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