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What is a Real Estate Short Sale in Ohio?

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What is a Real Estate Short Sale in Ohio?

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Picture of Matthew A. Schwartz
Matthew A. Schwartz

Ohio Real Estate Attorney

Short sales are a legal sale of a property when a property owner sells the property for less than the amount owed on the mortgage associated with the property. The buyer of the property is not the lender and the proceeds from the purchase all go to the lender.

What is a Real Estate Short Sale?

Short sales are legal sales of a property when a property owner sells the property for less than the amount owed on the mortgage associated with the property.  The buyer of the property is not the lender and the proceeds from the purchase all go to the lender.  In the case of a short sale real estate translation, the lender has to decide if they will write off and forgive the remaining balance on the previous mortgage or seek a deficiency judgment in court to get the previous owner to pay all or some lesser portion of the outstanding balance of the mortgage including interest.

When a real estate short sale is conducted, it’s common that these terms for the deficiency judgment or balance forgiveness are in the agreement with the buyer of the property from the owner in default or distress.

5 Key Components in a FSBO Real Estate Short Sale

  1. A real estate short sale is when a property is sold for an amount less than the amount currently owed on the mortgage lien against the property.
  2. The mortgage lender approves any terms of a short real estate sale in the State of Ohio.
  3. In the terms of the agreement for the short sale, the lender determines if the remaining balance is forgiven or if they will seek a deficiency judgment against the property owner.
  4. FSBO Sellers have to disclose if they are delinquent in their mortgage payments or if they are seeking a short sale of the property and will need to secure the permission of the lender to complete the transactions.
  5. FSBO Buyers will want a contingency in their offer to stipulate the sale of the property is contingent upon the short sale approval from the lender.

An Example of a Real Estate Short Sale

A homeowner wants to sell their home for $200,000 and the mortgage balance on the property is $250,000 creating a deficiency of $50,000.

The first part of listing the property includes getting permission from the mortgage lender to agree to the execution of a short sale which is commonly known as a pre-foreclosure sale.  The mortgage lender will seek information from the buyer on why the short sale is required and for an FSBO seller that may mean a loss of income, or an inability to care for the property due to injury or age.  While a short sale may take several months to approve with a mortgage lender, a short sale is not as detrimental to the credit of a seller as a full-on foreclosure may be. 

Once the short sale is approved by the mortgage lender, the homeowner can market the property and receiver offers.  In the event that the seller is unable to sell for the price differential agreed to by the mortgage lender, the lender will have final approval on acceptance of the offer and may change the short sale agreement if the deficiency increases.

In the end, a real estate short sale can enable a distressed homeowner to surrender the property to a third party and have the mortgage lender forgive the deficiency between the sale price and the market price.  There are many steps in this process and many potential caveats like mortgage lenders not wanting to conduct short sales, requiring property owners to be in default or having the mortgage lender still require some partial form of payment from the deficiency between the mortgage amount and the sale price.  Short sales are expensive to undertake, they require a knowledgeable real estate agent or attorney, a legal representative from the lender and may take months to even as long as a year to get to any type of agreement.  FSBO may be a method to unload your short sale real estate using an attorney to avoid the real estate commissions and fees and free you from the obligations of your mortgage.

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What is a Real Estate Short Sale in Ohio?

Short sales are a legal sale of a property when a property owner sells the property for less than the amount owed on the mortgage associated with the property. The buyer of the property is not the lender and the proceeds from the purchase all go to the lender.

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LEGAL DISCLAIMER:
The information contained on this website is presented for informational and marketing purposes only and is not to be understood as legal advice. You should consult an attorney for advice respecting your individual needs. The Law Office of Matthew A. Schwartz looks forward to speaking with you about your particular needs. Please note, however, that the mere act of contacting our firm does not create an attorney-client relationship. As a result, you should never send any confidential information to our office until a Representation Agreement has been signed by both you and The Law Office of Matthew A. Schwartz. 

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For Sale By Owner

How To Protect Yourself with a Home Sale Contingency Clause

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How To Protect Yourself with a Home Sale Contingency Clause

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Picture of Matthew A. Schwartz
Matthew A. Schwartz

Ohio Real Estate Attorney

A home sale Contingency Clause in a purchase contract protects the potential buyer of a property from carrying two mortgage payments when they own another property that they are attempting to sell.

Home Sale Contingency Clauses Prevent You from Being Stuck with Two Mortgages.

