Buying a Short sale Property: Dual Agency

A short sale is a negotiated remedy between and homeowner and his lender whereby the lender agrees to accept less than what is owed on the mortgage in exchange for releasing its lien on the property in order to effectuate the sale of the property. A short sale may be with recourse or without recourse. If the lender agrees to release the homeowner from any further liability for the debt, the short sale is without recourse. If the lender does not release the homeowner from liability for the debt, the short sale is with recourse, giving the lender the right to seek a deficiency judgment against the homeowner.

What Buyers Should Know About Short Sales

A buyer who is interested in purchasing a short sale property should consider hiring a real estate agent to represent him. If the buyer chooses to be represented by the seller's agent, it may create a dual agency situation. Dual agency occurs when the real estate agent represents both the buyer and the seller in the transaction. The problem with dual agency is that it is virtually impossible for the agent to adequately represent and negotiate for both parties because of the inherent conflict of interest dual agency poses. However, in most states, as long as both the buyer and the seller agree to dual agency, it is allowed.

When a buyer makes an offer on a short sale property, the contract should be contingent upon the approval of the short sale by the seller's lender. If the contract does not contain this contingency, the seller will be obligated to sell the property to the buyer at the contract price even if his lender doesn't approve the short sale. This means that the seller would have to bring the difference between the sales prices and what he owes to closing in order to consummate the sale. Otherwise he would be in violation of the contract and could face a lawsuit for breach of contract or specific performance.

Review and approval of a short sale involves the seller's lender, the mortgage insurer, and the investor. Recently, the HAFA short sale program went into effect. The HAFA short sale program requires participating lenders to approve short sales within about 10 days from receipt of the complete short sale package. If a lender is not participating in the HAFA short sale program, final approval of the short sale could take as long as 120 days or more.

Getting Legal Help

If you are planning on purchasing a short sale property, before you sign it, you should have the purchase and sale agreement reviewed by a qualified real estate attorney to ensure that you understand your obligation under the contract and thatyour interests are adequately protected.