From IAR

Warning regarding certain short sale transactions

03/09/2011

Our members should be on the look-out for certain transactions that may pose problems for some short sale seller clients. In the July, 2009 Illinois REALTOR® Magazine we published an article outlining a fact situation where an “investor” was seeking to purchase the property that would be a short sale subject to lender approval under an option contract and the investor/intermediary was then seeking another buyer to close immediately after the intermediary exercised the option and closed on deal #1 (after lender approval). Lender has the property “off the books” and the original distressed seller is out from under water. Right? Maybe not. Recent on-line reports seem to indicate that the original distressed seller is now receiving a “bill” for the unpaid amount on his loan that he may have mistakenly believed was forgiven. While the mortgage (or the security interest in the property) was released, perhaps the unpaid balance on the note (the loan) was not. The short sale seller might not have gotten a copy of his note marked “paid in full” or some other document indicating that the balance on the loan has been forgiven by the lender. So now the deal the original short sale seller made so quickly with the intermediary might not look so good. The short sale seller may have wanted his agent to look harder for more buyers who might be willing to buy at a higher price thus reducing any deficiency he might owe to his lender. These transactions can become very fuzzy very quickly especially in situations where there is an “investor” or “intermediary” in the middle. It is very important for our members to be clear as to who their client is and to urge their clients to seek legal advice in these situations.  Illinois Association of REALTORS® reprinted by permission.