Protect Your Assets While Buying a Home

A Home Sale Contingency Clause in a purchase contract protects the potential buyer of a property from carrying two mortgage payments when they own another property that they are attempting to sell.  In the offer phase, a contingency clause can delay the obligation to close on the property while the buyer’s current property remains on the market.  The contingency clause typically provides an expiration date for an offer based on an expected sale of the buyer’s current property.  In the event the buyer’s current property fails to sell within the designated time period, the offer to the seller is void.  If the buyer’s home sells prior to the expiry date, then the ”home sale” contingency has been met, and the transaction moves forward.

3 Key Components of Home Sale Contingency Clauses

  1. Contingency clauses protect buyers selling one home to buy another and would be incorporated into the offer to buy.
  2. If a buyer’s property does not sell by a designated date, the offer is null and void.
  3. A contingency clause for an FSBO seller can provide assurance that your property sells before your offer on another property is binding.

Settlement Contingency Clause

A “settlement contingency” is a clause that enables the Buyer to make the finality and the timing of an offer dependent upon the closing of another property being sold by the Buyer.  This would apply only in cases where the Buyer making the contingent offer was already under contract to sell their original property.   A settlement contingency typically does not allow a Seller to accept other offers while the Buyer’s property closes or for a set period of time.

Sale and Settlement Contingency Clause

A “sale and settlement contingency” clause is appropriate in cases where the Buyer making the contingent offer is also attempting to sell another property.  Since the Buyer has not yet secured an acceptable offer on their other property, sale and settlement contingencies typically permit the Seller to  accept offers from other potential buyers .  If the Seller receives a suitable offer from a different buyer, the initial Buyer will typically have the opportunity to waive the contingency and/or otherwise modify their offer in an attempt to maintain first position.   sale and settlement contingency including matching or beating the additional buyers offer.  If the buyer is unable to remove the contingency, the buyer’s offer becomes null and void.  Sale and settlement contingencies often come with earnest money that is returned if the buyer cannot execute the clause because their home has not sold.

How Contingencies Help & Hurt FSBO Sellers

Contingency clauses can impede an FSBO Seller in the process to sell your home while you wait for a buyer to settle and close on their property.  A few things an FSBO Seller should do before accepting a contingency clause:

  • Review the buyer property. Is it listed in real estate marketplaces?
  • Is it listed to sell or are comparable homes in the neighborhood selling faster or slower?
  • Assess the time on market for the neighborhood – if the time on market is long, you may not want to accept the contingency offer if it will delay the sale of your home.
  • Is the property listed with a real estate agency or FSBO?
  • A Real Estate agent may move quickly in the market to get the buyer’s property sold and commissioned.
  • An attorney might take more time with other work that could delay the sale of your home.
  • A “kick out” clause can also be added to contingency clauses that gives the buyer a certain number of days to sell their property and if not, they have a certain amount of time to remove the contingency clause or their offer is null and void.

A contingency clause can benefit FSBO buyers if your property is not selling quickly at the market price. If your market is slow or your listing has been up for a number of days, a contingency might benefit you.  

Contingency Clauses are there to enable buyers and sellers mutual time to sell and acquire properties.  Talk to an attorney about the clauses and make sure you include the right language that helps your property sell in the market.

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How to Use a Gift of Equity in Ohio FSBO Transactions

A Gift of Equity in a property allows the future owners and buyers of the property to leverage their newfound equity in the property as a down payment on the loan to finance the property and to avoid Private Mortgage Insurance (PMI) potentially.

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Tax Liens & Tax Certificates in Ohio

Property taxes are the most confusing and complicated aspect of real estate transfers in Ohio. The Law Office of Matthew Schwartz helps you mitigate taxes when buying or selling property.

What is an Affidavit Of Title in the State of Ohio?

An affidavit of title is a legal document provided by the seller of a piece of property that explicitly states the status of any potential legal issues with regard to the property being sold or the seller of the property.

LEGAL DISCLAIMER:
The information contained on this website is presented for informational and marketing purposes only and is not to be understood as legal advice. You should consult an attorney for advice respecting your individual needs. The Law Office of Matthew A. Schwartz looks forward to speaking with you about your particular needs. Please note, however, that the mere act of contacting our firm does not create an attorney-client relationship. As a result, you should never send any confidential information to our office until a Representation Agreement has been signed by both you and The Law Office of Matthew A. Schwartz. 

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For Sale By Owner

How to Use a Gift of Equity in Ohio FSBO Transactions

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How to Use a Gift of Equity in Ohio FSBO Transactions

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Picture of Matthew A. Schwartz
Matthew A. Schwartz

Ohio Real Estate Attorney

A Gift of Equity in a property allows the future owners and buyers of the property to leverage their newfound equity in the property as a down payment on the loan to finance the property and to avoid Private Mortgage Insurance (PMI) potentially.

how to add a gift of equity to a sale

FSBO Sales Directed at Family Members Can include a Gift of Equity

While saving on realtor fees is an excellent benefit of choosing to proceed with For Sale By Owner, some of the most valuable advice we can offer involves structuring a deal with a family member, renter, or someone with whom you have a close relationship.

