Special offer

Seller decides to do a short sale....what shouldn’t he stop paying?

By
Real Estate Agent with Alain Pinel BRE 01367196

Seller decides to do a short sale....what shouldn’t he stop paying?

House for saleWe’ve seen sellers walk with their tails between their legs, feeling defeated. What we can do for them, besides offer empathy, is to advise them on what they can and cannot do to make the short sale move forward.

Part of that counseling is to ensure they don’t do anything to jeopardize the sale.

Please note, no one will or should tell the seller to stop making their home mortgage to qualify for a short sale


Seller is financially strapped and would like to stop paying for several things. So what can he stop paying? Rather, what shouldn’t he stop paying?


Insurance.
By all means, do NOT stop insurance coverage. This is still the bank’s property, and they need to protect their investment. There must be adequate coverage. Otherwise, the seller is at risk should anything happen to the property before it sells.

If and when the bank finds out the property is not insured, it will put a forced place insurance which is a higher cost than regular insurance the seller would pay for. Further, the bank will charge the seller for the cost of that insurance.

According to Money magazine, Forced place insurance is defined as “an insurance policy taken out by a lender or creditor when a customer does not carry insurance on an asset. The charges for this insurance are passed on to the customer.”HOA will foreclose



HOA fees.
In case of properties where there are Homeowners Association Dues, the sellers are counseled NOT to stop paying these expenses because HOAs can file liens, too. Further, HOA can foreclose on the properties!

Here’s a San Francisco Chronicle article on Can HOA foreclose your condo?


Utilities.
Some sellers elect to vacate. This is not a good idea to totally vacate the property but if they absolutely have to, sellers should leave some utilities on: electricity and water. Leave some furniture in the house and put lights on a timer. And when agents show the property, they can turn on the lights, run the water

If there’s a refrigerator, it’s important to have electricity on because without it, that fridge will look like a gigantic Petri dish.  When mold and mildew form in a closed fridge, cleaning it can be a real challenge. People will get an idea that it’s worse than it really is.


Side note: Vacant property may be fined


Some cities have ordinances that either impose a fine or write a condition on vacated properties. Such conditions must be satisfied before a sale is concluded. Alameda CA has one such ordinance called Alameda Vacant Buildings Monitoring Ordinance. This is for $603.


Here’s a recent article about “$500 a day fines in for failing to register vacant houses.”.



Yes, besides the mountains of paperwork required on a short sale, there are certain things we should know to help our sellers help themselves and get this short sale on the move.                       
Related posts:





Comments(44)

Barbara Altieri
Better Homes and Gardens RE Shore and Country Properties - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

Pacita -- I just got pulled into a short with unpaid HOA and they have begun foreclosure.  You just can't fool around with that. Homeowners think they could let that payment go without much repercussion. Think again...

Jan 25, 2012 11:32 AM
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota/Wisconsin Real Estate Expert

HOA and utilities are a big thing and insurance if its not escrowed.  Just showed a froze up house today because the seller stopped paying these. 

Jan 25, 2012 11:34 AM
Steve Mun
Keller Williams Silicon Valley - Santa Clara, CA
Silicon Valley Realtor

HOA.  I could tell you horror stories about HOA hiring their own attorney to file liens and just gum up the process.   

Jan 25, 2012 12:12 PM
R.E. Renée Hoover, Salesperson
Century 21 Geba Realty, Milford, PA; Licensed in PA & NYS - Milford, PA
Poconos, Pike, Wayne, Monroe Counties, PA; PA/NYS

Thank you for the advice and information, as well as the good info in the comments.  I'll welcome the day when "short sale" is a term no one recognizes any longer.

Jan 25, 2012 01:02 PM
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA

Pacita:

HOA will proceed with a foreclosure if the the dues are unpaid.  I have been told by lenders that the HOA monthly dues should be kept up if at all possible.  I like the information Doug provided.  Nice post.

Jan 25, 2012 01:30 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Pacita - The HOAs in particular can be a killer of a short sale.  They tend to be far less cooperative than the bank.

Jan 25, 2012 03:10 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Gregory -- every one has different reasons to move while going through a short sale. Some do it to make sure they can qualify to rent a good place. They figure that before their credit is damaged, that they'd better get in a last hurrah and rent somewhere nice.

Tracy -- utilities are so important for a lot of reasons. What is someone needed to go the bathroom while looking at the place? We certainly don't want to have any odiferous remnants of the showing.

Gretchen and Mel -- vacating the premises and turning off utilities are situations we need to prepare to address to make sure the seller has a fighting chance in attracting buyers.

Barbara --- some sellers hear this and hear that...there's so much bad information out there. It is up to help manage the process. Sorry that your short sale will foreclose because of unpaid HOA. That's definitely a real-life situation you can tell future short sellers.

