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Closing
Activities Concerning "Short
Sales"
It
has recently been discovered that personnel involved in closing
transactions are being asked to
actively participate in
negotiating short sale pay offs or other
terms. These requests can come from any
person interested in the sale, but in particular, the sellers or the real estate
agent. Participating in such
negotiations or closing short sales could expose an
individual, the
title agency or the
underwriter to any
number of claims or lawsuits.
What is a short
sale?
A short
sale is commonly described as an agreement between
the
sellers and their
current lender, and often other secured
creditors, to allow the property to be
sold for less than the amount owed on
the mortgage or other claims. Short sales are
often associated with "flip"
transactions . Justifiably or not,
a short sale followed by another sale for a higher price
has all of the appearances of a flip transaction.
To view ORT's underwriting
guideline on flip transactions, click
here.
The legal and tax
consequences of short sales are
complicated and numerous. Great caution should be
exercised to avoid giving or
appearing to give, tax or legal advice,
particularly to the sellers. Short sales may also implicate
IRS or other reporting (by the sellers, lender or
other persons) for personal and other income taxes that
are above and beyond typical IRS 1099-S or similar state
real estate reporting requirements.
Negotiating short sale
terms on behalf of anyone interested in
the sale likely violates the
unauthorized practice of law of any
state and exposes individuals and the companies to
claims of breach of contract or fudiciary
obligations. Never
assume that the person receiving a draft
or pro forma HUD-1 has all the facts that you have, and
visa versa.
Complete
and accurate disclosure of
all facts is the best defense to the
potential claims as mentioned above. Follow instructions
carefully, obtain
written authorization whenever possible
and ensure that the final
HUD-1 is complete and
accurate. | 
