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Will Destin Short Sale Lender "Pay" For The Privilege?

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This is a first for me. As a short sale listing agent in Destin Florida, I have a parcel of land for sale in a ritzy golf course community. It is in a newer gated neighborhood where building lots used to fetch over $200,000. When I took the short sale listing at $90,000, it seemed realistic. But the lot market near Destin has steadily declined, fluctuating between a 3 and 15 year inventory in the past two years. That means it would take at least three years to sell out all the lots for sale at the current rate of sales. A normal market is six to seven months inventory.

After a year and a continued down market, we eventually lowered the price to $23,000. When I got a contract this week the offer was for $19,000. The most recent comparable sale, a foreclosure, had commanded a whopping $18,000. So the offer was fair.

The problem came after I ordered the HUD settlement statement to provide the short sale lender, Federal Trust Bank. Of course, I had done preliminary title work a year ago, but things had changed, including the price by 75%. Not only were there past due taxes of $12,000, there were thousands of dollars in unpaid homeowner association fees. In fact, the closing costs on the HUD would pay zero to the short sale lender, and would require cash to close of several thousand dollars! You see the closing costs were well over the sale price!

The seller has no money to bring to closing and the buyer will not. The short sale lender probably won’t pay for the privilege of allowing the short sale to get not a single dollar.

My question is, "What would YOU Do?"

It's Wendy!

Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.

Destin FL Real Estate

Destin Short Sales & Pre Foreclosure Help.

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Wendy is a short sale and pre-foreclosure specialist and has been featured in "Kiplinger Personal Finance Magazine" and "Florida Realtor Magazine". Call Wendy Rulnick, Broker/Owner,to list and sell your home or condo on the Emerald Coast of Florida in Walton, Okaloosa and Santa Rosa County- Destin, Santa Rosa Beach, Fort Walton Beach, Niceville, Bluewater Bay, Navarre, Seagrove Beach, Watercolor, Sandestin, Seaside, Crestview, Rosemary Beach, Mary Esther, Shalimar, Eglin AFB, Hurlburt Field.

Posted by Wendy Rulnick "Its Wendy!" Destin Short Sales on 10/22/2009 06:43 PM

Comments (21)

Short Sales in the Sales Strategies / Tactics Channel

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Originally posted at: Destin Short Sales- Emerald Coast Florida Real Estate: Will Destin Short Sale Lender "Pay" For The Privilege?

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21 Comments on Will Destin Short Sale Lender "Pay" For The Privilege?

OCT

WOW!! Not sure what you can do. The lender may very well never foreclose on this lot. I pulled up lots a few weeks ago that have dropped from $550,000 to $20,000. I guess the only option your seller has is to bring money to closing or just walk away. Maybe the county and/or HOA would reduce some fees just to get the lot bacx on the books again?

You guys are living in a real estate twilight zone- this stuff gives me heart palpitations. Amazing how well you're getting through it- or rather, you're amazing, how you're getting through it!

The bank should take it, what are their options? If the bank contact has any common sense they would do one of two thing, forgive the sellers mortgage and give them the property or short sale it. I know an agent in Detroit that sold an REO house for $900 and the commission was $1000.

Wendy,

I negotiate with the HOA! They might even have legal restrictions on how much they can collect.

Bill

Hi Wendy... Just when I thought I had heard it all! I should have known you'd throw me a curve ball. I would say negotiate with the HOA first... if that gets you nowhere, go to the lender and present the scenario along with the most recent comp and the prelim HUD-1 and light a candle. Where will it all end?

Bryant - The seller is going to let me know if she wants to go forward tomorrow, but without the option of her bringing money, she has none and is very ill.

Options Realty - This does give me pause for the next reallllllyyyy low priced short sale....

Jeff - Maybe they should, but the question is "would" they? They would be handing out money at a closing for no monetary return... In essence, if they agreed they would be paying a few thousand dollars so the buyer could have the lot. It is very strange.

Bill - If the HOA fees were zero- it is still upside down just with the past due taxes of $12,000!!!

Steve - Even with no HOA, it is still upside-down. Lighting a candle, maybe! I will wait to see what the seller wants to do, if she wants to go forward at all...

OCT

I think I commented on this issue before on your blog about banks not closing on toxic titles so the property is still owned by the seller while the taxes, HOA dues and any city fines continue to accumulate.

Maybe it's to everyone's best interest to let the county take the property for non-payment of taxes?

