From Elizabeth Weintraub,
Your Guide to Home Buying / Selling.
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Sellers in foreclosure generally don't decide to sell as a short sale on a whim. They first compare how much they can get for their home versus how much they owe. If their mortgage balance is greater than their home's market value, some sellers elect to sell as a short sale. A small number of those short sale sellers may also decide to sell without representation. Short sale sellers without an agent are for-sale-by-owner sellers, and this situation requires legal advice that a short sale seller may not pursue.

Who Needs a Real Estate Lawyer?

Both parties. Short sale sellers, especially those who are unrepresented, should seek legal and tax advice. But if they refuse to hire an agent, they probably won't hire a lawyer, either. However, that doesn't mean that you should ignore the recommendation to call a real estate lawyer.

If you are contemplating buying a short sale directly from a seller in foreclosure, hiring a real estate lawyer will probably save you money in the long run. Depending on your state laws, the seller might be able to successfully sue you after closing and regain control of the property. Then you would be out-of-pocket lawyer fees, court fees AND you could lose your home. So, if the seller isn't smart enough to seek legal representation, don't make the mistake of sliding into the same rocking boat.

Writing Short Sale Purchase Offers

Decide on an offer price. To the extent the seller may face short sale tax ramifications on the amount of debt relief or face a deficiency judgment, the seller will likely not have a stake in the amount that you offer. It will be the lender's call. Above all, write contingencies in your offer such as:

• Subject to the existing lender's acceptance and your negotiation directly with the lender. Ask the seller to give you written authorization to talk with the lender.

• Subject to a home inspection and other such inspections as lead paint, natural hazard disclosures, pest reports, roof certifications, sewer / septic inspections and mandated seller disclosures.

• Subject to your loan funding.

• Subject to an appraisal.

• Subject to your approval of title policy commitment / preliminary title report.

Do not give your earnest money deposit to the seller. Make it payable to a third party such as a title company or escrow company.

Negotiating with Lenders on Short Sales

If the seller has not already talked with the lender, advise the seller to write a hardship letter and FAX it to the lender. Before the lender will consider your offer, the lender will want assurance that the seller has no assets to attach. In addition, depending on the lender, it may also want documentation such as:

• Preapproval letter from your lender.

• Estimated certified closing statement.

• Certified closing instructions.

• Title policy commitment / preliminary title report.

• Evidence of your earnest money deposit.

• Profit and loss statement, if you are self employed, and last three month's of bank statements and / or 2 years of tax returns.

• List of recent comparable sales in the neighborhood.

Your bargaining power will rest on the comparable sales and condition of the real estate market. Lenders generally use an automated appraisal service, which may not reflect the true market value in the neighborhood. Be ready to point out why factors such as busy thoroughfares, close proximity of railroad tracks or high number of neighborhood foreclosures affect the value, and use those reasons to justify your asking price.