at the 11th hour before closing and had not asked counsel to review the short sale agreement. As it turned out, the standard adjustments and prorations under the contract resulted in the “net proceeds” being paid to the seller (and being used to satisfy the loan) being less than the price that a major institutional lender agreed to accept in the short sale agreement. This buyer, deep in diligence and other costs and with a firm loan deposit posted with its own lender, faced an ugly choice. Don’t close and be out of pocket a significant amount of diligence and pre-closing costs or close and pay more to satisfy outstanding taxes and utilities to clear title for closing (escrow reserves with the bank having already been depleted). After all, the seller was distressed with nothing to bring to the table. The buyer asked the bank to accept a lower price for the short sale to allow for the closing adjustments. The bank said no. Be careful.
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