• Short sales have to follow specific steps to reach a successful closing.Sold Home For Sale Sign on Burst image by Andy Dean from Fotolia.com
  
  Short sales, or sales of properties for less than the amounts owed the lenders, are notoriously difficult transactions, according to Real Estate Solutions. There are difference processes and procedures that buyers and sellers must follow in order to be legally compliant with a short sale as opposed to a typical retail transaction. The reason for this is the direct involvement of the lender and its legal department in the approval and negotiations process. Since the objective of a short sale is to avoid foreclosure, being legally compliant with processes, procedures and documentation is crucial.
  
  

Application

• The first legal step with a short sale is the short-sale application process. The lender needs to acknowledge that the seller has taken the initiative to avoid foreclosure by placing their home on the market in order for a property to be listed as an active short sale. Without the stamp of approval from the lender allowing the seller to proceed with a short-sale agreement, foreclosure proceedings can continue and the property can be foreclosed on at any time.
  
  The short-sale application is a gathering of documentation from the borrower by the real estate agent that shows the financial hardship that caused the delinquency on the mortgage as well as specific and detailed information about the marketability of the property. Since a lender views a short sale as a way to save some of the fees associated with foreclosure, having a complete and informative short-sale application will bring a borrower closer to a legal approval.
  
  

Offer And Acceptance

• The objective of marketing a short sale is to collect offers to purchase the property. However, offers on a short sale have to meet compliance requirements for the lender. For instance, short-sale contracts in each state have a short-sale addendum that must be submitted with the offer to purchase. This addendum is the ratified acknowledgment on the part of the buyer that they understand that they are making an offer to purchase a short sale property and that response times and terms are subject to change throughout the process. Without this addendum, the offer is not considered legally binding and the lender reserves the right to reject it.
  
  Once a lender has signed off on an offer to purchase and applicable addendum, the entire contract can be sent to a title company to open an escrow account and begin the steps to closing.
  
  

The Path to Closing

• The legal steps to closing on a short sale can be tricky. There is the possibility that the property can be subjected to additional liens being filed while the property is in escrow (reference 4). In the event that this occurs, the lender may or may not agree to pay off the lien. This can result in additional costs to the buyer at closing.
  
  In addition to this, if the buyer does not comply with the terms of the contract, or if the buyer needs lengthy extensions prior to closing, the closing process can be halted by the lender and foreclosure procedures completed, canceling out the contract.
  
  Seek advice of a licensed real-estate attorney with any and all legal questions about a short sale transaction, as real estate agents cannot provide legal advice.