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Order a title search right away with a short sale!
The first step in the short sale prospect is to order a title search. There are many types of liens than could attach to a property (state tax liens, IRS liens, mechanic liens, 2nd mortgages, home equity loans, for example). A search will cost about $100. The homeowner or investor will have to pay for it. Check with your attorney or title company for prices.
You will now know all the liens that need to be satisfied, released or negotiated in order for the buyer to obtain clear title. A lot of investors skip this step to save money. This is foolish, short-sighted thinking. You could waste several months negotiating a deal that never closes because you didn’t know about all the liens. Your time is very valuable.
Without a title report, you will have to take the word of the debtors. They may forget liens, not think they apply to the house, or be too embarrassed to disclose the liens. It’s important to find out what you are up against from the beginning.
So the homeowner tells you that they only have one mortgage. You negotiate a short sale that does not allow junior lien holders to receive any proceeds. Three weeks before closing, you are informed that there is an IRS lien that must be released. Your short sale approval expires in three weeks. You have a big problem. You will need to negotiate a release of lien for this Federal Tax lien. This could take at least 30 days.
After you obtain the lien release, you will have to renegotiate with the first lien holder to allow proceeds for junior liens, and to extend the approval date. This could be a slow process. Lenders are not so quick to renegotiate the terms. Even if you are able to get an updated short sale approval, the buyer might get frustrated and withdraw the offer. Now you will have to find a new buyer. Oh by the way, that short sale approval is only good for the original buyer. You will have to start the short sale process all over again. The lender may dig in their heels and not reduce the net they require from the proceeds. They might require the buyer, seller, or Realtors to come up with the extra funds to release that lien. This could also kill the deal.
The senior lien holder may get frustrated and decide to just take the property to foreclosure, wipe out the junior liens, and resell the property as a REO. If you received the title report upfront you would have been able to negotiate all liens at the same time. Believe me, this is a lot easier.
Lastly, a title report can help you determine upfront if this is a deal you even want to tackle. If there are too many liens, it might not be worth it. Four liens could take way too much time and effort, with no guarantee that all parties with agree to the disbursement of proceeds. I have had to say no to some deals and move on to the next one with a better change of completion. Sometimes the deals you don’t do are the best deals.
For more keys to a Successful Short Sale, enter your name and email address on the home page. If you need help with a short sale give me a call at 302.777.4357. Here is to your success with short sales!