Why short sale sellers may now incur costs at closing
Increase in Foreclosure CancellationsForeclosure Radar recently reported increased foreclosures cancellations in the state of California thanks to a recent change in California law that prohibits dual tracking (that’s proceeding toward foreclosure when there is a short sale or loan modification is in the works).
You’d think that the banks would be rolling out the red carpet for short sales based on the decline in the number of foreclosures. Unfortunately, that is not always the case. In fact, often times short sale guidelines from some investor note holders cause the lender to remove or reduce some of the seller fees that need to be paid from the sale proceeds. Some of the fees that the lenders continue to cut are settlement costs; title insurance; HOA document fees, transfer fees and outstanding dues; buyer closing costs; septic certification and pumping fees; property repairs; pest control fees and other non-institutional liens.
Reviewing the Settlement StatementWhen you submit a short sale package to the lender (or if you are processing your short sale through Equator), you need to prepare a settlement statement that includes all of the possible seller fees associated with the closing of the transaction. It doesn’t matter whether you manually input your fees through Equator or whether you fax the settlement statement to the short sale lender, the lender will rely heavily on that statement in order to determine whether the short sale will be accepted, countered, or declined.
After reviewing the settlement statement, you may receive a call from the bank employee and he or she may tell you that the lender will not pay certain fees. So, how are you going to get the transaction closed if the lender refuses to pay certain fees?
Here are some ways to get additional fees paid at or before closing:
- Reach out to the buyer. If the buyer really wants the property, s/he may be willing to cover some of the unpaid fees. Speak with the buyer’s agent, and don’t forget to get permission from the lien holder for the buyer to cover these fees.
- Discuss options with the seller. In certain parts of the United States, the law permits the seller to pay some of the unpaid fees at closing. Make sure to get permission from the lender for the seller to make a contribution at closing.
- Negotiate. If unpaid HOA dues (or other liens) are not covered by the bank, try to negotiate. Offer 40 cents on the dollar and see how that goes. With all of your experience dealing with short sales, your negotiating skills may be much better than you think.
- Provide a commission credit. While not an optimal scenario, there are certain situations where agents may want to credit commission in order to cover unpaid fees.