Short Sales: Undisclosed Liens Will Ruin Your Sale

Getting a Short Sale listing? It is always prudent to ask the seller the typical qualifying questions- “What is your hardship?”, “Do your expenses exceed your income?” “Do you have cash funds to cover the deficiency?” But these preliminary inquiries may not be enough.  Here are some more probing questions you need to ask the Short Sale seller:

1. Are you “sure” you don’t have a second mortgage on the property?  Or two? Even by an individual?

2. Who owns those mortgages?  Please provide your most recent statement.

3. Do you have an IRS tax lien on the property?

4. Do you have a County, City or State lien that affects the property?

5. Is there a judgment against you in the county where the property is located?

6. Are there any other liens on the property?

You don’t want to find out after three months of bank negotiations that there is an undiscovered lien the Short Sale lender will not pay.  They normally will not pay a lien unrelated to the property itself.  That is, the lender will usually cover past due homeowners association fees,  mechanics liens and nuisance fees to a second mortgage holder, but  not others.   Finding out a seller “forgot” about his home equity line will delay and possibly cause your approval to be denied.  Finding out there is a $40,000 judgment that must be paid off will guarantee a lost sale.  Similarly, an IRS lien will be very difficult to dispose, and it’s something that needs to be addressed before listing the property and even attempting a Short Sale. You will have invested in marketing time and expense, negotiated for hours, used up office resources and worst of all, delayed or ruined a buyer’s home purchase.  To lessen the chance of a “surprise”,  ensure the seller signs a document stating his answers to the above questions at the beginning of the listing.  Better yet, have the seller pay $75 or $100 for an official title search.  Always order a payoff from each lender– you might find out they are not even the lienholder. If you don’t do it now, later may not be good enough.