The Latest Short Sale Trend – Liens and More Liens

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What is going on in the wacky world of short sales? I suppose it is inevitable. Even though the banks are getting slightly easier to deal with (offering programs and online platforms for short sale sellers and their agents), the transactions themselves are still pretty tough to close.

With my closing rate at about 15 to 20 short sales per month, I can definitely see certain trends in the distressed property arena. Most recently, one common trend seems to be the significant quantity of non-institutional liens (non-mortgage liens) coming up in the midst of the short sale transaction.

Liens such as IRS and state tax liens, abstracts of judgment and HOA liens are a huge hurdle to closing short sale transactions. Why? Well, in many cases, short sale lenders are unwilling to use any money from the sale proceeds in order to help the short sale seller to pay off these non-institutional liens. You can talk with the lender until you are blue in the face, but there are certain investors and specific lien holders that will refuse to give in and allow any money towards these non-institutional liens.

As a result, some short sales may not be able to close and sellers will have to wait it out until the bank forecloses on the property.

What’s the best solution? First off, always research the title and order a statement of information on the sellers (borrowers) prior to getting involved in the short sale transaction. The preliminary title report will reveal many of the liens connected with the property. The statement of information will allow the title company to research whether there are any additional liens (e.g. child support or tax liens) that are connected with the individual and not the property, per se.

Review those two reports at the beginning of the transaction in order to be sure that all of the lien holders are being dealt with during the short sale transaction. You do not want to find yourself waiting around for short sale approval on a deal that may never close because of the unpaid personal liens.

The good news is that investor buyers (especially those paying cash) may be able to support the seller in liquidating these non-institutional liens. Equity investors, as I have often said, can help to lay a smoother path to economic recovery. Now… if we can just get all parties to cooperate. Therein lies the challenge ;-)

Photo: flickr creative commons by Keith Williamson

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About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

3 Comments

  1. Melissa,

    You bring up a good point. We were able to close on a property last year that had a non-institutional lien of 6k. We negotiated it to 3k and bought the property after 3 other people could not close. What amazed me is folks were trying to buy a house needing $70k worth of work, but did not have the extra 6k for the lien. We still had a good deal.

    Going after those hard to close properties with solutions and a bit of cash creates a unique opportunity for investors scrapping for properties in a low inventory market. (20 year low here in Denver).

    Jason

  2. Another issue related to HOA and condo liens – make certain they are legal and that the person/individual who filed the lien has the required license to do so in the state.

    For example, the preparation and filing of lien documents constitutes the unlicensed and unauthorized practice of law in the state of Maryland. Only licensed attorneys can prepare and file lien documents against real estate. This highly lucrative and illegal practice has resulted in the filing of unlawful liens against thousands of homeowners’ properties and has generated a ton of money for the property and financial management companies because homeowners are often charged exorbitant fees for these unlicensed and unauthorized “legal services”.

    For over ten (10) years thousands of homeowners residing in homeowner and/or condominium associations throughout the state of Maryland may have been adversely affected by these illegal liens and charged up to $350 by unlicensed property and financial management companies in order to obtain the release of each illegally filed lien. Moreover, an illegal lien 1) can impede a homeowner’s ability to sell or refinance his home, 2) creates a “cloud” over the title to the homeowner’s home, 3) may be picked by the three (3) credit bureaus as an adverse occurrence or delinquency, 4) may affect a homeowner’s credit history and remain in his credit file for seven (7) years, and 5) may substantially reduce a homeowner’s credit rating, which may impede his ability to obtain credit and car insurance at favorable rates and qualify for jobs, volunteer opportunities and the rental or leasing of homes and apartments. Lastly, these illegal liens are permanent entries in the MD court records and cannot be expunged, deleted or removed from the public land records without some of type of intervention and legislation by MD state legislators and Attorney General.

    The MD state legislators and Attorney General have to act to order restitution to all homeowners who paid fees to obtain the release of illegal filed liens against their homes and to nullify, invalidate and vacate all liens filed by the unlicensed property and financial management companies because homeowners affected by this type of unlicensed and unauthorized practice of law are unaware that the conduct and liens are unlawful and therefore lack the knowledge to protect the titles to their homes and their legal rights to debt collection actions that conform to MD laws and statutes.

  3. Shari Posey on

    How are you getting this done legally? Investors are paying the liens off outside escrow is fraud, isn’t it?

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