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Short Sales and the Title Report

Melissa Zavala
2 min read
Short Sales and the Title Report

Almost every short sale chat that I have with a buyer, a seller, an agent, or an investor touches on some aspect of the title report. As a result of these conversations and my adventures in the wacky world of short sales, I cannot underscore enough the importance of ordering a preliminary title report when taking a short sale listing.

A few months ago, one of my Realtor® friends in California contacted me one week prior to a Trustee’s Sale (foreclosure sale) about a listing that he had just taken but for which he had no offer.

“Melissa, Can you postpone the sale?” he said.

“Well, it is going to be tough, especially if you are using a few specific lenders who are not really in the mood to postpone sales last minute these days. And, of course, in order to do that, I’d like to have a complete short sale package . . . with a purchase offer. With only one loan, we might be able to get this thing done successfully.” I responded.

“We’re in a fairly fast-moving market right now,” he stated. “Maybe I can pull it off.”

A few days elapsed and then Mr. Realtor sent me a sub-par (read: incomplete) short sale package which we submitted and, by a stroke of luck, we were able to get that sale date postponed. My staff contacted Mr. Realtor to ask him for a copy of the preliminary title report (which he had not yet ordered).

The preliminary title report arrived shortly thereafter. And, to our surprise, there were four (not one, not two, not three) liens on this property. The first lien (which was the postponed foreclosure), a second institutional lien that the seller claims he knows nothing about, a third lien by a private person, and an abstract of judgment.

In most short sales, the first lien holder will only offer money to other institutional lien holders. Because of this fact, a short sale of this nature will require some heavy duty negotiating and probably some cash. When listing a short sale or considering the purchase of a short sale, it is vital to study the title report at the very beginning of the transaction. A complicated labyrinth of liens will likely mean that the short sale negotiations will be tedious at best.

While it is always nice to try and help friends, neighbors, and clients out of a rough spot, there are certain transactions that quite possibly are not meant to be. The transaction that I described above was one of those that was not meant to be.

Photo: flickr creative commons by TheTruthAbout

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.