During the transaction to sell the property, you may decide to price the property BELOW the actual appraised value of the property and that creates something called a Gift of Equity.

A Gift of Equity in a property allows the future owners and buyers of the property to leverage their newfound equity in the property as a down payment on the loan to finance the property and to avoid Private Mortgage Insurance (PMI) potentially. The Gift of Equity is an actual gift to the buyer, it may not be a “loan” and it may not be cash. These factors are normally certified in a Gift of Equity Letter.

4 Key Components to a Gift of Equity

  1. A gift of equity involves the sale of a residential property for less than the appraised amount with no exchange of cash (or anything else of value) to offset the difference between the established market value and the purchase price.
  2. A gift of equity is normally conducted between family members although not strictly forbidden between a seller and a buyer with a close relationship.
  3. Lenders will require that the buyer is qualified for the mortgage they take on the selling price in order for the Lender to accept the Gift of Equity as a down payment on the mortgage.
  4. Gifts of Equity are quantified through a Gift of Equity Letter.  While the letter is not specifically required to be notarized, the use of a notary is recommended.

Potential Benefits for Gifts of Equity in Ohio

  1. The buyer may be able to significantly lower or even eliminate a downpayment on the purchase of a family-owned property. With required down payments ranging from 5% to 20%, the Gift of Equity can resolve situations where buyers may struggle to establish the up-front money required to complete a purchase.
  2. Gifts of Equity are conducted using an attorney to help draft the Gift of Equity Letter and manage the selling process from Affidavits of Title through the Mortgage Agreement with the lender.
  3. Family members can pass generational wealth on to their children or other close relatives by passing equity from their home to them during the sale of the property.
  4. Ohio has no Estate Tax or Gift Tax so sellers and buyers may be able to avoid a tax situation associated with the Capital Gains on the property.

Potential Drawbacks to Gifts of Equity in Ohio

  1. While there is no firm Gift Tax in the State of Ohio, a large gift from an estate might trigger another tax.  Consult an attorney or tax accountant to understand the full picture and potential tax implications.
  2. A gift of equity could actually lower the cost of the house being purchased by the buyer as any cost associated with improving the property is transferred to the buyer as equity.  But that can increase the capital gains value when the new owner sells the property potentially resulting in tax offsets.
  3. A Gift of Equity does not cover the closing costs on a loan or filing fees for titles and deeds.  A Gift of Equity is also filed using an attorney and legal fees may apply. 

What is Required for a Gift of Equity in Ohio?

In Ohio, a Gift of Equity Letter is required, and while notarization is not required it is strongly encouraged.  The letter contains the following:

  1. The property seller must pay to have a professional appraisal completed on the property to establish the market value
  2. The current market value of the property from the appraisal is stipulated in the Gift of Equity Letter.
  3. The Gift of Equity Letter must include the price at which the property will be sold to the buyer and the dollar value of the Equity being transferred

The Gift of Equity Letter is part of the closing process and is presented at the time of closing and to potential lenders as loan vehicles are created for the new buyer of the property. The buyer MUST qualify for a loan to receive the equity.

Gift of Equity and Internal Revenue Service (IRS) Guidelines

While a Gift of Equity may not have tax consequences in the State of Ohio, it may have consequences with the Internal Revenue Service.  In 2021, the IRS cap on gifts from a married couple to an individual is set at $32,000 a year and $16,000 from an individual to another individual.  Capital Gains tax may apply on the difference between the Market Appraisal and selling price less the Gift cap.  Consult a tax advisor or an attorney to find out more.

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LEGAL DISCLAIMER:
The information contained on this website is presented for informational and marketing purposes only and is not to be understood as legal advice. You should consult an attorney for advice respecting your individual needs. The Law Office of Matthew A. Schwartz looks forward to speaking with you about your particular needs. Please note, however, that the mere act of contacting our firm does not create an attorney-client relationship. As a result, you should never send any confidential information to our office until a Representation Agreement has been signed by both you and The Law Office of Matthew A. Schwartz. 

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For Sale By Owner

Right of First Offer in FSBO Real Estate Sales

Right of First Offer in FSBO Real Estate Sales

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Picture of Matthew A. Schwartz
Matthew A. Schwartz

Ohio Real Estate Attorney

FSBO Real Estate Sales May Include a Right of First Offer. Learn How it Can Work for Your FSBO Sale.

