Short sales typically require extension of deadlines
Q: My husband and I are trying to buy our first home and we found a property that our real estate agent tells us is a short sale. We have been told this can take longer than usual but that's all right with us as we live with my parents and are flexible. What concerns us is the seller wants us to apply for our loan and do the inspection now so he knows if there will be any problems with us going forward. Is this the usual way this is done?
A: For those not familiar with short sales, these involve a seller who requests his mortgage company to accept less than the full amount owed on the house to release its mortgage lien on the property. This usually results in a longer period of time between the signing of the contract and closing.
In a normal transaction, all the seller's lender needs to do is provide a statement as to the outstanding mortgage balance and it is paid from the seller's proceeds at closing. With the short sale, the seller's lender must evaluate the benefit of accepting less than what is owed against the possibility of the seller going into foreclosure, as the foreclosure could ultimately cost the lender more than the reduction on the balance. This results in an analysis of the seller's financial situation, the value of the property and other issues.
As most buyers know, you start spending money immediately after signing the contract. You generally have five business days after a seller accepts the contract to conduct a home inspection and give notice to the seller of defects the buyer wishes the seller to address. Most contracts also require the buyer to apply for a mortgage loan shortly after the acceptance date. Shortly after the loan is applied for, the buyer's lender conducts an appraisal of the property. The appraisal and home inspection can cost the buyer up to $800 or more.
I, along with many if not most buyer's attorneys, don't want our clients to spend $800 on inspections and appraisals only to learn down the road the seller's lender will not agree to the short sale. Or, we learn down the road the seller's lender wants $10,000 more from the buyer to agree to the short sale. So, through the attorney review process, we, as buyer's attorneys, request an extension of the loan and inspection contingencies for a period of time after the seller's lender approves the short sale. This way, if the seller's lender does not approve the contract or makes a counter-offer that doesn't appeal to the buyer, the contract can be terminated and all the buyer has lost is time.
If you have not already done so, contact an attorney familiar with short sales to assist you in this transaction. These types of transactions can be trickier than a customary deal.
Q: I signed a contract to purchase a condominium. I found out after I signed that there is a special assessment that has been passed by the board. Owners have the option of paying their share in a lump sum or over two years. Owners must either make the first payment or the lump sum payment by August 1.
My attorney requested the special assessment be paid off by seller and the seller refused. My attorney tells me I have the option of either going through with the deal and paying the special assessment myself or I can cancel the deal and get my deposit back. What I want is to buy the condo and have the seller pay the special assessment off. Isn't there anything in the contract that requires the seller to pay the special assessment?
A: If you are using the multi-board contract commonly used in our area, the answer is yes. Paragraph 15(b) of the contract provides the seller shall pay all special assessments confirmed prior to the date the seller accepted the contract. Because of the options given to you by your attorney, I must presume the seller's attorney attempted to amend this provision during the attorney review process. In the event no agreement is reached on the issue, either party can cancel the contract. If you really like the unit and you feel you got a good deal, perhaps offering to split the special assessment would fly with the seller.
• Send your questions to attorney Tom Resnick, 910 E. Oak St., Lake in the Hills, IL 60156, by email to firstname.lastname@example.org or call (847) 359-8983.