Responsibilities Of The Short Sale Sellers On A Short Sale
Mostly the short selling is considered a responsible way of getting rid of a home that homeowners cannot afford. As against to a foreclosure in which the mortgage lender simply get back the homeowner’s house, a short sale involves more duties and obligations for the homeowner. The responsibilities of homeowners begin upon making the decision to sell their home for less than the amount that is owed on the mortgage and continue through closing. The homeowner remains responsible for the home and the mortgage debt until ownership conveys to the buyer. When a homeowner fails to make the mortgage payments then it can be a simply sign that a homeowner cannot afford his home. One of the options for the homeowners is to sell the home, but sometimes homeowner owes more than the house is worth. This creates a problem for both the homeowner and the lender, but both parties can resolve such issues through a short sale, which takes place during the pre-foreclosure phase. A short sale allows a homeowner to sell his home for less than he owes, but as well as there are limits on the rights of a seller to conduct a short sale. Some of the responsibilities for a short sale seller are following;
- Determine Liability: – It is the homeowner’s responsibility to determine his financial liability for the short sale even before he puts the home on the market. Listing the home for sale without a serious intention to sell wastes the time of buyers, agents and the lenders and may be considered an act of bad faith. Short sales are dependent upon lender approval of the sale, but if the homeowner is back out of the sale while in contract then the buyer may have some recourse. The homeowner should find out the tax implications of short selling that whether the lender can pursue later to the homeowner for a deficiency and how the sale affects the credit of homeowner by consulting a tax specialist, attorney, real estate agent and lender.
- Choose Agent: – The lender requires the homeowner to list the home for sale with a real estate brokerage. Lenders do not choose the agent for the homeowners, but they may provide a list of local agents who are knowledgeable about the short sale. Homeowners should choose the agent as early as possible in the process of short sale to help in the handling of paperwork and to price the home accurately and properly and thereby improving the chances for the approval of short sale. Although homeowners are responsible hiring the agent, but they do not pay the listing agents’ commissions at closing. But commissions come out of the sale proceeds to the lender at closing.
- Bills: – The homeowners are responsible for keeping up with their bills. Other than their mortgage payment which they likely are not paying their other housing costs include real estate taxes and homeowners insurance which the homeowner’s lender wants to keep up with him. The lender of homeowners may be willing to pay the taxes in liabilities if homeowners cannot afford to pay but it cannot waive the need for the homeowners insurance. If homeowners permit the policy failure then the lender will insure the home for the homeowners often at a higher premium and pass the cost to the homeowners. Homeowners also have to pay any homeowners association dues. An HOA can place a lien on the home of homeowners making it harder for them to short sell and may pursue them legally after the sale for the amount owed.
- Move out: – The lender prohibits the homeowners from remaining in the house after a short sale. It considers the rent back of a short sale to the seller or the purchase of the home with the intention of letting the seller remain and fraudulent activity. The lender makes the homeowners sign an arm’s length affidavit to ensure the buyer is unrelated to them by family or business and includes rambling prohibiting the homeowners from remaining in the home. The sales contract and the lender’s short sale approval terms specify that the homeowners must move out of the home by a specific date and it is their responsibility to make all arrangements to comply.
Why banks demand a seller contribution:-
If a bank took the home through foreclosure then it would lose at minimum $250,000 of its initial investment. The seller has an incentive to do a short sale because there are benefits to doing a short sale instead of foreclosure. Therefore, the seller is the organization the bank may try to squeeze. Here are basic reasons why banks might ask for a seller contribution:
- The seller has disposable income: – Most banks examine the financial statement of the seller to determine that how much money is coming into the household and how much money is going out. Banks allow certain allocations for expenses. If the seller has money left over at the end of the month then the bank might ask for it.
- The PSA guidelines require a seller contribution: – Mostly investors want a return on their investment and PSA guidelines are generally set to provide a profit. Those guidelines may state that all mortgagors in that pool must make a seller contribution to facilitate the short sale.
- The seller has no financial hardship: – Many banks will agree to do a short sale if the seller suffers from various types of hardship that are not necessarily of a financial nature. However, if the seller enjoys a strong cash flow then the bank might want part of it.