In a successful short sale, the seller and the mortgage lender have reached an agreement, either as part of foreclosure defense negotiations or in underwater mortgage loan modification talks, to allow the home to be sold in an arms length third party transaction. The bank is agreeing to have the real estate sold for less than the amount due on the home loan.
At closing, the buyer leaves with a new home and has his own mortgage and his own bank to deal with in making mortgage payments. Hopefully, the seller leaves closing with the end of its relationship with its lender; they must have worked out a deal between them as to how will the deficiency be handled?
Deficiencies – A Short Sale Closing Cost to the Seller
The amount of the deficiency can be considered a pretty big closing cost if it’s not negotiated away as part of the deal. And, if tax cuts aren’t re-upped this fall, then as of January 1, 2013, the tax bill on that deficiency (currently not taxed) will be income according to the Internal Revenue Service and the United States Treasury and that tax is also something that can be argued to be a pretty big closing cost. (Again, if the federal government doesn’t save the day by extending the exclusion here.)
For more on this issue, read our earlier post on this growing 2012 tax issue.
Florida Short Sale Closing Costs
In the normal home sale, all of the seller’s closing costs are covered by the sales proceeds. The seller makes sure that the amount that the buyer brings to the closing table covers the amount to payoff the seller’s home loan and the other expenses the seller has to pay in order to have his property sold free and clear.
In a short sale, the seller isn’t in this position. Every dollar that the buyer brings to the table first goes towards the amount due for certain seller costs, (documentary stamps, real estate commissions etc…) and then the balance goes to payoff the seller’s home loan. There’s not enough to cover the full amount of the mortgage (it’s “short”).
Larry Tolchinsky’s Tip:
Closing costs normally include things like title searches and title insurance, which are costs that must be paid at closing. In short sales, lenders may be asked to cover certain closing costs – and buyers may make an offer conditioned on not having to pay for things like title insurance. For the seller, an experienced Florida real estate closing attorney will work hard to make sure those costs are lean and mean. For example, is this the best deal on the title insurance policy? Can we save something on other closing costs? Experience here can save hundreds and sometimes thousands of dollars by knowing cost efficiencies. Will the buyer pay some of these since they are benefiting from them?
This care over closing costs may be part of making the short sale palatable to the lender and getting the deal done. Why care about this? Because in a short sale, especially if this is a residential home and not an investment property, the lender is strategically considering that it may pay for those closing costs: it’s part of the agreement when the bank agrees to a short sale.
The short sale processing agent for the property will send a settlement statement to the bank that gives a ball park on closing costs, and the bank will consider this when it decides on agreeing to the sale. Key factor here: the bank isn’t going to just gift that amount to the seller: ha! The seller’s costs of closing that the banks pays (or agrees that should be paid at closing), is going to be added to the deficiency amount.
Which is why it is important for the seller’s attorney to be involved in considering what those closing costs are and how efficient each of the costs truly are.
Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at email@example.com or (954) 458-8655.
I have been trying to buy a townhouse for several months. The seller is anxious to sell, accepted my offer immediately, which was a little OVER comps in 52 home community. We have a signed contract, contingent of course on lender’s approval. He has an attorney helping him with sale, who says he has a “relationship” with bank’s attorney. My realtor is getting so frustrated bc she can’t get seller’s attorney to give her any info, and only rarely returns phone calls or emails she sends or makes on a weekly basis. She is as frustrated as I am. She has handled many short sales representing sellers mostly, including my daughter’s which took just a couple weeks, and said even if they take a long period, she gets communication every week.
The contract was signed the day I signed the contract to sell my house in June, and I am homeless with everything I own in storage. The house has been unoccupied for about three years, but I just LOVE this house and we can’t find anything comparable for sale in the area.
My question is, can I hire an attorney to represent me to negotiate and push the bank along, or at least get some info on the delay. I am paying cash for the house and not making any requests. I would hire one if I am not throwing good Money after bad.
Wd appreciate any advice u cd give me.
I own a Commercial building in Fort Myers, FL. We had it built in 2006, attracted a renter at $18/sq.ft. plus CAM with a 63 month lease. The lease is up in March 2013 and the lease goes to $8.67/sqft. plus CAM We refinanced the loan 3 years ago and it ballooned in September 2012 but the bank hasn’t filed any foreclosure paperwork yet, they are talking to us about Short-Sale. Current tenant wants to put in an offer. I owe $543,000 and current appraisal was at $392,000. Current tenant will be submitting an offer within the next 2 weeks. They will probably start at $325K-$350K. Our bank has asked me to sign a loan modification or extension that would take us through March of 2013, which I can afford since the current tenants lease provides enough. I haven’t paid a note since August 2012 and it took them 2 months to respond to me about a loan modification. When they responded with only a 4 month extension I asked about the short sale. They have asked me to sign the extension and make the back payments, which I have the $$ for. They said they would be willing to take a short sale and then we would have to negotiate the deficiency. My wife and I signed as grantors. A couple of questions. 1. Should I sign the modification and get current, at least through March 2013 to show good faith to the bank? 2. Do you recommend a lawyer in Fort Myers?