Coastside Short Sales: Buyers & Sellers be aware

Published January 20th, 2010 in Mortgage/Finance, Sellers, Buyers. by Marian Bennett, Coldwell Banker Tags: short sales.

The national average of short sales in 2009 was 12% according to the National Association of Realtors. Here on the Coastside we were at approximately 6% of all 2009 sales according to MLS Listings - half the national average. We’re learning from distressed property specialists in other parts of the Bay Area and California who have been in the distressed property trenches for over a year that there may be more coming. Time will tell - a recurring theme. More important, stories of short sale fraud are finally being reported.

A recent CNBC article exposed that second lien holders - when there is one - (not the first mortgage, but the 2nd or subordinate loan) are asking for additional money “under the table” in order to agree to the short sale. According to the article: “…But here’s what’s not legal and what’s apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.”

And here’s the facts: The New RESPA Rules FAQ 12/30/2009 on the HUD website as it relates to the current activity being discussed in the media right now:

Q: Can items be listed as “Paid Outside of Closing” (POC) on the Good Faith Estimate (GFE)?

A: No, the totals included in the column on page 2 of the GFE must be the sums of the prices or fees, by category, for all settlement services that are required to be shown on the GFE. Where individual components of these totals are required to be itemized, each third party settlement service must be identified and the estimated total price or fee to be paid for that service must be stated to the left of the column. The standardized GFE form does not allow information to be included on any part of those totals that would be paid outside of closing. Such information would not help borrowers to shop for loans and would not facilitate comparison of the charges on the GFE with the charges on the HUD-1.

Tomorrow I’ll post my first-hand short sale experience from a few months ago.

3 Responses to “Coastside short sales: Buyers & Sellers be aware”

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1 Gretchen Merrick Jan 21st, 2010 at 9:45 am

I have had experience with the 2nd lien holder getting money from the buyer. Recently, many first lien holders are allowing this - up to a point. I am representing buyers on a short sale purchase right now and the first is allowing them to bring in $5300 to the jr. lien holder + $812 in back property taxes to make the deal close. As long as it’s on the HUD, it’s legal.

But there are agents I know who have been involved in transactions with money going to the jr. lien holder outside of escrow. Definitely loan fraud. The good news is that first lien holders are loosening up and allowing the second to receive additional monies - just not from the seller.

Short sales have come a long way since they started hitting the south Santa Clara Co. market in force back in 2007. At that time, less than 5% actually closed. Now I’ve heard we’re up to about 70% successful short sale closings. But I still would rather not do them!
2 Marian Bennett Jan 21st, 2010 at 3:39 pm

Hi Gretchen,
I just came from a lending update, put on by our local Board (panel of BofA, Bank of the West and mortgage broker). They covered several topics, including the issues related to RESPA reform and the importance of a fully documented HUD. A tip from them: We need to be careful if inspections are to be covered through escrow but the purchase contract is As-Is.