A short sale occurs when a lender chooses to accept less than the value of the mortgage on the property to convey clear title to a buyer. These are commonly used with an upside-down homeowner to help them get out of a house that they cannot afford. A short sale may work with an estate to settle a mortgage as well, with some conditions.
To consider a short sale on a home owned by an estate, the deceased must have owed more on the home than the property would sell for on the open market. Estates complicate matters even more because the lender knows that the value of the estate must be liquidated to settle any outstanding debts. If the deceased had any other assets in his name that could be sold or converted to cash, and that amount was sufficient to pay off the mortgage, a short sale may not be possible. Be prepared to prove that the estate does not have assets exceeding the amount of its debt.
Keep Careful Records
As the executor of the estate, you generally cannot be held responsible for your actions if you act in good faith at all times. To prove good faith when executing a short sale of a home, you should keep very good records, including copies of recent appraisals of the property that prove that the house was not worth as much as the balance of the mortgage. If you have been trying to sell the house for a time at an amount exceeding the balance of the mortgage, and have been unsuccessful, document that as well. This will prevent heirs to the estate from claiming you could have sold the house at a profit, which could then have been distributed among all of the heirs.
Find a Good Professional
Short sales are not easy, and many of them fail in that a sale cannot be completed before foreclosure takes place. You stand a much better chance of completing the sale if you utilize a professional real estate broker with experience in completing short sales. This broker will be more likely to have success in negotiating with the lender when an offer comes in to purchase the home. She is also more likely to have a network of contacts with various lenders, using these relationships to speed up the process.
Negotiate and Close the Deal
When an offer comes in, your professional broker should take it to the lender for approval. Because you are asking the lender to accept less than the mortgage value on the home, your approval as the executor really is not necessary. Your biggest obligation will be to execute the documents that are necessary to complete the sale, if and when the lender accepts an offer.
Check With the Court
Before completing or considering a short sale as an executor, be certain that you check with the probate court. The court will want to determine that the sale is in the best interest of the estate and the heirs. The court supervision of this process can also protect you from liability with other heirs.
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