February 1st, 2011 at 10:18 pm
Just when I think I have seen everything that “short sale” people can come up with, I get a call about something new. Today was one of those days. In this case, our agent represents the buyer in a short sale. The listing agent has been demanding that our buyer deliver their deposit to escrow despite the fact that no short sale lender approval has been received. After trying to convince us that it was ok to make the deposit early, today the listing agent delivered an “approval letter” from the first lender. A copy of that letter is attached. By reviewing the letter carefully, our selling agent recognized that the identity of the buyer was handwritten in rather than typed. Of course, our agent had never seen such a letter before. Additionally, however, she knew that there was a prior buyer for this property who had cancelled escrow after bank approval was received. In those circumstances, of course, she refused to accept the letter provided. No bank that we are aware of has ever sent an approval letter with any part of it, let alone the buyer’s name, handwritten in. As a result, our agent refused to have the buyer make a deposit until a clean “approval letter” is actually received. Obviously, the lesson of this story is simple: read everything in a short sale, including the seemingly simple approval letter, very carefully. People are willing to do anything to get their short sales approved or moving forward. We have to be sure that, at least in our deals, that “anything” does not include something fraudulent. Thanks.
Approval Ltr.pdf
January 27th, 2011 at 10:12 pm
I received a call today that I have received many times over the years. In this instance, we represented both sides in a $4 million transaction. The buyer, without explicitly saying so, apparently wanted to figure out ways to reduce his property tax after close of the escrow. As a result, when structuring the deal, the buyer suggested two things: first, he wanted to pay the commission himself; and, second, he wanted to buy “personal property” from the seller which they valued at $200,000. As a result, the buyer wanted a purchase agreement with the sale price at $3,600,000 ($4 million minus $200,000 in personal property and a 5% commission of $200,000), with separate agreements for the commission and personal property. I was asked two questions in this regard: 1) What advice, if any, should be given to our clients about this structure?; and 2) What sale price should be reported in the MLS?
1) First, while our clients can structure their contract any way they would like, they should understand that, if there is a lender involved on either side of the transaction, this structure would constitute a fraud. In a short sale, the money going to the seller for the personal property would be against short sale lender guidelines and could not be paid. On the buyer’s side, by artificially reducing the sale price of the property, we are impacting the lenders determination of loan amounts, loan to value ratio, etc. As a result, if a loan were involved or this were a short sale, this structure would pose significant problems. Even without a loan, we need to tell our buyer that these attempts may not be successful in reducing his property tax. I have seen transactions where, after close of a deal where the buyer paid commission, the assessor added the commission amount back into the sale price when assessing the property. It was the assessor’s position that commission is normally paid by the seller and included in the sale price, and the tax would therefore be assessed on the sale price plus commission. We should also let the buyer know that the price for personal property could also be added back in if the assessor learned about it and determined that the value assigned to that property was artificially inflated.
2) Next, with regard to the MLS, we believe the sale price reported should include the commission, but not the personal property. As we said above, sales prices normally include the commission. That would be true for the vast majority of sale prices in the MLS. On the other hand, most MLS prices do not include personal property, so we are ok excluding that amount. Even if we have suspicions about the personal property’s true value, it is not our job to investigate or judge that issue.
As always, let us know if you have any questions
January 25th, 2011 at 10:13 pm
As you all know, FHA loans have become more prevalent in our market over the last few years. As a result, it is more important for us to be on top of FHA’s requirements for various loans. In that regard, you should all be aware that as of January 1, 2011, condominium developments must meet tougher requirements in order to be FHA approved. For example, FHA now requires that no more than 10% of the development’s units may be owned by one investor and at least 50% of the units must be owner occupied. Below is a link to a copy of an article from the January/February 2011 edition of California Real Estate discussing the new rules in detail. As always, let us know if you have any questions.
FHA.pdf
January 21st, 2011 at 10:05 pm
As you have heard from us multiple times, in the world of short sales, the words “outside of escrow” are “dirty words.”? No payment can be made outside of escrow and the short sale lender must know everything that is going on.? In an article from the California Property Law Journal, Shannon Ball Jones agrees, writing as follows:
In short sales, agents are sometimes asked to allow payments outside of escrow. For example, if the senior lender permits the junior lender to accept only $2,000 of the sales proceeds, the junior lender occasionally will ask for a larger payment outside of escrow. This is not only a breach of the senior lender’s terms, but constitutes lender fraud. Senior lien holders are now asserting claims against title companies who allow payments outside of escrow, which are not listed on the HUD-1 closing statement or are contrary to the lender’s approval letter. It is likely that in the future, lenders will consider pursuing claims against agents. All payments should be on the HUD-1. If any payments deviate from the senior lender’s approval letter, permission from the senior lender must be obtained.
January 21st, 2011 at 9:43 pm
I got a call today about a short sale listing that is similar to numerous calls I have received before.? The facts typically go something like this:? We have a short sale listing.? An offer is accepted by the seller and sent to the short sale lender for approval.? After submission of the full short sale package, the bank approves the deal.? Unfortunately, because of how long the process has taken, the buyer has found another property and has walked.? Since there is time remaining before a foreclosure, our listing agent moves quickly to relist the property and wants to advertise it as an “Approved Short Sale” at the price of the prior offer. Can she do that?
Unfortunately, the answer is no.? The short sale bank is entitled to analyze every offer from each individual buyer on its own merits and will almost assuredly do so.? As a result, the fact that an offer from Buyer A was approved at $500,000 does not mean that an offer from Buyer B at the same price will be approved.? Buyer B may have worse credit than Buyer A, the terms of the offer may differ and be less advantagous to the bank or the market may have changed and the bank’s view of value may have changed.? Regardless, each deal stands on its own and we therefore cannot advertise any specific price as having been approved.? Of course, if you have preapproval of a short sale under HAFA or the like, that is a different story for a different post.? For now, just understand that in a normal short sale, no price is “Preapproved.”
