Training for Short Sales & Mortgage Loss Mitigation to Stop Foreclosure

Don’t Have Short Sale Moving Problems

March 31, 2009 by  
Filed under Short Sale Do's & Don'ts

moving-van-for-short-sale-closingIn a real estate short sale, you have a seller with no money who needs to move out of the property. As a part of Realtor training that I have done for agents in Raleigh and Cary, North Carolina, we have to discuss how moving costs money, and have a plan for the proper thing to do.

The best answer occurs when the home mortgage lender allows some payment to the seller at the closing of the home sale that can be used for moving expenses. Some payment is permitted under the HUD Preforeclosure Sales Program to the seller, a sales program used to stop foreclosure and allow the mortgage loss mitigation of a short sale to replace a foreclosure sale. In general, the seller gets $750 at closing. If the property sells quickly, the seller gets $1,000. This money can be received in cash at closing and used for anything the seller wants, such as moving expenses. The seller will also be reimbursed for the cost of the appraisal and title search required by this program and a portion of the legal fees incurred. So, the seller can get some additional money back at closing, even though the seller does not fully pay off the mortgage loan.

Some short sale agents tell the buyer to pay money to the seller outside of the closing, or outside of escrow, so it does not show up on the closing statement. One of the requirements for short sales is that all parties have to certify to the lender getting the short payment that the seller is not getting anything out of the sale. I disagree strongly with having the buyer hide the payment to the seller as you are deceiving the home mortgage lender, and I do not think you want trouble with the home loan authorities as a part of the home buying experience Yet, I have been on a Realtor training webinar where the participants discussed this approach. Be careful who you listen to, they may get you in trouble.

There is another seminar leader whose Realtor training is to pay the seller $2,500 for work the seller is doing as a part of selling a home. The examples given are that the seller does the open houses and other work that the agent would otherwise have to do to market the short sale home. So, the agent is merely paying the seller for work that the seller is doing on the agent’s behalf on the property for sale. I have paid other agents to do open houses for me on houses for sale, but the compensation has been around $100. It could be argued that this may have some merit, because it is a payment for services rendered and the mortgage lender may see that there is some way that the payment can be justified, so they may choose not to challenge it. However, this a risky way of selling a home, as the amount of the compensation is out of proportion to the work done. Also, there may be regulations in your state that prevent a Realtor from paying someone for doing work that requires a real estate license. You could take this idea and modify it to pay the seller a reasonable amount for some useful service, particularly a service that does not require a real estate license, then you can justify the payment as a reasonable business arrangement that is not related to the property for sale.

So what do you do to avoid lying to the home mortgage lender? There should be no problem if you want to take the idea above and pay the seller for work done, and pay a reasonable amount for whatever service the seller provides in a field that does not require a real estate license. I have paid agents to hold open houses at my listings in Wake Forest and Rolesville, North Carolina. It would not be that much different if I paid the seller, so long as the payment was properly disclosed.

My favorite approach is to look at the problem in a different light. The problem is the furniture, the cost of moving it and the cost of storing it. So, eliminate the problem and raise cash at the same time. Sell the furniture as a different approach to loss mitigation. There is nothing that prevents the seller of real estate from selling any asset they may have to raise money, including the furniture. Separate from selling a home, just sell the furniture to anyone, and there are auction companies that specialize in selling a home full of furniture. You can also put in your MLS listing that the furniture is for sale. Even if the buyer wants to buy the furniture for a reasonable price, there is nothing I can see that is objectionable. The buyer gets fair value, the seller gets some money, and the seller does not have to pay for the moving and storing of the furniture that was sold.

There is another solution that is relies on the goodness of the community. Particularly where I live in the South, there is a principal of helping people who are down on their luck, particularly a family facing foreclosure. The church members will help the seller move. The relatives will take them in. Other community members will pitch in to help get the family resettled, or take care of the yard after the seller moves. See if you can find other resources to help out the seller so that you are not tempted to mislead those who make mortgage loans.

This is a recurring problem and there are solutions that will not get you in trouble.

Comments

5 Responses to “Don’t Have Short Sale Moving Problems”
  1. Short sale real estate offers many opening for agents who are willing to work hard and take a little risk.

  2. Avery Smith says:

    Short sale real estate offers many opening for agents who are willing to work hard and take a little risk.
    +1

  3. Safe Homes says:

    Problems with short sales are common. We find that the seller does not disclose the truth about the home. Recently, we had a client buy a short sale that had hidden mold in the A/C Closet wall that the buyer did not disclose. Cost the buyer an additional $5000 dollars because it was adjoining a bathroom that had to be partially remediated.

  4. karen Jackson says:

    The Seller doesnt want to move out after settlement, what does the buyer do? After settlement you go to your new home and the seller have not began to move.

    • Tim Burrell says:

      You may need to hire attorneys to force them out. Amazing that they would do that. I had this once so we negotiated a way for the former owner to get something for his furniture and leave gracefully. The furniture was cheaper than attorneys. Good luck.

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