Rural Housing Short Sales

I hold a junior lien on a property where the first mortgage is in default.  The first mortgage is a rural housing loan.  One of my experienced loss mitigation negotiators worked with the seller for a couple of months to have the first mortgage verbally agree to a short payoff.  This was at the end of 2008 and this was communicated to the real estate listing agent.  The listing agent and my negotiator agreed at that time that the lender's value assessment was too high and that they would work together to challenge the value before requesting a formal short payoff and then closing.

Guess what?  The listing agent stopped returning calls for my negotiator and once the listing agent knew of the agreed short sale amount he decided to bring a buyer in for this ‘approved short sale' and circumvent my negotiator to make a 6% commission on a rural housing pre-foreclosure sale and leave my negotiator out in the cold.  Not nice and not ethical.

Here's the reason for my post.  The rural housing program mirrors the old FHA pre-foreclosure sale.  The required net is 82% but on the old FHA program HUD would allow $2,000 to discharge junior liens and presently that has been raised to $2,500.

For some reason the listing agent's title company decided to wait until the afternoon of the day before the closing to call me to request that I discharge the lien (free of charge no less) while the real estate agent makes an $8,000 commission and leaves my negotiator, who obtained the short payoff, out in the cold.  Now, not only is that not nice, that's also not a very bright move.

The rural housing program could have permitted the lien be discharged through the shorting lender's net and/or my negotiator could get paid for her work.  Instead, and at this point, the way that it will close is for the sales price to be reduced by a few thousand and the real estate commission to be reduced by the same amount and then the lien release fee will be listed on the buyer's side of the HUD1.  In essence, it comes out of the real estate agent's commission.  The buyer (who is a cash buyer) pays the same acquisition price for the house, the lender nets the same, the HUD1 is in compliance, and the listing agent makes half of what he intended.  This was not the intended way for this to close.  The real estate agent could have made max commission by working with my negotiator instead of trying to snake the short payoff.  But that's ok.  I forgive him.

So, this is a lesson for anyone that is working short sales on rural housing loans to be mindful of junior liens and for those realtors who take payoff letters from 3rd party negotiators and try to leave them in the cold, shame on you.