Northern Virginia Short Sale Quiz: Question #4

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Real Estate Agent with Long & Foster REALTORS®, Manassas, VA VA License # 0225089470

Northern Virginia Short Sale Quiz:  Question #4

Northern Virginia Short Sales are a topic on which there is a TON of misinformation.  We've already had question #1, question #2 and question #3.  In question #4, we are going to address a really critical point.

Sellers of a Northern Virginia Short Sale with two loans (a 1st trust and a 2nd trust) have just received an offer on their property.  The Buyer would like 3% of the sales price in closing cost help. 

Who is paying for the closing cost help to the Buyers?

A)  The 1st Trust

B) The 2nd Trust

C) The Sellers

D)  The Real Estate Agents

Check back tomorrow for the answer.

Click here for Northern Virginia Short Sale Quiz:  Question #5

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Rainmaker
475,773
Andrea Bedard
Thompson Company, REALTORS - Silver Spring, MD
M.A.; REALTOR Silver Spring, MD and beyond

Hi Chris Ann: While a few years ago I saw/heard of a few in which the agents had to come up with something in order for the closing to happen, I would hope that nowadays it's only the 1st Trust, Answer A.

Feb 26, 2012 01:59 PM #1
Rainmaker
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Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

This is a treat question, right?  The real answer is the buyers . . . LOL  

Feb 26, 2012 06:44 PM #2
Rainmaker
160,681
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

Assuming the first is being shorted, then the closing cost loss will be with the 1st lien holder. However, if the FMV of the home is greater than the payoff demand of the 1st, then the second lien holder is accepting a lower payoff in order to provide for the buyer's closing cost. This assumes that closing cost get approved. This also is done on behalf of the seller's request.

By the way, technically the buyer or the buyer's lender is providing the funds to give themselves back the credit on the HUD. For example, in simple terms and assuming 100% financing, if the buyers' are purchasing the property for 100k and asking for a 3% credit for closing cost, the buyer's lender is still financing this deal at 100k and the bank will allow a payoff of 97k. The 3k goes to the buyers to do as they wish, like pay their real estate agent an extra commission!  ;)

Feb 26, 2012 08:23 PM #3
Rainmaker
276,731
Carol-Ann Palmieri
RE/MAX Executive Realty, Al and Cal Realty Group - Franklin, MA
"Cal" the Real Estate Gal

Hi Chris Ann.  I will be checking for the answer.   I hope it is not D.    :)

Feb 27, 2012 05:24 AM #4
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Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

The answer is (gasp)  C) The Sellers.

While everyones believe that the Short Sale Banks are the ones that pay the closing costs and commissions, it is actually the SELLER.  Follow me on this one and you'll never look at Short Sales the same way.  They are truly more like regular sales than you've ever dealt with.

The Sellers are the ones that own the property.  And just like in a regular sale, the closing costs and commissions come from the GROSS sales price.  This is money coming in to the Seller.  The bank gets the remaining, or NET proceeds.  They bank may want to increase their net and "disallow" closing costs, but if they state a higher net in the letters than was reflected on the proposed net on the HUD, the Seller may still be contractually obligated to pay those closing costs that were previously agreed to in writing  if they are not removed from the contract with an addendum.

This becomes particularly important if the Seller is not covered under the Mortgage Debt Forgiveness Act and faces a tax liability on the short fall of the mortgage forgiven by the Short Sale Bank.

Feb 27, 2012 08:37 AM #5
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Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Andrea:  This is one that I see misunderstood constantly, and why so many buyers think they can ask for the sun, moon and stars.  The banks are only dealing in the net proceeds.  The commissions and closing costs are paid out of the gross that comes in to the Sellers.

Carla:  I can see where you get this since the Buyer's loan is funding the purchase price, but since the closing cost assistance would come off the Seller's side of the HUD, and the Bank is not the Seller, it is the Selelr. 

 

Feb 27, 2012 08:45 AM #6
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Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Satar:  When the Short Sale Bank becomes the Sellers (i.e. if it goes to Foreclosure) THEN the Bank is paying the closing costs.  If the Seller still owns the home and is listed on the HUD, the closing costs and commissions are coming out of the gross sales price coming in to the bank.  The bank gets what's left AFTER that stuff. 

Carol Ann:  I put that in there just to make everyone's stomach flip.

Feb 27, 2012 09:03 AM #7
Rainmaker
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Andrea Bedard
Thompson Company, REALTORS - Silver Spring, MD
M.A.; REALTOR Silver Spring, MD and beyond

Hi Chris Ann: I'm not sure I completely follow your train-of-thought. I think I understand but ... No question, the subsidy is technically the seller's obligation and under normal circumstances it would come out of their equity and thus out of their pocket. But since the proceeds are not enough to cover that, it is not coming out of their pocket. The 1st lien holder still has to agree to take even less and thus it's them taking the loss. If they don't agree then their net is higher. Of course, in that case the sellers either have to pay or another solution would have to be found.

Great food for thought!

Feb 27, 2012 03:20 PM #8
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Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Andrea:  Even though there is no equity, the Seller is still the one paying it.  Obviously, this affects the net to the banks so they will often ask to counter, but at the end of the day, the bank is simply no where on the HUD, just like in a normal sale.  Sellers can even use the closing costs they paid as tax deductions.  It's really no different.  If the banks were paying, they'd be writing checks at settlement.  It's coming from the Sellers.

Feb 28, 2012 09:57 AM #9
Rainmaker
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Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

I've got news for you, Chris Ann. Believe it or not -- it is not the sellers who pay the closing cost credit for the buyers. No, Sirree. Why, everybody knows it is Santa Claus. Oh, wait. Maybe it's the Easter Bunney. I stand corrected. I hop corrected.

Feb 28, 2012 01:42 PM #10
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Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Elizabeth:  Well that might more sense than the bank now, wouldn't it?

Feb 28, 2012 04:08 PM #11
Rainmaker
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Marilyn Harrell
ReMax Riverhaven - Beaverton, MI
Wixom Lake - Beaverton MI

Great job explaining this one!

Mar 04, 2012 11:43 AM #12
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Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Marilyn:  It's not a hard concept.  The money all comes in to the Seller and is paid out by them.  The HUD-1 works no differently in a Short Sale than in a regular sale.

Mar 05, 2012 10:22 AM #13
Rainmaker
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Pamela Stangler
Coldwell Banker Schmitt - Cudjoe Key, FL
Florida Keys

Woohoo!  That one caught me, and it seems a lot of others.  Glad I wasn't in the boat alone!

Mar 09, 2012 11:37 AM #14
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Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Pam:  This one is easy to remember if you just look at who the Seller is on the HUD.  It's never the bank in a Short Sale.  So for purposes of the sale, the money comes into the Seller and they pay it out.

Mar 10, 2012 06:42 AM #15
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