I was just going to say as well that the county might reevaluate the tax bill and the HOA, well something is better than nothing! Get to someone in the know at the county, lay out the options and just maybe! This is definitely not good. I have a listing for a condo in a "failed building" here that after 2 years of taxes and HOA fees that just might come in negative. Scary, huh? We live in interesting times. I really want to hear the end of this one! Keep us posted.

Wendy, here's the example where a short sale just no longer makes sense. In order to close, the lender will have to pay the past due HOA fees as well as taxes (assuming the seller doesn't have the ability). If they foreclose, they will only need to pay a smaller portion (I believe - but not sure- that in Florida only 6 months of past due HOA fees are paid at foreclosure. Also, some relief on property taxes may be possible depending on who holds the tax lien.

Satar - I find it odd that county taxes have accumulated for a few years on this property. I remember reading your other comment. It seems the lender did not care enough to pay the taxes.

Dick and Dixie - I highly doubt they would re-evaluate the tax bill. The local tax authorities are very tough here. The question is, "Is it an exercise in futility?"

Gabe - In Florida, non-condo is 12 months past due HOA paid by the foreclosing lienholder. The taxes are the biggest part of the problem. It may not make sense, as you say.

Wendy: Several months ago I saw a news program about foreclosures in Detroit and whether it is really worth it for the banks to foreclose. Property values there are so low that the homes are cheaper than cars, and the cost of foreclosure is more than just leaving things status quo. That's a little different than your situation.

You've got a tough one; please keep me posted on how it all works out.

Back again . . . just read Satar's comment. Each state is different and he and I are both in California. It seems that he is right, it may be in everyone's best interest to let it go to foreclosure. Disclaimer: Of course, legal counsel would be absolutely necessary ;-)

Melissa - Maybe the lender really does not care or want the property. Clue: they have not paid three years of back taxes!

UPDATE: THE SELLER WANTS TO PROCEED WITH THE SHORT SALE. The title agent had to revise the HUD. Instead of CASH FROM SELLER at closing, she has CASH FROM SHORT PAY LENDER AT CLOSING. We are still waiting for final HOA numbers before we fax this in.

Wendy, wow...this is an interesting scenario...when you thought you've heard it all. Unless the deliquencies can be negotiated and reduced and/or there are limits by law on what can be collected from the delinquencies to put the net in a better position it seems that the Lender should just be done with it and close it off their books.

OCT

We have negotiated HOA fees in Ocala. It is to the communiites benefit to reduce or ever zero them out so a new buyer can take over and start paying. Other than that, Iguess its the lender's choice.

I do a lot of short sales and haven't run across this yet, but thanks for the warning. I know it a matter of time.

Sometimes you can negotiate the taxes with the county. If the county gets the property, it won't be able to sell it with the mortgage attached.

If I were the lender I wouldn't take the offer, I'd let the homeowner deal with it and I would never foreclose. If I were the homeowner I'd pray the lender would accept my short sale. If I were the realtor, I'd see if the lender would accept the short sale as presented, and as a backup plan be ready to talk to the county about taxes, and the hoa about the hoa dues.

OCT

Lynn- I don't know legal limits on collecting. This scenario is frightening in my area because lot prices are continuing to plummet.... so I expect I will run into it again.

Nancy - Hope you don't run into it!

Elizabeth - OK I will call the county. However, I think they are brutal around here. I had a case where the county refused to move a lien to another property from the same homeowner who was threatened foreclosure. That was Okaloosa County Florida tax collector. They did not care. They said they would let it foreclose instead of moving the lien.

Jared - This one is so upside down for ALL parties you just named, too.

So ... everyone just goes to their respective corner and wait for the other to blink. This should be interesting.

The value of the parcel means you have more likely spent your commission in time and effort. The only reason to see this through it just to see how it works out. It may require negotiation on everyones part and the time that would take may be more than you are willing to spend.

If the lender does not agree, the seller sits with continued delinquencies and derailing credit scores - how low can a credit score go? It is going to be someone's problem and I understand why no one would wish to take it on.

Wendy, update us when you get this one resolved - I would love to hear about it. Best of luck.

OCT

Cathy - You are right, this is a losing monetary proposition for my company now, but as I wrote in "Should You Take Low-Priced Short Sale Listings?" sometimes I do pro-bono work. I AM curious as to how this will work out, it is a first for me. The seller wants to go forward, so I will see this through. I will keep you updated.

OCT

Wow..That's a doozy..

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