FORECLOSURES AND SHORT SALES, HOW THEY WORK
By Sue Saunders, NVAR General Counsel
As we all know, the real estate market has taken another extreme twist, that of
“short sales” and/or foreclosures. Dealing with transactions which involve short
sales and/or foreclosures is filled with new challenges and the need for special
knowledge. Because of the extraordinary know-how necessary to represent
clients in a short sale, agents are compelled to become educated in this field.
Pre-foreclosure Period
Initially, it is necessary to know Nevada’s foreclosure laws. Nevada foreclosures
are primarily accomplished out of court. An out-of-court foreclosure in Nevada
can be completed in about four months.
In Nevada, most mortgages allow lenders to sell a property once an owner
defaults without having to file a lawsuit. A lender begins the foreclosure process
by recording a notice of default with the county recorder and mailing the notice to
the borrower. A borrower or any secondary lender has 35 days from the date the
default notice is recorded to pay off the default and stop the foreclosure.
At least three months after recording the notice of default, the lender can
schedule a foreclosure sale if the borrower has not paid off the default amount.
Notice of Sale/Auction
A trustee (third party named in the deed of trust) carries out the foreclosure sale
(also referred to as a public sale). A notice of sale is posted at least 20 days
before the trustee sale date in three public places and published in a local
newspaper once a week for three weeks. The notice of sale is also mailed to the
affected parties.
The sale may be at the trustee’s office and anyone may bid. The winning bidder
has to pay the full bid amount in cash or cashier’s check to the trustee. If the
sale is postponed, a public announcement is made at the time and place of the
sale. After the sale, the trustee transfers ownership to the winning bidder.
An out-of-court foreclosure provides the winning bidder with clear title, and there
is no redemption period for the borrower after an out-of-court foreclosure sale.
Although court foreclosures are uncommon in Nevada, they are possible under
certain circumstances.
Short Sales
If the borrower is faced with foreclosure, he/she may try a last-ditch effort to
avoid foreclosure by the short sale. If the borrower is unable to pay the
mortgage, he/she may negotiate with the lender to accept a discounted payoff on
the loan. This is called a “short sale” or “short payoff”. A short sale occurs when
the value of the property is less than the amount owed to the lender, and the
lender agrees to write off the difference. It allows the borrower to avoid a
foreclosure action, and may offer the lender an expedited and less costly
resolution to the situation.
Most lenders have specific criteria to consider a short sale that relate to the
borrower’s ability to repay the debt.
An agent representing a seller in a short sale has several more steps to complete
the transaction than in the ordinary sale of a home. These extra steps involve
working with the lender.
! Each lender will have its own set of rules, so the agent needs to be sure to
talk with the appropriate department for its list of requirements.
! Inquire about the time frames for all processing, and send everything requested as soon as possible.
! Be aware of the foreclosure date (if any) and ask for a postponement if possible.
! Discuss the benefits of a short sale with the lender.
! Confirm everything in writing.
! Collect all the contact information (including physical address and/or
delivery options) of the appropriate person or department at the bank or
lending institution.
Negotiate a purchase price with the lender including:
" Commission
" Repair costs
" Escrow
" Title insurance
" Recording fees
Once the lender has agreed to the short sale and the terms, the agent can begin
marketing the property. The agent must be sure to inform prospective buyers
that any contract entered into between the seller and the buyer is “subject to” the
lender’s approval and will not become binding on the seller until the lender has
approved all the terms of the contract.
MLS Co-op
Frequently advertising the property in the MLS has its own set of problems
because MLS requires the listing agent to offer a specific co-op commission for
the cooperating agent. The lender must approve the contract before it becomes
binding and frequently the lender will not approve the co-op offered by the listing
agent. Of course to make matters more difficult, the lender usually will not tell
the listing agent in advance what commission rate it will accept. It is possible
that the lender will agree to all the terms of the short sale contract, but will reduce
the listing broker’s commission.
fault of the listing broker it is impossible or financially unfeasible for the listing
broker to collect a commission pursuant to the listing agreement.
A short sale may be the answer for assisting a borrower in a tight situation. A
short sale allows the borrower to maintain a better overall credit record. It can
help the lender in avoiding the expense of foreclosure. But short sale may not be
the solution to all borrower-in-distress situations.
Statements made by the NVAR Information Line attorneys on the telephone, in emails,
or in legal e-news articles are for informational purposes only. NVAR’s staff
attorneys provide general legal information, not legal representation or advice regarding
your real estate related questions. No attorney-client relationship is created by your use
of the Legal Information Line and any information you receive You should not act upon
this information without seeking independent legal counsel. Information given over the
Legal Information Line or in these articles is for your benefit only. Do not practice law!
Inform your clients they must seek their own legal advice.
Please call with questions.
Kim Duclos
Wardley Real Estate (702) 521-3939
(888) 949-2890
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