payoff

What If Your Taxes Aren’t Up To Date On A Short Sale?

February 9, 2012 By Jon Griffith Leave a Comment

Dear visitor 789738098. I just saw that you had posted a question in my online chat and I was away from my keyboard so I wasn’t able to answer you, but I’ll be happy to address this question, as it’s a common concern.

Property taxes always take priority over any other liens. When you took out your loan to purchase the home, most likely your lender set up an impound account to hold a portion of your monthly payment to ensure that your taxes were paid on time. The lender will typically pay that bill for you out of the impound account rather than letting you be responsible for the payment. Why? Because property tax liens are a priority, and if you don’t pay them, whomever does pay them, be it the state, or an investor who has purchased a tax lien, can foreclose on the property. Lenders would be crazy to let you get behind on a few thousand dollars per year to risk losing what you owe them, which is typically hundreds of thousands of dollars.

If you have fallen behind on your mortgage payments, that also means that your impound account isn’t growing either, so when tax time comes, the lender doesn’t have your funds with which to pay the bill. But, knowing that a tax lien could cost them a fortune, they will still pay the tax bill to keep that from happening. You still owe it, unless you negotiate it away through a short sale.

In order for any property to change hands, title must be clear of all clouds. Tax liens are clouds on title. If your lender approves a short sale, that approval will be based on a HUD-1 that includes clearing up your property tax bill. There’s no way around it. The bill must be paid, and if you don’t have the money, the lender will have to pay it. They don’t have a choice. They’ll either pay it through the closing of a short payoff, or they’ll pay it when they sell the property after you lose it. The latter simply costs them more money in the long run (which is why short sales are win win for everyone anyway.)

So, if your taxes aren’t caught up when you bring an offer to the bank, rest assured the net payoff will take into account the past due taxes. In fact, in many cases, during negotiations, the bank pays the most recent tax bill which in affect changes the numbers on the HUD-1 in your favor.

Filed Under: Short Sales Tagged With: payoff, property, taxes, title

Short Sale Basics Part Four: The BPO

December 24, 2011 By Jon Griffith Leave a Comment

(This is part 4 of 5 of the short series entitled Short Sale Basics)

The BPO

The BPO is that 3rd party opinion of value. It can make or break the deal because banks look at this number as the letter of the law when it comes to your home’s value during a short sale negotiation. When that opinion of value is reported back to the bank, they compare that value with the net payoff as shown on the HUD-1. They don’t compare it to the sale price. Remember, the net payoff is the number that matters. If the net payoff is within a certain percentage of the BPO value, the bank will submit the offer to the investor for approval. Most cases, if a file gets to this point, it will be approved. The reason this is true is because most cases are Fannie Mae or Freddie Mac owned loans and they have already set standards that your servicer follows.

Filed Under: Real Estate Basics, Short Sales Tagged With: approval, BPO, payoff, percentage

Short Sale Basics Part Two: The Offer

December 16, 2011 By Jon Griffith Leave a Comment

(This is part 2 of 5 of the short series entitled Short Sale Basics)

The Offer

When a house goes on the market and someone makes an offer, if that offer is less than the seller owes on their mortgage, then you have a problem. You have a short sale. You are going to need to ask your bank if they will accept an amount “short” of what you owe them. There is a very methodical way to go about this process as a result of miles and miles of red tape surrounding the processing of the transaction that is different for each and every lender, and each and every investor holding a note or notes on your house. That is why you hire someone who is experienced. Not every real estate agent knows how to do short sales the right way.

The bank does not determine what an acceptable sales price is. Period. The buyer and the seller determine the sales price. The important resulting number is the net payoff to your lender after all costs have been calculated.

Filed Under: Real Estate Basics, Short Sales Tagged With: house, note, payoff, Short Sale Basics

It’s Not the Bank Who Pays the Short Sale Fees

September 17, 2010 By Jon Griffith Leave a Comment

I’ve probably written about this before, but every time I overhear another agent advising their client that the lender pays the commissions on the transaction, I think, no, that’s not exactly true.

The lien holder on your property is a third party to the real estate transaction. They aren’t involved in the actual real-estate part of the deal. They’re absolutely involved in the note that is secured by your home. The job of getting a short sale approved involves convincing the bank that their note is secured by a property that is worth less than the amount of the note.

Technically, the seller pays the commissions, closing costs, etc. On the HUD-1, in the seller’s column, it’s clear what the “Seller’s” responsibility is. It’s clear what the “Buyer’s” responsibility is. It’s also very clear that the bank doesn’t get a column. Therefore, they do not pay anything.

The Money Flow in a Transaction

It goes like this.

The buyer secures funding.
The buyer’s lender sends money to the Escrow company.
The Escrow company disburses funds to the lien-holder, the brokers, and the seller.

This is a very basic example. In a short sale, there aren’t enough funds to cover the lien holder(s), so where would the funds come from to pay the brokers and the seller? Well, the seller receives nothing in a short sale. The brokers get paid because they do the hard work of selling the property short. The only way they can get paid is if they allow the seller to pay them less than they owe on the note, so the seller has the funds to bring to the broker(s) at closing.

So, while it’s the lender who takes the loss, it’s actually the seller who pays the commissions.

Filed Under: Real Estate Basics, Short Sales Tagged With: commissions, escrow, Lender, note, payoff

The Lender Does Not Pay For Anything in a Short Sale

January 22, 2010 By Jon Griffith 2 Comments

This is one of those misunderstood technicalities that I face every time I work with a potential short sale candidate. The common mis-understanding has been that when a home is sold short of what is owed, the lender or lien-holder pays the associated costs of closing the transaction such as broker commissions, seller’s closing costs, HOA dues and transfer fees, 2nd lien-holders, etc.

This is actually not true. The lender is not a party to the purchase contract. They are an authority whose decision the contract is contingent upon. A lender’s role is to approve of a lesser payoff than the amount owed. When the lender takes less, they make room for the seller to pay the fees associated with closing the transaction. Those fees come from the buyer’s purchasing power, and the 1st lien holder is basically saying, “we’ll allow the funds coming from the buyer to be credited to the seller in order that the seller may cover the associated costs of closing the sale.”

To have a successful short sale with a home owner who has no money to bring to the table, the lender must reduce their payoff enough to allow the difference between the purchase price and the net payoff to the lender to add up to the seller’s closing costs.

It may appear that the lender is paying the costs because they are accepting less than what is owed, but this isn’t actually the case.

On paper, on the HUD-1 closing statement, there is no mention of the lender paying for anything. The HUD is a document outlining what the buyer pays for and what the seller pays for.

For instance, if the sale price of a home has been negotiated between the buyer and the seller to be $200,000.00, but there is a balance due on the 1st lien-holder’s note of $250,000.00, and there are commissions, closing costs, HOA dues, and taxes to be paid, the lender is going to have to accept less than $200,000.00 by exactly the amount of the closing costs.

Add together the closing costs and the net payoff to the 1st, and you should reach your sales price. The lenders do not pay for anything in a short sale.

Filed Under: Short Sales Tagged With: buyer, home, payoff, short sale