Just the other day, I obtained a short sale approval letter for a local Realtor® only to learn that the closing may not occur on time because the seller has both an HOA lien and a child support lien.
Instead of getting exasperated, I try to figure out what could have been done differently. First off, I wonder if the listing agent ever requested a preliminary title report from the title insurance company. This agent had actually pulled the report and neither lien appeared on the report. That’s funny, I thought. The child support lien was from ten years back. When we questioned the title company, the response was, “Ooops. My bad.”
Liens need to be cleared in order for the transaction to close.
While it is true that nobody is perfect, doing a thorough job of seller and property pre-qualification can really help to assure that a short sale can close on time. When you submit the short sale package to the seller’s lender, you need to account for any and all fees that the seller will not pay at closing. For example, if there is an unpaid balance for HOA, then this balance can be added to the settlement statement that is sent to the seller’s lender. While putting this item on the HUD-1 does not guarantee that the bank will agree to pay it as part of the short sale approval, it does make that option available.
To go back to the bank and ask for changes to the short sale approval letter in order to accommodate these extra fees can sometimes be very challenging (as if obtaining the approval letter was not challenging enough.) And, with regard to child support, I’d bet dollars to doughnuts that that the bank is not going to pay the seller’s child support lien. In the normal course of a real estate transaction, this lien would need to be addressed in order for the transaction to close.
So, if you do not want to end up disappointed (or feeding me a lot of doughnuts), take the time to order the preliminary title report and discuss any potential personal liens (tax liens, city violations, child support liens) with your short sale seller at the beginning of the transaction. Don’t wait until ten minutes prior to arriving at the closing table.
Photo: flickr creative commons by [puamelia]