Home Buying in 92109>Question Details

John Ledger, Home Buyer in San Diego, CA

New law for short sales

Asked by John Ledger, San Diego, CA Thu Oct 11, 2012

I'm purchasing a condo in San Diego that is a short sale. 1st is BofA and is approved and they are contributing $8500 to the 2nd. 2nd want an extra $6500 to settle.
I have asked the seller to pay this (they will be walking away with $6000 as relocation assistance from BofA)
My realtor has now said that there is a new law preventing seller from contributing - is this correct?

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Answers

8
John,
Your realtor has a better chance of negotiating with the 2nd to be satisfied with the $8,500. Where is the incentive for the seller to contribute - even if he could - and walk with only $500?

Besides, nobody wants to be sued for convincing a seller to pay and later have a lawsuit claiming the seller was forced to pay for the deficiency. The new law is meant to prevent this situation.

If you really want the property the agents or buyer could pay toward the 2nd; just not the seller.

I agree with Harold - look at some other properties.

Best wishes with your negotiations.

Michele Kole
Senior Loan Officer
Land Home Financial
7670 Opportunity Road, Suite 165, San Diego, CA 92111
Office: 858-634-1208 Cell: 858-344-5998
mkole@lhfinancial.com
NMLS/CA-DOC# 248631
0 votes Thank Flag Link Mon Feb 25, 2013
John,
I am not in the transaction so it would be a best guess....
Here is how it works.
on a short sale, the banks in this case B of A allows a certain amount for the second lien.
Thats it. that is all they get from the deal.
The Second wants more money. The seller cannot use funds from the sale to pay the second at all.
The listing agent or negotiator is to try his best to make it work.
Odds are it may not.
You might consider looking at more homes.

Harold Sharpe - Broker
So Cal Homes Realty
(951) 821-8211
harold@southerncaliforniashortsales.org
http://www.southerncaliforniashortsales.org
California Department of Real Estate Broker License # 01312992
0 votes Thank Flag Link Sat Oct 13, 2012
Hi John -

Do you know who the second is with? How much is the second for? $15K seems quite a bit unless there is a significant second lien. Possibly greater than $100k? Did the seller do a HAFA short sale? If they did a HAFA, then the second, assuming if they are participants under the HAFA program, will have to agree to take the $8500 to settle. The second cannot get any additional funds from anyone due to this cap. There may be situations where the second does not participate in which case the first will have to be processed under BofA's cooperative short sale program. If that is possible, then the seller, if they are getting relocation assistance and/or other incentive moneys, may be able to contribute some of their funds towards the second. I have seen this happen on judgment liens that the lender did not want to pay. However, the lender cannot ask the seller to contribute any money because of CA law because it can be construed as collecting on the deficiency balance.Typically, there is no issue with the buyer and/or agents contributing any additional funds provided however there is full disclosure on the HUD to the lienholders of such.

Thanks,

Maria Rosino-Miracco, CEO/Attorney/Realtor
Premia Realty Group, Inc.
0 votes Thank Flag Link Fri Oct 12, 2012
This take us into uncharted territory, gang. Some of your comments are 'outside of escrow' etc. While this is being done to not actually break certain rules---is it fraud by omission? Anyone want to be the first to be sued?
0 votes Thank Flag Link Thu Oct 11, 2012
Hi John,

Your Realtor® is correct; however, it's not the full story as in many cases when you encounter legal situations.

According to CAR Legal Staff during a webinar that occurred on 10/3/2011:

The LENDER can ask the BUYER (or any other party except Seller) to pay towards the deficiency in order for lender to approve the sale. Additionally, the SELLER can volunteer to provide additional funds to facilitate an approval; HOWEVER, it is best for the Listing Agent to set this up when the Short Sale package is submitted to lower the Lender's/Agent's legal risk.

Ask your Realtor® to call CAR Legal and pose the situation for feedback. You can also reference this blog post which has the text of the law.

"CA Senate Bill 458 Now Prohibits 1st/2nd+ Deficiency Judgments*"
http://www.trulia.com/blog/steve_ornellas_mba_re_mastersgri/…

Good luck with the SS.

-Steve
0 votes Thank Flag Link Thu Oct 11, 2012
I just had the same thing....a lender cannot ASK anyone to contribute to the 2nd lien, however no one can prevent the seller from paying a debt.....however the issue is this, since this is a law, and no one can ask for the contribution, no one wants to be the first one to get sued. The money contributed would have to show on the HUD and neither the first or second will allow the money to show as going to them since later on, someone could say they were asked to contribute. What we did was get the 2nd to offer a settlement and waive any defieciencies. Once we had the settlement letter and money was paid, (it all had to be done outside of escrow) then we proceeded with the short sale on the 1st. The 1st was ok with this since they got more money (they did not contriute to the 2nd at all) and the seller was still happy since there was a 200k recourse 2nd that was settled for 12,500. There was an attorney involved and the 1st knew about the settlement. Everyone was happy!
0 votes Thank Flag Link Thu Oct 11, 2012
I don't know if there is a new law PREVENTING the seller from contributing, but if this is a HAFA short sale there is nothing FORCING him to contribute AND I believe, under HAFA that second lien holders recovery is capped at $8500. That is the new rule I am aware of, capping second lien holders recovery in these situations.

If this IS a HAFA short sale then the person doing the negotiations should alert the government oversight people of the situation. In fact, they may only need to threaten to contact the government oversight entity to get the second lien holder to back off. Look, these banks took billions in Tarp bailout money. They do not get to now reap a windfall profit off the banks of strapped homeowners.
0 votes Thank Flag Link Thu Oct 11, 2012
John, I have just experienced this as a principal negotiator for a BofA HAFA short sale approval. Under the current HAFA guidelines and directives, NO ONE is allowed to contribute funds toward a second lien that is over and above what has been approved/allocated by the first lien. As a result, the short sale will need to be reinitiated with BofA under a different short sale program, such as their cooperative short sale program which allows other third party contributions to a second lien. Hope this helps

Glen S. Etherington
Principal Broker/REALTOR/Paralegal
0 votes Thank Flag Link Thu Oct 11, 2012
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