As you may recall from our previous post regarding the effects of liens against the property in a short-sale transaction, this article will focus on the buyer’s perspective regarding the same.
Buyers engaged in a short-sale transaction need to be aware – if they are not already – that their transaction is contingent on a seller’s lien-holder(s) willingness to receive a lesser amount than it is entitled to, in order to release its lien. The approval process can take a long time, as a lien-holder needs to conduct its own due diligence to see whether or not the amount of money that it will be getting – should this transaction go through – make sense in light of the condition of the property, its fair market value, the lien-holder’s overall profits and losses as a whole, etc. This is important as a buyer can conduct its due diligence (property inspection, title search, survey, etc) in a manner consistent with traditional residential real estate transactions (i.e., a few weeks or a month after the conclusion of the attorney review period) only to find that the necessary lien-holder(s) has declined to release its lien for the amount necessary to make this transaction go through under the current purchase price. Consequently, the buyer will have lost money on conducting its due diligence, unless somehow the lien-holder(s) reconsiders its declination. This is significant because, although a buyer will obtain the benefit of (i) knowing how many liens encumber the property and (ii) giving the seller more time to either (a) come up with the money to release the liens or (b) negotiate a reduced amount with a creditor to release the creditor’s lien, more often than not most buyers – in order to avoid potentially losing money – will want to wait until after the short-sale has been approved by the seller’s lien-holder.
Notwithstanding the foregoing, as mentioned in our previous post, a buyer in some cases (though not very often) will order a title search of the property prior to a lien-holder(s) approval being obtained. A lot of what drives a buyer’s decision is how (i) badly it wants the house and (ii) how much interest in the house there is from other potential buyers. As previously mentioned in our prior post, a seller will want the title search to be done as soon as possible, preferably at the buyer’s expense. In the event there is a lot of interest in the home, and the buyer really wants the property, the buyer may be willing to take the risk of losing money if the lien-holder(s) withholds its approval, and capitulate to the seller’s demand. Again this is clearly not the norm, but in each transaction is different so nothing should be ruled out.
Andy Roth, New Jersey Real Estate Lawyer
*The information in this blog posting is for general information purposes only. Nothing in this blog or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information in this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.
Please note that there are different theories as to when a title search and survey are ordered in a traditional residential real estate transaction. However, we will save this topic for another post.