QUESTION: We are no longer able to pay our mortgage due to a hardship. After doing a lot of research, including reading your columns, we decided to try a short sale. We listed the property, found a strong buyer and submitted all the required paperwork to our lender. Now the lender wants us to auction off the house. What gives?
ANSWER: In a short sale, your lender is accepting less money than it is owed to release your property from its mortgage. Short sales are supposed to be sold for market value to ensure that the lender recoups the most money possible.
Lenders historically have relied on a report from a real estate agent called a broker's price opinion, or BPO, to help determine market value. In an effort to make sure the short sales are sold for the highest prices, lenders in the past six months have started turning to auctions.
The various parties involved are told that they must submit to this new procedure or the short sale will be denied. Once everyone signs off, the seller's real estate agent will be asked to re-list the property and hold an open house to let potential bidders view it. An online auction company then holds an auction, with the initial buyer's offer as the highest bid.
If nobody submits a higher bid, the short sale is approved. If there is a better offer, the initial buyer has the opportunity to counter. Once the auction concludes, the lender issues its short sale approval and the closing takes place as it traditionally has.
While this new process requires more effort from everyone - and provides more uncertainty for buyers - the participants have little choice but to jump through these hoops. It's important to remember that even with this additional hurdle, a short sale usually is the best choice for unloading a house that you can no longer afford.
ABOUT THE WRITER:
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program. Send him questions online at http://sunsent.nl/mR20t7 or follow him on Twitter @GarySingerLaw.
The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.