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Short Sale FAQ

When the lender is reviewing a short sale contract for approval, is the Foreclosure Sale automatically postponed?

No. The Foreclosure Sale can be held on schedule even if there is a contract under consideration. Lenders are more aggressive in taking back properties today. Don't wait to list your property to sell if you stopped paying your mortgage.

Will the trustee sale be postponed once the short sale contract is approved?

Not automatically. You should inquire about this and specifically request the sale be postponed if needed.

Is the buyer still entitled to buy the property under the short sale contract once the trustee sale is held?

No. The lender is not bound to the short sale contract if the property is conveyed at trustee sale.

How can I get the lender to approve the short sale contract?

There is no way to pressure the lender into approval, however, by knowing exactly what the lender requires and making complete and timely submission of all the lender’s requirements, you greatly improve your chances.

What happens when the seller’s lender has approved the contract?

Once written approval has been obtained from seller’s lender, they will usually stipulate a time by which the escrow must close. The buyer should be ready to close as soon as possible. This means that buyer’s lender will need to expedite the new loan processing, appraisal and approval. Buyer should expedite all necessary inspections and arrange to have good funds to close. A typical timeframe to close is 30 days. The seller should be packing throughout the short sale process.

What happens if the buyer cannot close within the time frame stipulated by the seller’s lender?

If the escrow has not closed in time to satisfy seller’s lender then a new written authorization to close will be required. Since the lender’s time requirement is often based upon the net loan proceeds they will receive, it is often necessary for the lender to obtain new approval for any additional costs incurred by the delay. This approval can take time and is not automatic.

The property has a 1st loan and a 2nd loan. What does that mean in a short sale?

Both loans will need to be released, therefore both lenders need to approve the short sale. Timing is crucial and can be challenging.

The seller’s lender is requiring the seller to sign an agreement or authorization before closing the short sale. What should the seller do?

Some agreements may bind the seller to repay any forgiven debt. Any party in a short sale should obtain professional legal counsel if they have any questions regarding the transaction or required documents. The Real Estate Agents and the Escrow Officer cannot give any legal or tax advice.

I have heard that the IRS will forgive any tax obligation resulting from any forgiven debt from the short sale.

This may or may not be the case and depends on a number of factors. NEVER make any assumption regarding taxes. All parties should obtain professional financial advice regarding the transaction. The Real Estate Agents and the Escrow Officer cannot give any legal or tax advice.

Is it true that after that sale closes, the seller will not owe anything to the lender(s)?

This will be determined by the lenders, and sellers should satisfy themselves that they are comfortable with the lender’s short sale terms.


The Mendoza Team

Keller Williams Realty Sonoran Living | Each Office Independently Owned and Operated
4001 E. Mountain Sky Ave , Suite 105 • Phoenix AZ 85044 | 480-706-7234