BiggerPockets

Not only is it not normal, but its almost certainly a violation of the terms specified by the lender. The lender will state the seller can receive no benefit, and staying in the house three months is certainly a benefit. Look at the paperwork on the deal, and I think you'll find a statement to this effect. If not, ask for copies of any additional paperwork from the bank you'll be required to sign at closing and it will be in there somewhere. Better to find out now than to get to closing, be asked to sign this statement and to be unable to close.

My first advice would be to walk away if you can't have possession of the house on the day of closing.

If this is your dream house and you're determined to buy it and willing to put up with this BS, then the first step is to be absolutely certain the lender who's approving the short sale is fully aware the seller is staying. Add a statement to this effect into the contract, and push it back through the approval process. I believe this will actually kill your deal, but I suppose the bank could approve it.

If the bank does sign it, and you're willing to put up with this, make it a rental. Come up with a solid lease. Best to get one from someone in your area. You agent may be able to help. Set the rent and deposit high. The seller is wanting the benefit of not moving. You want to move in. Make them pay. At least make it somewhat higher than market rent. I'd be sure its well over enough to cover the payment on the new place as well as any expenses. I'd actually make it significantly higher than that. Require the deposit and first months rent (or, the full three months) at closing. Since I assume you're bringing some money to closing, it would reduce the amount you bring rather than giving you cash in hand.

Your lender is going to require that you qualify for both loans, if you're going to have to keep your existing place for a while. Is that a problem?

I'd plan to have to do an eviction. If they can't be out now, what's going to change in three months? Having a formalized lease gives you the basis for doing an eviction in three months when they refuse to leave. If you choose, you could let them go month-to-month and continue to collect rent, if they're willing to pay. My guess is that they won't pay and won't leave, and you have to do an eviction. That's a month long process that costs a few hundred in some places. If you've in a tenant friendly area, it can be many months and cost much more.

Seriously consider just blowing off this deal and finding another house.

As Jon has stated, you providing the seller any benefit could be a violation of the terms of the approval. I have personally handled hundreds of short sale transactions and this is out of the norm. In fact, should you be required to sign the approval letter, you could also be putting yourself at risk should you participate in benefiting th seller. You need to be very cautious.

In fact, since the owner has been living rent fee by not paying his/her mortgage up to this point, why should you assist them any further? Your potentially bailing them out and they have the nerve to ask you for money? That is ludacris!

Secondly, allowing them to stay in the home past the closing gives you no guarantee that you will receive the home in the same condition you bought the home in. If they are vengeful and bitter who knows what they could do to your home if given the opportunity.

Third, if you still want to pay the seller cash to leave, then disclose it. Meaning that you have the $10K contribution recorded on the HUD 1 so it is then disclosed to the shorted lender. This will cover your butt as well as the seller's. If the listing agent does not agree with disclosing the payment, then what she/he is proposing could be construed as fraud.

I do not know the hardship that the sellers have gone through, but chances are the seller may not be as motivated as you might think. Unmotivated and financially distressed sellers can make a terrible counterparty. You need the seller to be happy and relieved that your buying their home. Seems to me, that they are not happy (at least with the timing) and this makes it very risky for you.

It happened to us just recently and we had to file eviction.

Thanks for the great help from this forum. I have gone through all the stages to try to get this short sale house - sign the escrow doc and loan doc. However, I was still a few hours behind the deadline so the bank would not be able to release the loan. The list agent kept telling my agent that he had filed extension application. But we have not heard anything for over 10 days. I lost my patient and wrote an email to request answer. The listing agent wrote back with surprising answer - he did not file extension but will file a new approval letter to the seller's bank. We all know he is lying for at least one part. Maybe he has found a stronger buyer who is willing to offer more money so he delay whole process to force us to drop out, then he will be a dual agent. We do not know the exact reason why he did that and we do not know if he will file approval letter to the seller's bank. I am in stressful situation as I my downpay is in escrow company and I have started to pay my 2nd loan mortgage as it was wired before the main loan. My question is whether the list agent can change the buyer as he wants at this stage. Can I check with the seller's bank to see if the list agent has done what he said to do? Any legal help can I ask to protect my interest? If he delays the process for ever, I will have to pay 2nd loan mortgage continually, from which my loss will increase with time goes by.

Many thanks!

If you are coming up on the deadline for this contract, CANCEL IT. Demand your money back and unwind this second mortgage.

On short sales DO NOT provide any earnest money until the lender who's taking the short has approved the deal. Without that approval, you don't have a deal, and your EM is tied up. I've been in that position, too, and its sucks. Put "Earnest money to be provided by certified funds within 48 hours of short sale approval".

I've never heard of a lender putting money into a deal before the deal was ready to close. Is your second a private lender or something? Why are you making payments on a loan that's just setting in the escrow company. That's CRAZY. Maybe this is a private lender who didn't really know the process. Otherwise, I think this lender is trying to shaft you by wiring the money too soon and then charging you interest while you wait. You could be waiting a long, long time.

I agree with Jon. Also something smells very funny on this deal. My guess is there is information missing somewhere or being held back. If at all possible take you money and run! If that is not an option see a good real estate attorney before you spend another penny or day on this deal. Good Luck