Right of First Offer in FSBO Sales

The right of “First Offer” is a legal obligation to allow a holder of the “right” to purchase a property asset before anyone else.  A right of First Offer may be found in a will that would allow a sibling or relative to buy a property first or may be involved in a business disposition.  If the holder of the right declines to exercise the right then the property can proceed to market and the right is retained and filed into escrow during the sale.

A right of First Offer may also appear in a lease agreement for commercial or residential property and allows the occupant to have the right to offer to retain the lease if the landlord opts to put it into the market.

How the Right of First Offer Works for FSBO

When an owner wants to sell or lease a property, whether occupied or not, the holder of the right is notified and they can make the first offer to the seller.  The seller is NOT obligated to accept the offer, even if it is above the market price the seller is looking for.  The holder of the right typically has a set amount of time to provide the offer before the right expires.  If the right expires, it is void.

A seller can sell the property to a third party after the right of First Offer is declined.  In the event that the seller does not get a reasonable market price, they are not prohibited from returning to the right of First Offer holder, but the right is no longer valid nor is their initial offer.

Right of First Refusal and Right of First Offer

A right of first refusal is a right that favors a buyer and gives them the right to match an offer made on a property.  The right of First Offer gives the holder of the right the permission to make the initial offer on the property.  So the holder of the right of first refusal would have to MATCH or beat the offer from the holder of the right of First Offer in order to win the property.

Rights of First Refusal are not common but may exist from a will or some other legal document associated with disposing of the assets of a deceased person.  Typically, the Right of First Refusal and Right of First Offer move quickly with expiration dates on the offers of no more than a few days.

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For Sale By Owner

What is an Affidavit Of Title in the State of Ohio?

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What is an Affidavit Of Title in the State of Ohio?

Picture of Matthew A. Schwartz
Matthew A. Schwartz

Ohio Real Estate Attorney

An affidavit of title is a legal document provided by the seller of a piece of property that explicitly states the status of any potential legal issues with regard to the property being sold or the seller of the property.

An affidavit is a sworn statement of fact specifying the seller of a property holds the title to the property and acts as proof that the seller of the property in fact owns the property.  An Affidavit of Title also includes an attestation from the Seller that any other facts about the property are correct and is notarized by an official notary public.

What Property or Seller Details Could an Affidavit of Title include?

An Affidavit of Title can include that there are no contractor liens on the property, that the seller is not in a legal proceeding that could attach to the property or that the seller is delinquent in taxes related to the property.  Other details may include information from a site survey that stipulates issues with the zoning of the property or boundaries of the property.  The Affidavit of Title is there to protect the buyer from any errors or misrepresentation of the property or the seller from the seller.

Contents of an Affidavit of Title in Ohio

The basic content of an Affidavit of Title include personal details about the seller like name and current address. Other statements include:

  • The seller is the owner of record for the property being sold to the buyer;
  • The seller is not simultaneously selling the property being sold to any other party;
  • There are no liens from lenders, contractors or other parties on the property being sold;
  • There are no outstanding assessments for the property being sold or assessments outstanding against the property.
  • The seller is not in bankruptcy proceedings or is filing bankruptcy proceedings that may attach to the property being sold.

Other Things Covered by an Affidavit of Title in Ohio

  • A mortgage lien is still on the property as a method to identify what liens are on the property being sold;
  • There are easements on the property from a prior survey or an easement may need to be done with a new survey of the property
Key Components of an Affidavit of Title
  1. An Affidavit of Title is a Legal, notarized document that requires the seller to disclose any legal issues regarding the property being sold and the sellers personal legal status.
  2. The Affidavit of Title protects the BUYER from legal issues surrounding the seller or the property.
  3. Ohio REQUIRES an Affidavit of Title in real estate transactions.
  4. Ohio title companies REQUIRE an Affidavit of Title before title insurance can be issued.
  5. The Affidavit of Title can be used in legal proceedings if issues arrive after the transaction for the property and the seller failed to disclose the issues.

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Need an Affidavit of title?

The Law Office of Real Estate Attorney Matthew A. Schwartz is deeply experienced in Ohio Real Estate Law. If you are looking for innovtive solutions to protect your assets and your family, schedule a FREE consult with Matthew today.

LEGAL DISCLAIMER:
The information contained on this website is presented for informational and marketing purposes only and is not to be understood as legal advice. You should consult an attorney for advice respecting your individual needs. The Law Office of Matthew A. Schwartz looks forward to speaking with you about your particular needs. Please note, however, that the mere act of contacting our firm does not create an attorney-client relationship. As a result, you should never send any confidential information to our office until a Representation Agreement has been signed by both you and The Law Office of Matthew A. Schwartz.