Non-Institutional Liens
One of the issues that often comes up in the short sale is the issue of non-institutional liens (i.e., liens that are not mortgages). These are liens filed against the property or against the borrower, and they can get in the way of the short sale closing (or any real estate closing, for that matter).
These non-institutional liens are often more troublesome with a short sale because a short sale is a transaction where the seller will not be netting any money. Say, for example, a seller is going to make $100,000 on the sale of his home (after paying off his mortgage). Well, if this particular seller happened to have an HOA lien or a tax lien for $2000, he could arrange for that $2000 to be paid from his proceeds; he would then net $98,000.
However, in short sales, sellers will not be netting any money (unless they are participating in a short sale incentive program) so there may not be any money available to pay off any of these non-institutional liens.
In many short sales, the lien holders generally do not like to assist in paying off any non-institutional liens. The lien holder may offer a short sale incentive and money to the home equity second mortgage, but generally may not want to pay off the seller’s abstract of judgment, child support, or tax lien.
Study Your Title Report
When taking a short sale listing, it is vital to have a look at a preliminary title report right away—at the very beginning. This way you will have time to make arrangements (when necessary) to work with the seller to get these title items paid off and removed. Also, if there are too many liens against the property or the seller, this might be a good time to figure out if the short sale listing is worth taking.
One of my good friends took a short sale listing a few weeks back. He ordered the title report right away. He then discovered that in addition to the two mortgage loans, there were about nine miscellaneous liens (tax liens, mechanics liens, abstracts of judgment). When you run into a situation like that one, it can certainly be tough nut to crack.
Photo: flickr creative commons by Steve Snodgrass
