Active Rain
-
Quick Tour
Connect. Share. Learn.Welcome to ActiveRain, the #1 social community for real estate professionals.- Explore the world's largest storehouse of real estate knowledge
- Access free training on ActiveRain University
- Share the experience of life in the real estate industry
- Grow your business through real estate blogging
- Blogs
-
Resources
Product Reviews Curious as to what others in your profession think about a certain product or tool? AR's community takes the time to leave honest and transparent reviews of their experiences so you can be a bit wiser about your purchase.
- Broken down by categories and subcategories for easy finds
- Get an unfiltered look at what real users are saying
- Leave a review yourself for others to benefit from
- Add new products as you use them and gain points for doing so
Sellers of a Northern Virginia Short Sale with two loans (a 1st trust and a 2nd trust) have just received an offer on their property. The Buyer would like 3% of the sales price in closing cost help. 
;)
;)
;)
Find VA real estate agents and Bristow real estate on ActiveRain.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
© 2013 ActiveRain Corp. All Rights Reserved
15 Comments on Northern Virginia Short Sale Quiz: Question #4
Hi Chris Ann: While a few years ago I saw/heard of a few in which the agents had to come up with something in order for the closing to happen, I would hope that nowadays it's only the 1st Trust, Answer A.
This is a treat question, right? The real answer is the buyers . . . LOL
Assuming the first is being shorted, then the closing cost loss will be with the 1st lien holder. However, if the FMV of the home is greater than the payoff demand of the 1st, then the second lien holder is accepting a lower payoff in order to provide for the buyer's closing cost. This assumes that closing cost get approved. This also is done on behalf of the seller's request.
By the way, technically the buyer or the buyer's lender is providing the funds to give themselves back the credit on the HUD. For example, in simple terms and assuming 100% financing, if the buyers' are purchasing the property for 100k and asking for a 3% credit for closing cost, the buyer's lender is still financing this deal at 100k and the bank will allow a payoff of 97k. The 3k goes to the buyers to do as they wish, like pay their real estate agent an extra commission! ;)
Hi Chris Ann. I will be checking for the answer. I hope it is not D. :)
The answer is (gasp) C) The Sellers.
While everyones believe that the Short Sale Banks are the ones that pay the closing costs and commissions, it is actually the SELLER. Follow me on this one and you'll never look at Short Sales the same way. They are truly more like regular sales than you've ever dealt with.
The Sellers are the ones that own the property. And just like in a regular sale, the closing costs and commissions come from the GROSS sales price. This is money coming in to the Seller. The bank gets the remaining, or NET proceeds. They bank may want to increase their net and "disallow" closing costs, but if they state a higher net in the letters than was reflected on the proposed net on the HUD, the Seller may still be contractually obligated to pay those closing costs that were previously agreed to in writing if they are not removed from the contract with an addendum.
This becomes particularly important if the Seller is not covered under the Mortgage Debt Forgiveness Act and faces a tax liability on the short fall of the mortgage forgiven by the Short Sale Bank.
Andrea: This is one that I see misunderstood constantly, and why so many buyers think they can ask for the sun, moon and stars. The banks are only dealing in the net proceeds. The commissions and closing costs are paid out of the gross that comes in to the Sellers.
Carla: I can see where you get this since the Buyer's loan is funding the purchase price, but since the closing cost assistance would come off the Seller's side of the HUD, and the Bank is not the Seller, it is the Selelr.
Satar: When the Short Sale Bank becomes the Sellers (i.e. if it goes to Foreclosure) THEN the Bank is paying the closing costs. If the Seller still owns the home and is listed on the HUD, the closing costs and commissions are coming out of the gross sales price coming in to the bank. The bank gets what's left AFTER that stuff.
Carol Ann: I put that in there just to make everyone's stomach flip.
Hi Chris Ann: I'm not sure I completely follow your train-of-thought. I think I understand but ... No question, the subsidy is technically the seller's obligation and under normal circumstances it would come out of their equity and thus out of their pocket. But since the proceeds are not enough to cover that, it is not coming out of their pocket. The 1st lien holder still has to agree to take even less and thus it's them taking the loss. If they don't agree then their net is higher. Of course, in that case the sellers either have to pay or another solution would have to be found.
Great food for thought!
Andrea: Even though there is no equity, the Seller is still the one paying it. Obviously, this affects the net to the banks so they will often ask to counter, but at the end of the day, the bank is simply no where on the HUD, just like in a normal sale. Sellers can even use the closing costs they paid as tax deductions. It's really no different. If the banks were paying, they'd be writing checks at settlement. It's coming from the Sellers.
I've got news for you, Chris Ann. Believe it or not -- it is not the sellers who pay the closing cost credit for the buyers. No, Sirree. Why, everybody knows it is Santa Claus. Oh, wait. Maybe it's the Easter Bunney. I stand corrected. I hop corrected.
Elizabeth: Well that might more sense than the bank now, wouldn't it?
Great job explaining this one!
Marilyn: It's not a hard concept. The money all comes in to the Seller and is paid out by them. The HUD-1 works no differently in a Short Sale than in a regular sale.
Woohoo! That one caught me, and it seems a lot of others. Glad I wasn't in the boat alone!
Pam: This one is easy to remember if you just look at who the Seller is on the HUD. It's never the bank in a Short Sale. So for purposes of the sale, the money comes into the Seller and they pay it out.