Banks May Demand Seller Contributions to Approve Sacramento Short Sales

By
Real Estate Agent with RE/MAX Gold DRE #00697006

seller contribution short saleAmong the many twists and turns a short sale can take during its relatively incessant and torturous life is the often anomalous ending. It ain't over until the fat lady sings. Trying to second-guess the bank's investor guidelines is a crap shoot, but I try to prepare my Sacramento short sale sellers for the unexpected that could materialize upon approval.

I'm finding that second lenders are demanding more of the net proceeds. They don't care who pays them -- the seller, the buyer, the agents. I suppose some figure that their position was 20% of the equation in the first place. So, why should they get the short end of the stick (a measly $3,000) upon payoff? Sellers are often called upon to make a seller contribution to the second lender, especially if that loan was hard money.

But in a strange twist lately, some lenders are demanding a seller contribution in purchase-money situations. In California, purchase-money loans are not subject to a deficiency judgment. This means if the bank loses money, whether through foreclosure or a short sale, if the loan was originally given to the sellers to buy the home, the bank can't go after the sellers. These homeowners are exempt from collection attempts.

At the moment, I have several short sales in which the banks have put forth requests for seller contributions on purchase money mortgages. The way one negotiator put it, the bank's investors want to see some money on the table. It's possible, I suppose, that the PSA would receive compensation through a foreclosure, which could be one reason it's not overly eager to approve the short sale unless the loss is mitigated. In one short sale, the seller is taking an advance on salary to meet the demand because the seller has tapped all other credit options. Overall, whether to contribute is the seller's choice to make.

The seller could walk away and say forget it. There is very little incentive for a seller to comply. Short sales in California are contingent upon the seller's approval of the bank's short sale approval letter. If the seller doesn't agree with the terms and conditions contained in that approval letter, the seller is generally free to cancel the transaction.

However, I've not yet had a seller refuse to meet the bank's demands. I suppose that's because short sale sellers generally want to do the "right thing," which is why they are pursuing a short sale in the first place. They feel responsible. They want to put the ordeal behind them. They don't want a foreclosure on their credit report.

The moral is don't rely on the fact that because your loan is purchase money you'll skate through to closing without a seller contribution. Moreover, get legal and tax advice before pursuing a short sale.

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Weintraub and Wallace Realtors

 

 

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Elizabeth Weintraub is co-partner of Weintraub & Wallace Team of Top Producing Realtors, an author, home buying expert at The Balance, a Land Park resident, and a veteran real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown, Carmichael and East Sacramento, as well as tract homes in Elk Grove, Natomas, Roseville and Lincoln. Call Elizabeth Weintraub at 916.233.6759. Put our combined 80 years of real estate experience to work for you. Broker-Associate at RE/MAX Gold. DRE License # 00697006.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.The views expressed herein are Weintraub's personal views and do not reflect the views of RE/MAX Gold. Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice; it could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.

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California Sacramento County Sacramento
Groups:
California Short Sales, REO's, and Foreclosures
Posts to Localism
Short Sales Specialists
Lyon Realtors
Club Chaos
Tags:
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Ambassador
3,090,321
Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

Elizabeth:  Another good informational blog for your Sacramento short sale sellers.  It seems neverending the questions that pop up from these types of sales.

Jan 26, 2010 03:25 AM #1
Ambassador
2,864,479
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I don't know if it's this way in California, but in Georgia if it goes to foreclosure the second lienholder (unless they out bid the first lienholder on the court house steps) gets nothing, nadda, zilch, zero.  And back in November we had one with Wellsfargo in first accepting a short sale amount and another bank not accepting the amount for the second.  House foreclosed in Dec.  Sold to same buyer 10 days after list for LESS money than their previous offer by $45,000. and second lein was gone and they got... you guessed it nothing.  Nothing instead of $45,000.  And the seller ( former owner who was foreclosed against) died on December 31, 2009 so it's not like they can get money from them.

Jan 26, 2010 03:47 AM #2
Rainmaker
601,332
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Elizabeth - You sound like you've had some great sellers.  Unfortunately, many sellers couldn't care less about doing the "right thing" and simply can't or won't come to the table with any money and if the agents and/or buyers want to still close the transaction, they are the ones who are coming to the table with more money to satisfy the seller's responsibilities.

After a bad experience with a short sale, most of my clients will walk away and vow to never get in a short sale tranaction again.  While that doesn't seem to be curtailing the short sales so far because there are almost always back-ups, at some point it will start to have a negative effect in the sense that there may one day be no back-ups to choose from.

Keep up the good work Elizabeth, you are definitely a light in the storm of CA short sales.  :)

Jan 26, 2010 03:48 AM #3
Rainmaker
354,788
Dale Terry
Yadkinville, NC

Good information, It seems that short sales differ across the country.  I just wish they would all go away.

Jan 26, 2010 04:33 AM #4
Rainmaker
2,540,566
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Elizabeth - I love your statement, "It ain't over until the fat lady sings."  In the early years of my career, I coined a phrase in the Century 21 office I worked.  It was, "It ain't over until the fat lady SIGNS."  It is as true today as it was back then:-)

Jan 26, 2010 07:04 AM #5
Rainmaker
575,553
Terry & Bonnie Westbrook
Westbrook Realty Broker-Owner - Grand Rapids, MI
Westbrook Realty - Grand Rapids Forest Hills MI Re

It seem like they should if they have resources to pay it but in come cases they just don't have anything.

Jan 26, 2010 02:47 PM #6
Rainmaker
254,432
Robert Machado
HomePointe Property Management, CRMC - Sacramento, CA
CPM MPM - Property Manager and Property Management

Everyone has their hand out or they are trying to get a deal.  What a mess a deflating market creates for all of us.  It is not easy running backward.

Jan 26, 2010 04:38 PM #7
Rainmaker
3,256,143
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce

What happens here sometimes ....with the sage advice of a real estate attorney...is that sellers can agree to whatever....most especially true here with local bank seconds...and after closing, the sellers file bankruptcy and they get nothing...just what the warning was before the closing....too much wolf crying and the "B" word falls on deaf ears.

Jan 26, 2010 10:29 PM #8
Rainmaker
886,050
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

We are having more sellers either write a check or take a note at closing to make the deal happen. 

Jan 29, 2010 11:07 PM #9
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