Mar 4, 2011

Tip 9-2011: Short Sales: Inspection & Loan Application

The VAR Short Sale Addendum allows the Purchaser to choose when to perform the property inspection, and when to apply for the loan.  The Purchaser can choose to satisfy these contingencies at either contract ratification or after short sale lender approval.

To have a better chance of a successful short sale, these two contingencies should be removed by the time the short sale negotiator gets involved.  Otherwise, the parties can go through the lengthy short sale approval process only to have the Purchaser terminate the transaction due to an inspection or loan issue.

One strategy, to prevent additional cost for the Purchaser, is to modify the contract to provide that the inspection occurs first, usually within several weeks of the contract ratification.  Then after the inspection contingency has been satisfied, the Purchaser can apply for the loan (a month or more after the ratification).  This strategy will also allow for a longer time for the interest rate lock until short sale approval.

Other advantages with this strategy are: (1) the Purchaser is more invested in the short sale process after spending money for the inspection and appraisal; (2) there is an inspection available to help convince the lender to approve the short sale (assuming there are significant unrepaired items); and (3) the short sale seller has an actual appraisal to contest the short sale price if the short sale lender obtains an unreasonably high BPO.

Please contact us if you have questions or need legal advice.

Senior Partner
William D. Tucker, III
Tucker Griffin Barnes P.C.
Charlottesville, Virginia


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