Who pays for a short sale?
This is one of the most frequently asked questions that occurs when we speak to homeowners in foreclosure and who are considering doing a short sale. It’s also a very important question to ask anyone who will assist you in the short sale process. In most cases, the homeowner will have no out of pocket expenses when completing the short sale process with a bank or other lender. Below is a description of all of the expenses associated with the short sale process and who pays for them.
The lender actually pays for most, if not all of the fees throughout the short sale process.
Fees include settlement costs, transfer tax, title and escrow fees, and real estate commissions. Now, all of these fees together reduce the overall net proceeds that the lender realizes from the real estate transaction, thus cutting into the the amount of money the lender will receive (net) from the sale. In addition to those closing fees, in many cases the lender will also pay to clear certain subordinate liens if they exist.
For example, if there’s a second mortgage or if there’s a home equity line of credit (HELOC), in most cases, the lender in first position who is usually owed the most amount of money, will allocate or authorize a contribution to go to these subordinate lien holders to get them to remove their lien from the title, thereby clearing the title so that the house can be sold and the new buyers can obtain a mortgage on the house. These subordinate liens include typically include judgments from creditors, tax liens, Homeowner Association Fee’s as well as second mortgages or home equity lines of credit.
Sometimes the lender will refuse to pay these subordinate lien holders. When that happens, the other parties to the sale (buyers) will have to step up and contribute to pay off these subordinate lien holders in order to clear the title.
What about the short sale negotiation fees?
Who pays for the short sale negotiator or attorney (if one is used) who are actually settling the debt and negotiating the short sale transaction. Rarely, if ever, does the lender actually pay for the short sale negotiation service. That leaves either the current homeowner (borrower) or the new buyer responsible to pay the short sale negotiation fee. Most big law firms and some short sale negotiation companies typically charge the existing homeowners (borrower) the negotiation fee.
We don’t agree with this approach as it just doesn’t make any sense. We understand that a homeowner who cannot pay their mortgage and is struggling is typically in NO financial position to pay expensive attorney or short sale negotiation fees during the short sale process. Instead, the burden of the cost of the short sale negotiation should go to the party that’s in the best position to pay and that party is the one coming to the table with money, it’s the new buyer. Typically, the new buyers are glad to pay a short sale negotiation fee because they like knowing that a professional is negotiating the short sale, thus optimizing the chances of them actually obtaining short sale approval from the lender and moving to closing. Many a short sale in Long Island have died on the vine as a Realtor with no experience in short sales or a homeowner tried to navigate the precarious short sale process with a lender. Many of these homeowners were eventually foreclosed on. when time ran out on their foreclosure process.
When choosing an expert to negotiate a short sale for you, please make sure to ask how the short sale negotiation fee will be settled. If the lender will not pay the fee, it is often settled at closing and paid for by the person buying your home in the short sale. When you sign the final agreement with the bank to go to closing, it should be clear in those documents that you are not responsible for the short sale negotiation fees.
Have more questions and want a no cost, no obligation consultation with one of our Short Sale experts? Give us a call at 516-704-7025 or fill out the quick form below and we will be glad to speak with you and see if we can help!