As a real estate attorney with a growing short sale practice I have begun to identify patterns that lead to short sale success and failure. Generally speaking a short sale's success or failure can be determined with a review of the current title.
THE ABSOLUTE IMPORTANCE OF CHECKING THE TITLE
Short sales as we all know are long term professional commitments that can take months to come to fruition. In one short sale transaction wherein I represented a Buyer, the Seller's attorney had not checked the title prior to accepting the short sale client. We got into heavy contract negotiations over some repair issues. The Seller would not back down, insisting that they would bring no funds to closing to pay for the repair issues. At that point I was curious to know if there would be any other issues over adjustments, etc and I found that the taxes were not in the Sellers' names. In fact upon further review, I determined that the Sellers had lost their home to foreclosure six months prior. THEY DID NOT OWN THE HOME THAT THEY WERE TRYING TO SELL! That was the end of that deal. How do you think the Realtor felt after marketing that property for 3 months, negotiating contracts, etc. . .
PEOPLE DO NOT KNOW WHAT THEY OWE
Out of this experience and other experiences from my office (we also do collections work!) we have learned that when people get into debt, they stop opening their mail. Your sellers may not know what they owe to whom or where they are in the collections process. There could be multiple tax, credit and mortgage liens. The more liens, the more improbable your short sale success. If there are several lines on a property you should walk away and work on something that will lead to a commission!. . .
THE FORECLOSURE IS SCHEDULED FOR TOMORROW
Another terrible thing to have happen is to take a listing only to have the bank foreclose the next day. Again, in most jurisdictions there will be some indication of foreclosure activity in the title. (For example in Massachusetts you will find an "Order of Notice" Recorded a couple of months prior to a foreclosure.)
As a service to all of the Realtors that I do business with, I run the title before they take the listing. If your attorney source is not doing this for you, it is important that as a Realtor you learn to do it yourself so that you do not waste any of your valuable time on a Short Sale that will never make it off the ground.
Oh Nyles, where were you when I sold a charming little short sale in Summerville - only to keep finding out that there were liens, upon liens, upon liens. I represented the Seller, but really loved the Buyer who was a new first grade teacher, and fell in love with this house because it was in the neighborhood where she grew up. Ended up giving up ALL my commission, and throwing in my office refrigerator to make it work for HER! Had I known about all the liens, though, I should have walked away months earlier! Learned that lesson the HARD way!
I think that we have all done this. The fact is, debtors stop opening their mail and they honestly do not know when they have liens. . . I will never forget the deal that fell apart because the Sellers had been foreclosed on 6 months prior. FYI When banks buy at their own auction, they often do not record the deed from themselves to themselves for some time - They do not want to make public the amount that they bid. . .