March 25th, 2011 at 11:14 pm
We represent both parties in a short sale. In the course of preparing the Seller’s short sale package, the Seller informed our agent that they cashed out their IRA last year and bought a “vacation home” back East. Now they fear that if they identify that property, their lender will ask them to sell it in order to further pay off the loan. Apparently, in our transaction, the lender would be taking a discount of approximately $200,000 if no additional money is brought in. Of course, the “vacation home” is worth about $250,000. And the loan in question is not purchase money, so the bank would have recourse to other assets in the case of foreclosure. So, our seller is telling us that they will not identify the “vacation home” because they don’t want to lose it. What, our agent wants to know, should she do?
Of course, this is a very difficult and frustrating circumstance. After all, if our seller had not taken the money from their IRA, the bank would never look to it. Now, as real property, it is at risk. Unfortunately, now that we are aware of the property, we cannot represent a seller who we know is lying to the bank. Therefore, we must do our best to advise the seller to do the right thing: tell the bank about the property. If they refuse, send them to their attorney. After all, in our view, hiding the property from the lender is a fraud. Finally, if the seller will not budge, we need to walk away from the listing and represent the buyer only. In that context, we would need to draft a whole new contract that shows we only represent the buyer and get the Seller to sign a Seller Non-Agency. That way, we are not part of the submission to the bank and therefore not part of the fraud. As always, please let us know if you have any questions.
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