Chuck -- hope you get your short sale resolved. These are some of the things we need to ask about whether we're representing the buyer or the seller. They pose real obstacles in a successful transaction

Jan 25, 2012 03:30 PM
C. Lloyd McKenzie
Living Albuquerque - Albuquerque, NM
Living Albuquerque

Outstanding post Pacita.  HOA's have far too much power in this process.  I don't think when most homeowners purchase their homes they realized that they were ceding so much to the HOA

Jan 25, 2012 03:36 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Steve -- must be the same HOA attorney i tried to deal with but who won't budge an inch. Wonder how many units have foreclosed at the complexes he represented?

Renee -- who would have throught we'd have this many short sales? It used to be that many agents would walk away...but with so many buyers and sellers looking at short sales, can we afford to ignore their needs?

Evelyn --I had a close call with a short sale with unpaid HOA fees. Today, I won't accept a listing unless the HOA fees are kept current. Hard enough working with a short sale without this challenge.

Christine -- uncooperative HOA managers and attorneys WILL kill the deal.

Jan 25, 2012 03:36 PM
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Pacita, great advice. Yes, the HOAs can be a big problem. If homeowner can pay them they should--HOAs are seller's responsibility (not their lender's)  and as you mention, HOA can foreclose, or at the very least put a hefty lien on the property that the lender will not pay. If at all possible, homeowners should stay until shortly before close of escrow so that the home is not vacant. If not possible, then I recommend keep the yard watered and trimmed, and of course, all utilities ON. This is a well-deserved featured post!

Jan 25, 2012 05:24 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Pamela --- thanks for the compliment. We all learned as we went along that sellers need guidance on what they can and cannot do. Sometimes, if it's a choice of which to pay, the mortgage or HOA, HOA wins out if the seller needs to do a short sale.

Jan 25, 2012 06:09 PM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Great information Pacita for those facing very difficult times.  Couldn't agree more.

Jan 25, 2012 10:12 PM
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566

Very good outline to be able to share with short sale clients. Good points to highlight.

Jan 26, 2012 12:06 AM
Richard and Jean Murphy
Harborview Properties - Portland, ME
(207) 712-4796

Pacita, In today's litigious society, giving a seller advise on how to proceed with respect to which bills to pay, or not pay, is a difficult position for a Realtor to be in. Many of the ideas and suggestions here are valid and I might share these with family or friends. I would really try to avoid someone saying, "my Realtor told me it was OK to stop paying mortgage, HOA fee, insurance...."  Just sayin'. 

Jan 26, 2012 12:13 AM
Keith Lawrence
Christie's International - Mahwah, NJ
ABR, SFR

Good post.  In regard to the house expenses, the only thing they can do is start cutting the grass and cleaning the house.  Some homeowners doing short sales still have lawn service and a cleaning lady once a week.  Also, those on tight bugets have eliminated the house phone and cable but still keep internet. 

Jan 26, 2012 12:34 AM
Debbie Laity
Cedaredge Land Company - Cedaredge, CO
Your Real Estate Resource for Delta County, CO

The HOA point is important. I also telling the seller to speak with their attorney and tax professional. I had a couple that did just that. We are getting ready to short sale their house. Their attorney advised them to stop paying the mortgage. There isn't an HOA involved.

Jan 26, 2012 12:44 AM
Kathleen Daniels, Probate & Trust Specialist
KD Realty - 408.972.1822 - San Jose, CA
Probate Real Estate Services

Pacita,  I will be closing a short sale this week on a property that would have been sold at a Trustee Sale because the HOA foreclosed for non-payment.  When the sellers got the notice, they called an attorney, and then they decided to short sale.  They paid over $8,000 to pay the lien in order to sell.  People need to understand that simply walking away from a property is not a good decision.  Congrats on a well-deserved Feature!

Jan 26, 2012 03:14 AM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Gabe --- the seller (and their agents) face so many challenges. It's best to address them in the beginning. One misstep can kill the deal.

Cheryl -- thanks. I try to convey all such information to my sellers, and hope that other agents benefit as well

Richard and Jean --- first advice we give them is to see and attorney. Then we can counsel them on how to prepare to prepare their property for sale. I would never (and hope no agent does either) tell seller not to pay certain things like their mortgage or their HOA. That's asking for trouble.

Keith --- sellers who choose to stay while we're selling the house are best advised to cooperate. Bad attitudes will turn everyone off which will sink all possibilities of selling.

Debbie -- I cringe whenever I hear an attorney tell their clients to stop paying their mortgage. I cringe even more when that attorney tells them he can take care of the short sale by using another realtor.

Kathleen -- you and I have been doing short sales for a while, now. And we are ever vigilant in keeping our clients on track. HOA fees somehow always trip them.

 

Jan 26, 2012 08:43 AM
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer

I have seen more than one short sale fall apart because the HOA fees have not been paid.  Great list!

Jan 27, 2012 02:07 AM
Gloria Commiso
Keller Williams - Hermosa Beach, CA
Hermosa Beach
Great post it could have been titled , how to make your transaction less complicated
Jan 28, 2012 04:06 AM