If you're a home buyer and you find out that an available property you are interested in is suddenly listed as in escrow, that normally means the property has an accepted offer from a buyer and is no longer on the market. With a short sale property, that is not always the case, depending on who is passing on the information and local multiple listing service (MLS) rules.
In a short sale, the property owner is selling the property for less than the amount needed to pay off the property debts. This typically happens when property values drop and the owner finds himself owing more on his mortgage than what the property is worth in the current market. Homeowners and lenders use short sales as an alternative to a foreclosure. In a short sale, the property owner is the seller. However, the owner cannot complete the sales transaction without the lender agreeing to accept an amount less than the outstanding loan balance, and to release the property lien. The lender might forgive the unpaid balance or hold the seller responsible for the amount.
Non-Short Sale Listing
After a seller accepts the buyer's offer, a non-short sale property typically enters into an escrow process. During this time, the escrow officer holds the buyer's earnest deposit as a title company, or an attorney runs a title search on the property to verify the seller has the title to convey. The buyer might inspect the property during this time and finalize financing for the purchase. Eventually the escrow company collects the remaining funds from the buyer for the seller, and conveys the title to the new owner.
Going into Escrow
In a short sale, the property does not go into escrow immediately after the seller accepts the offer. Instead, the offer goes to the seller's lender, who might counter, reject or accept the offer. After the buyer, seller and seller's lender all agree to the sales contract and sign the binding agreement, the property then goes into escrow.
When the seller lists a short sale property with a real estate agent, the property typically goes into an MLS database, which is a private database owned by the local real estate professionals. Each MLS have their own rules, yet many are similar. When real estate professionals or consumers search through the database, they might see terms like "in escrow" or "under contract" to signify a property has an accepted purchase contract. The real estate agent might refer to a listing that is "under contract" as "in escrow" when relaying that information to a potential buyer.
MLS Short Sale
Depending on the local MLS rules, a short sale property said to be in escrow may only have an accepted offer by the seller, and not by the seller's lender. This is because MLS rules might require a listing agent to change the listing from active to under contract or in escrow when the seller accepts an offer. Since a seller's acceptance of a buyer's short sale offer is not an accepted contract, this has created confusion for some real estate professionals. Short sales became commonplace after the turn of the century, and only now are listing rules changing to reflect the true state of a short sale offer.
- "Modern Real Estate Practice"; Fillmore Galaty, et al.; 2006
- National Association of Realtors: What is a Multiple Listing Service (MLS)?
- Arizona Department of Real Estate: Short Sale Advisory
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