Understanding Park City Short Sales

Short Sales can be a very misunderstood idea and process. In the Park City and Deer Valley, Utah real estate market short sales have been relatively uncommon. To better understand them, we will look at The Park City Board of Realtors information.

SHORT-SALE DEFINED. The term "Short Sale" is used in the real estate business to describe a situation where there is more debt owing against a property than the property is worth. In other words, the owner can't sell the property unless the creditors ("Third Parties") agree to accept a payment that is less (or "short") of the amounts actually owed to those Third Parties. The Third Parties are usually mortgage lenders, mortgage insurers, bankruptcy trustees, and federal, state and local taxing authorities (such as the IRS or State Tax Commission). Note that the term Short Sale has nothing to do with the time involved in the sale process. The time involved in completing a short sale is generally at least 3 times that of a "normal sale".

YOU HAVE NO BINDING CONTRACT WITHOUT THIRD PARTY APPROVAL. A Short Sale requires the written approval of the Third Parties. Consequently, the owner of the property, and any interested buyer, are advised that even if they reach an agreement between themselves for the purchase and sale of the property, that agreement will not be binding until the Third Parties approve the terms of the Short Sale. The party that is getting shorted has to give approval of the terms and sale price as there is the possibility that they will own the property through foreclosure if it is not sold.

THE THIRD PARTY MAY REJECT OR MAKE CHANGES TO THE PROPOSED SHORT SALE. Based upon the obvious financial loss, Third Parties will often reject a proposed Short Sale. If however, the Third Parties do not reject the proposed Short Sale, they will usually send to the owner a list of requested changes to the proposed purchase contract. - In a Short Sale, it is the Bank or Third Party that is truly in control. They could at some time in the future own the property and are acting as if they do since they will be taking a loss along with the current owner. - The owner and the interested buyer are not obligated to accept any of the changes requested by the Third Parties - in which case, there will be no Short Sale. If, however, the owner, the interested buyer, and the Third Parties reach a written agreement with each other, then, at that point, the Short Sale transaction may proceed to closing.

THERE WILL BE DELAYS IN RESPONSE FROM THE THIRD PARTIES. Most purchase contracts for Short Sales impose a deadline for written approval by the Third Parties. As a practical matter, the third parties rarely meet that deadline. THE OWNER AND THE INTERESTED BUYER SHOULD BE PREPARED FOR SIGNIFICANT DELAYS IN RECEIVING ANY RESPONSE FROM THE THIRD PARTIES. While it seems from the outside that the Bank would want to get the sale done and off their books, it rarely happens that way. The Banks are very understaffed within their REO departments and are currently swamped; even a strong offer that will leave the bank with only a slight loss will be a slow process in which the bank seems unresponsive. Most of the dates on the contract will be ignored and rewritten if/when the Bank accepts the offer.

THE THIRD PARTIES HAVE THE RIGHT TO ENCOURAGE ADDITIONAL OFFERS. As a condition of considering any proposed Short Sale, the Third Parties usually require that the owner keep the property on the market, even after the owner and the interested buyer have agreed to the terms of a proposed purchase contract. The Third Parties are being requested to accept payment that is less than what is owed to them, so the Banks want to obtain the highest possible price for the property. Keeping the property on the market and waiting for more and/or better offers is how they do this. This is another key point that leads to the Short Sale process being very slow.

THE BUYER HAS THE RIGHT TO CANCEL. Since the Buyer has to wait for the Bank to approve the sale and because there is often times a long waiting period, the Buyer can cancel the contract at any time before it is accepted. The Buyer will usually retain some due diligence timeframe after the third party approval which may also allow for cancellation of the contract. For this reason, a potential Buyer should place an offer even if they are aware of another better offer that has been submitted as you never know if the better offer will result in a completed contract.

The above is meant as informative information and does not represent all facets of a Short Sale. There will be great variations between third parties; some short sales can be very easy and quick while others are very long and mentally taxing and some never lead to a sale at all. To discuss whether or not a short sale opportunity in the Greater Park City or Deer Valley area may work for you, contact your YouInparkCity.com REALTOR for a free no obligation consultation.