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If you’re thinking about purchasing a short sale property you probably have a few questions, such as whether the title is free and clear or if liens could present a problem. These are very important questions that you want to have fully answered before making a serious offer, since they’ll affect your ownership.

As the purchaser, you are not responsible for any lien on the home—the owner is still the responsible party for any debt or obligations. Sometimes these “obligations” can become deal breakers in a short sale, especially if the owner is financially strapped or the lender is unwilling to assist. If you were to close on a short sale and these “obligations” were NOT satisfied, then you would most likely be held accountable for them. These obligations could include property tax liens, IRS liens, contractor liens, second mortgages, or even HOA liens.

You must remember that a short sale is NOT a foreclosure. In a foreclosure, most obligations would or could possibly be wiped clean. Not so in a short sale. Since a short sale occurs when a property is sold for less than the original owner owes on it, it can be a complicated business, since lenders have to accept less than the amount they loaned to the original homeowner. And because obligations must be satisfied in some way or another, some hefty negotiating is usually required.

In a short sale, the title is rarely free and clear, so you’ll need to do your homework and have open communication with the title company. Once an approval is completed, ask for a title commitment, complete your due diligence, and ask questions if you do not understand something. You may even need to assist your seller in a negotiation.

Be patient, short sales tend to suffer failure rates and sometimes simply can’t close in time to prevent foreclosure. A persistent lien holder can play a key role in delaying the closing of a short sale. If all parties are willing to be a part of the process then you can come out “free and clear!”

At Title Junction we care about helping you stay informed throughout your real estate transaction. Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: Defining Title Insurance and Escrow

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