Home Buying in San Jose>Question Details

Bluebear, Home Buyer in San Jose, CA

Short Sale - Paperwork and Related Questions.

Asked by Bluebear, San Jose, CA Sat Jan 14, 2012

1) What kind of paperwork is involved in buying a short sale home? I want to be (as much as I possibly can) an educated consumer. What should I expect to be filling out and what not?

2) Is it true that if a person facing a short sale or foreclosure doesn't pay their current property tax, the interested party that eventually buys their home will be stuck paying those property taxes that are in arrears?

3) If the house has a second loan on it and I end up buying the home anyawys, will the creditor hold me accountable for that second loan or will they put a lien on the house?

Thank you so much!

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Answers

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1) What kind of paperwork is involved in buying a short sale home? I want to be (as much as I possibly can) an educated consumer. What should I expect to be filling out and what not?
A: Your Realtor will have you fill out the standard purchase agreement and disclosures – the same as a normal sale. In addition, you will be expected to sign a Short Sale Addendum and Arms Length Affidavit stating that the former owner will not be allowed to benefit from the transaction in any way. In realty, the paper work for you as a buyer is not really any different than a normal sale. Most of the extra paperwork is required on the listing side.

2) Is it true that if a person facing a short sale or foreclosure doesn't pay their current property tax, the interested party that eventually buys their home will be stuck paying those property taxes that are in arrears?
A: No. The title company and your lender will not allow title to change hands if there are any outstanding liens; such as taxes or HOA fees.

3) If the house has a second loan on it and I end up buying the home anyawys, will the creditor hold me accountable for that second loan or will they put a lien on the house?
A: No – see the answer to #2 above. All loans on the property have to sign off on the short sale. In reality, the most difficult part of a short sale is getting the second to agree to the short sale. When they don’t or won’t agree to settle, then the property goes into foreclosure.

There MAY be times when the lender(s) may ask you as the buyer to contribute to the short sale to make up for their losses in delinquent taxes or HOA fees – but this is ALWAYS negotiated up front and you have the right to refuse and walk away.

Make sure you are working with a Realtor with extensive short sale experience as these types of transactions can be more difficult than a normal transaction.
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3 votes Thank Flag Link Sat Jan 14, 2012
FYI, each state is different when it comes to Real Estate. In California you can use an attorney but it is rare. Brokers and Escrow companies are used. So be cautious with answers from experts outside of our state. No offense Suzanne who is also correct about the arms length affidavit.
Web Reference: http://www.terrivellios.com
2 votes Thank Flag Link Sat Jan 14, 2012
BlueBear,

When you work with a buyer Broker they will help you through the process. Here is what to expect.

* You write an offer on a short sale
* There is an addendum to the offer "Short Sale" with contingency protections
* The Seller accepts an offer subject to their Bank(s) approval
* The Bank accepts/rejects/counters the offer (can take up to a year or as little as a month)
* The Seller accepts/rejects/counters the Bank
* The Buyer accepts/rejects/counters the Seller's offer from the Bank
* Yes there can be taxes, HOA, or other items which are delinquent and the banks acceptance should detail which of those items the bank will cover in the closing
* The Seller will either have to make up the difference or the counter to Buyer to make up the difference
* HOA fees are usually a problem and Buyer or Seller need to address them
* If the transaction is handled properly between Seller/Buyer their agents and the Escrow/Title Company the Buyer should receive clear and marketable title.

All the best to you.
Web Reference: http://www.terrivellios.com
2 votes Thank Flag Link Sat Jan 14, 2012
Hi Bluebear,
as you can see, the short sale is a complicated process and you should find a realtor and have him show you and explain the relevant contracts/forms. There is a great article on short sales on the Blog/News section of my website I recommend your read. Feel free to contact me anytime. Good luck

AR&M
Buyer 50%-60% Cash Rebate
Seller 50% Commission Discount
1 vote Thank Flag Link Thu Jan 19, 2012
Bluebear:

As usual, I gave Charles Butterfield and Terri Vellios thumbs up. Also gave Carl Medford a thumbs up. In many states, an attorney is required in a real estate transaction. California is not such a state for residential sales. The only thing I want to add here is the standard paperwork will be different if you are buying the home as an investor intending not to live it int, IF there has been a notice of default filed against the seller. If you are such an investor, make sure your agent checks to see if a notice of default has been filed and that you are using the CAR forms for such a situation.

Whether you are an investor or just looking for a home to own, ask your agent to see if the seller has filed bankruptcy, who the investor in the current first lien is, whether the seller is still making payments on the house, whether a notice of trustee's sale has been filed, and whether the seller has moved away or at least out of the house. Don't close escrow before the seller has moved out. This is not a place for someone to go without an agent by his side. Each of these questions I suggest here are necessary because the answers either predict whether the short sale can proceed, predict the time frame in which it must occur after your offer is made, or predict whether you'll have after close of escrow problems.

I'm booked tomorrow, but am available during the week. Charles Butterfield, Terri Vellios, and I have read a lot of each others' answers to a lot of San Jose area Trulia posted questions. Each one of us has grown to respect the other. You can't go wrong with any one of us. As other agents have stated, the seller (or in a short sale more accurately, the seller's lender) will pay your agent's fees as part of the sale. You have nothing to lose because the bank cares more about competence and reduced risk of future problems and risk of liability than they do about saving a dime on a commission. For this reason, they usually welcome a competent buyer's agent.

