Short Sale Approval does NOT mean Seller won't have any out-of-pocket expense.

By
Services for Real Estate Pros with Hartford Escrow

You have a transaction pending short sale approval, and that lucky day FINALLY arrives when you get the fax that says, "APPROVED".  Is your Seller 100% in the clear?  Most Agents would answer, "yes" however the answer is, "no".

Just because you're approved doesn't mean that your Seller won't have a potential chance to have to bring in funds to close.  More and more Lenders are approving the sale BUT not approving all of the Seller's costs.  The lenders are not willing to pay ALL of the debt that the Seller has incurred against the property (ie; unpaid property taxes, hoa dues, land lease dues, judgements, liens, etc...)

I am having an issue on a file now where the Listing Agent is not grasping that yes her sellers are approved but no the lender is not covering all of her sellers debt.  The Agent called the Lender and asked to re-approve based on the revised hud-1 showing the amounts to the Lender.  The Lender told her no.  They already approved the short sale based on the estimate previously received.

The problem here does not lie with there being errors on the Original estimate.  The problem is that the Seller has NOT paid property taxes for THREE years.  Some Lenders are simply just not approving 100% and the  Seller's are still having to come up with some funds to close.  Unfortunately this one is still short over $5,000 and the Agent seems to think that the prooblem is with the hud-1 that I provided instead of accepting the fact that her Seller has debt and the Lender doesn't want to cover.

Agents, PLEASE stress to your sellers when taking a Short sale Listing that it is imperative that they are upfront will all debt on their properties.  Also let them know that IF it is infact approved there still might be a chance that they have to come in with some funds in order to close.

I had another transaction that the Seller was $2,000 short and we IMMEDIATELY received a cashier's check from that Seller before that money disappeared.  We got lucky.

I had another unfortunate transaction that did not get approved because the Seller had delinquent taxes, hoa dues, land lease dues and NO money to come in with.  Hello Foreclosure....

 

 

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Rainmaker
1,472,193
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

The seller is three years behind in taxes and they expect the lender to cover that?  Man, they must have had an easy life where everything was handed to them by mommy and daddy.

Jul 28, 2008 12:11 PM #1
Rainmaker
1,731,235
Sam Miller
RE/MAX Stars Realty - Howard, OH
Knox County Ohio Real Estate Specialist

Nancy - Great post and hopefully it gets a ton of views.  Many agents and homeowners think it is the banks duty to negotiate a short sale.  I was working on a short sale with Countrywide back in November and at that time they had roughly 12,000 ahead of me according to one of the reps I spoke with.  When the deal was conditionally approved the lender would not pay for or provide for any inspections, no seller paid HOA dues, they required a reduction in real estate commission.

Jul 28, 2008 12:12 PM #2
Rainmaker
691,550
Bill C. Merrell
Merrell Institute ~ Appraisal Education Network - Bohemia, NY
Ph.D. - Merrell Institue

Good Blog- Many think that the seller is off the hook.

That may be far from the truth.

Keep on blogging.

Bill

Jul 28, 2008 12:12 PM #3
Rainmaker
432,201
Anne Hensel
South Beaches Real Estate Professionals - Saint Petersburg, FL
Realtor - Broker - St. Pete Beach, Treasure Island

I find that a lot of people, mostly Sellers and Realtors for that matter do not know anything about a short sale. I get a lot of phone calls from buyers stating "oh the bank has to forgive the difference"  When I hear this I know I have to start at scratch and the sellers do not like what I have to say, but I think they need to hear the truth ASAP

Anne

 

Jul 28, 2008 12:14 PM #4
Rainer
42,785
Richard Mielke
RE/MAX Results - Gettysburg, PA
REALTOR, Gettysburg Pennsylvania Real Estate

For some reason, short sellers think that things like past due taxes and city water/sewer bills magically become the banks problem.

Jul 28, 2008 12:18 PM #5
Rainmaker
388,669
John Walters
Frank Rubi Real Estate - Slidell, LA
Licensed in Louisiana

I did one last month and the seller had to come up with some money.  You are very correct.

Jul 28, 2008 12:25 PM #6
Rainer
31,394
Carlos DeJesus
Exit Elite Realty Group - Ironbound, NJ

$2000 or $3000 dollars short is a gimme in my market, we do short sales where the seller owes $520000 and the banks have accepted $215000.

Jul 28, 2008 12:42 PM #7
Rainmaker
338,442
Gary Bolen
McCall Realty - South Lake Tahoe, CA
CRS - Lake Tahoe Real Estate Information

just what is short sale approval anyway?  have heard of it, but rarely ever see it.

best

Jul 28, 2008 12:46 PM #8
Rainer
3,628
Nancy Neilen
Hartford Escrow - Rancho Mirage, CA

Thank You everyone for your responses and gratitude of this blog.  I just felt it was really necessary based on what we at escrow have to endure on a daily basis.

Donna: *lol* Not fed from a silver spoon.  Far from it.  However I have another transaction (NOT a short sale) and my Sellers had to come in with $60,000+.

Gary:  Seriously?  Do you not know what it is because you never get them or because you really don't know?

Jul 28, 2008 01:41 PM #9
Anonymous
Anonymous

You are absolutely right about the bank refusing to pay certain debts tied to short sle property. I  am in the process of sumitting offers for a short sale. Fortunately, the bank rep is willing to talk to me and tell me what they expect to see on the Prelim HUD1 and shat they will not pay. The sellers were of the absumption that when the bank agreed to a short sale they would pay all debts associated with the sale of their property. Were they in for a very rude awakening. If you are doing this for the first time, please ask the sellers lots of questions and get copies of all correspondence that they get from the vank. Don't assume anything.  

Jul 30, 2008 12:45 AM #10
Rainer
15,240
Mark Hawley
Keller Williams Realty - Indio, CA

Great Post, Nancy.  I think there are a lot of short-sale sellers who are in the dark or in denial and need to know what they may be liable for.

Jul 31, 2008 04:46 AM #11
Anonymous
Dan

I'm in the process of short-selling my property. My agent just called me and asked for me to fork out $5700 for escrow/lender's approval. What does that mean? I thought by short-selling I'm entitled to walk away, with bad credit. I didn't expect to pay anything. I mean, what, I'm paying for my bad credit status?

Please, can someone explain?

Jan 15, 2009 01:27 PM #12
Anonymous
Jose

sounds like you are getting scammed

Jan 15, 2009 04:38 PM #13
Rainer
4,177
Lori Renberg Brown
Ambergate Escrow, Inc. - Riverside, CA
Owner of Ambergate Escrow, Inc.

We also see this all the timea at my escrow company. Sometimes is the buyer wants the house badly enought they will pay the shortage, heck they are usually getting a prettty great deal anyway. I also have so great agents that have kicked in, they want to close the deal and help their clients.

 

Great article, thanks!

Jan 12, 2011 04:10 AM #14
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