How to know when the property has officially been sold through short sale or foreclosure
This article is contributed by guest blogger Emily Dressler of Deeds.com
Short sales can be confusing, and there is some definite confusion on when the property is actually transferred. Regardless of whether it’s a short sale, foreclosure, or traditional sale, the real property must be conveyed by a deed in writing. The real estate deed must be duly acknowledged before a person authorized to take acknowledgments, and it must be delivered to the person to whom the interest is conveyed. Additional statutory requirements will also apply.
The short sale process takes longer than the traditional home-selling process simply because of the added complexities involved. It might also be difficult to set a firm closing date when buying a short sale property. In addition, short sales involve negotiations with the seller’s lender, which means that the actual moment of property transfer will take longer than in a traditional sale.
A short sale will not close until the following conditions have been met: the seller’s lender approves the contract in writing and has set the reduced payoff amount, the buyer’s lender has approved the new loan and has funded the loan amount to escrow, all requirements listed in the Commitments for Title Insurance have been satisfied or removed, and any additional funds necessary to pay all costs, fees, and obligations have been paid into the escrow account by the buyer, seller, or other applicable party.
Once the seller’s lender approves the contract, the buyer’s lender can start to process the new loan. Anyone involved in a short sale must be very patient, as delays are almost guaranteed. If there is only one mortgage, the lender could take up to two months to approve the sale. If there is more than one mortgage, it could take four months or longer for the lender to approve the sale.
The short sale process can be delayed for numerous reasons. If a seller has two loans, this could mean that two different banks have to work together, coordinate their schedules, and communicate effectively. In some cases, the process is not just delayed but is thwarted: a great offer might be received at the bank, but foreclosure proceedings will begin if the seller is six months behind on mortgage payments. Unfortunately, the buyer and the buyer’s agent do not have a lot of control over the short sale process, so the long timeframe must simply be dealt with by both. All parties involved can help keep the process going smoothly by signing and returning forms on time, returning phone calls promptly, and cooperating with the lending institution.
In a traditional home sale, the grantees sign the deed and it is handed over at closing. The actual moment of property transfer is the same in a short sale as in a traditional sale; it’s just that it can take a while longer to get there.
Like in short sales, there are some uncertainties as to when the actual transfer of property takes place after a foreclosure sale.
Arizona is a title theory state. In a title theory state, the legal title is held by the lender until the home loan is paid off. The homeowner retains equitable title to the house, which means they have the right to possess and use the property. In title theory states, the Power of Sale clause gives a lender the right to sell the property if payments are not made. This is known as a non-judicial foreclosure. Typically, a non-judicial foreclosure has a three-month timeline from the date the Notice of Foreclosure sale is filed until the date of the actual foreclosure sale.
When a homeowner defaults on their mortgage, they are first served with a Notice of Default, which is recorded at the county recorder’s office. After this, if the homeowner hasn’t cleared the debt in a prescribed period, the foreclosure process is initiated by the recording of a Notice of Sale in the county recorder’s office in the county where the property is located.
If the house is auctioned off, there will be a trustee’s sale, held either at the trustee’s office or on the steps of the local courthouse. Oftentimes, the minimum bid is not placed and the property reverts back to the lender, at which point it becomes real-estate owned (REO). The successful bidder must have $10,000 in certified funds for the trustee on the day of the auction. When a foreclosed property is purchased at an auction, the deed will not transfer until the house is fully paid for. The successful bidder will be issued a trustee’s deed within seven days of receipt of payment. At the auction, the new owner will receive a vesting sheet, which is basically a receipt for $10,000. It is also important to know how you want the title vested—will the title be in your name or an LLC?
After the property is purchased at auction, it is transferred with the issuance of a trustee’s deed. A trustee’s deed conveys title but does not offer any warranties. Foreclosed homes are sold without any warranties as to the property’s condition or title. It is a good idea to purchase title insurance for property bought at a trustee’s sale to protect you from an undisclosed lien or encumbrance. A title search should also be done before purchasing a foreclosed home. However, once the property becomes REO, all liens are cleared.
It’s important to make sure the deed is recorded after a foreclosure, and is recorded in the county where the property is located. In a typical closing, the title company is responsible for this. Recording the deed places the new owner in the chain of title, and gives notice that ownership of the property has changed. This is how all parties involved will know that the ownership of the property has officially transferred.