I've worked for a mortgage bank for years and am also a paralegal, so I have an insider's view of the process. Mr. Butterfield and Ms. Vellios are both highly experienced and highly regarded (at least by me) realtors deeply familiar with the Santa Clara County market and way things are done . I would be happy to represent you. You can call me at 408-639-0211 or email me at mitchell@handsonrealtor.com.

Good luck and happy new home!

Mitchell Pearce
1 vote Thank Flag Link Sat Jan 14, 2012
Thank you Bluebear:

You have received some excellent answers to your questions. Teri Velios gave you an excellent answer with respect to the paperwork. Carl Medford gave you excellent answers with respect to your questions whether or not you will be required to pay delinquent property taxes or the second loan.

Essentially the Title Company will not provide Title Insurance and your lender will not even fund your loan to buy the house unless all of those liens are cleared, so that you will not be liable on any of them.

Although the paperwork that you will see is not much diferent from that of a regular sale, a short sale is a much more difficult and complex transaction than a regular sale. That is one of the reasons that you need your own agent to represent your interests as the buyer. The listing agent really cannot help you. The listing agent represents the interests of the seller and really cannot effectively represent your interests as a dual agent.

A short sale is definitely not a "do it yourself" transaction where you represent yourself. For example on a recent short sale transaction where I represented the buyer, I discovered two additional private liens in addition to the first and second mortgage. The listing agent did not even know about about the two additional private liens until I pointed them out to him. Those private liens were cleared in addition to the first and second mortgage, but that was a difficult, time consuming process.

That is one of the reasons that on a short sale you need an agent who has a great deal of experience with short sales to represent your interests as the buyer..

Thank you
Charles Butterfield
Real Estate Broker/REALTOR
American Realty
Cell Phone: (408)509-6218
Fax: (408)269-3597
Email Address: charlesbutterfieldbkr@yahoo.com
DRE#00901872
1 vote Thank Flag Link Sat Jan 14, 2012
There is the standard CAR contract, CAR short sale addendum and many more. The key is to work with someone experienced with short sales. However, if buying a short sale you are dependent on the listing agents expertise and abities. You need a buyers agent who can determine if the listing agent is indeed capable.

Jim Mauldwin
Intero Real Estate
408-863-3020
Web Reference: http://jimmauldwin.com
1 vote Thank Flag Link Sat Jan 14, 2012
First, as a buyer you will only need to submit the regular paperwork you would for any other purchase, with one exception, you will be asked to sign an "affadavit of arms length transaction' swearing that you are not related to or have a relationship with, the current owner.

Second, you should definitely use an attorney to close this transaction so they can ensure you do NOT get stuck paying any liens. I am pretty sure that property taxes must be paid first, but I am not an attorney and you really need legal advice, the cost could save you thousands in the long run.

Third, same answer Talk to an attorney, you want to make sure ALL junior liens are satisfied prior to closing on the house so you don't get stuck with anything. There may come a time during negotations that you are asked to contribute monies so that a lien can be satisfied, but that should be entirely your decision and part of the negotiations, not something you find out about AFTER closing.

Good Luck!
1 vote Thank Flag Link Sat Jan 14, 2012
Bluebear,

Your questions are excellent. You got some really good answers.

There are more questions you need to have answered but you did not ask them. There is still a lot to learn about a short sale.

All of the answers to your questions could have been provided by an agent who has special training (CDPE and/or HAFA) coupled with experience in both listing short sales and representing buyers of short sales. I urge you to seek out such a Realtor and sit with that experienced Realtor and have a lengthy and wide-ranging conversation about short sales.

And, Bluebear, don’t forget that short sales are not the only game in town. REO’s and normal sales (equity sales) offer advantages that short sales do not. Talk to your Realtor about the shortcomings and benefits of all sales opportunities that may be presented to you.
0 votes Thank Flag Link Wed Jan 18, 2012
Bluebear,
As a buyer, the transaction will not differ much from a regular sale (other than the long wait for the approval to go through). However, if you want to be informed on the process may I suggest that you get your Realtor to provide you with the CAR forms which explain the whole process. The California Association of Realtors gives its members access to a special library of information regarding foreclosures and short sales. They have great, concise documents that will answer most of your questions. If you would like a copy, contact me and I can email you.
0 votes Thank Flag Link Sat Jan 14, 2012
Bluebear, are you attempting to purchase a short sale on your own? Or maybe from the listing agent? I do not recommend either. As a Buyer, you dot not pay any Realtor fee, customary in our area. Get yourself a Realtor to represent you or contact me through my Trulia profile and I can represent you.
0 votes Thank Flag Link Sat Jan 14, 2012
Hi Blue Bear, Great questions! When I am trying to learn something new I find I like reference to visit that answers my current questions and those that develop over time as I learn more.

If you find that you have similar needs, I would suggest that you use the FAQ in in the link I provided for you below.

Michael
http://LosGatosHomesandRealEstateBlog.com
Web Reference: http://bit.ly/xfQAHl
0 votes Thank Flag Link Sat Jan 14, 2012
1. The standard purchase agreement, short sale addendum and ARMs length.
2. No. The short sale lender pays the back taxes. Make sure your agent follows up on this, HOAs and any liens on title.
3.No, The lender in first position will offer the second a settlement amount to clear the title. The second usually always accepts this amount.
0 votes Thank Flag Link Sat Jan 14, 2012
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