I see this is your first question here. Welcome to Trulia. You have posted your question in Orlando, Florida, but i see you are from Arizona. If you want local advice try the Pro-2-Pro section in you local area.
Is the lender looking for the $20,000 in exchange for a waiver of any future deficiency judgement? Not knowing the entire story it sounds like this may be in fact what is going on and it happens all the time. They need to carefully review their options with the proper financial counsel as a short sale without a waiver of deficiency may in fact come back to bite the seller at some point in the future. Many times the payment required (and this is negotiable) is the absolute best thing a seller can do for their financial future.
If the bank forecloses the sellers obligation to pay does not disappear and the bank has years to go after them for the note and accrued penalties and interest. Again, if a waiver of future claims costs $20,000 it may be in fact the best money they ever spent.
I hope this information is helpful but if you need anything additional please do not hesitate to give me a call.
Always at Your Service,
Tom Priester e-PRO
"Results Driven Real Estate"
Keller Williams Realty
Freddie Mac is asking for 20K on a short sale from our seller. If we foreclose the seller pays nothing. What can we do?
Hello Ann from Tempe, With that little of infoâ€¦. Letâ€™s break it down:
Freddie Mac is asking for 20K on a short sale from our seller.
1. Is it an investment or primary property?
2. $20K cash contribution or prom note?
If we foreclose the seller pays nothing.
1. You donâ€™t foreclose, servicing lender does.
2. Seller pays nothing until, the 1099A which will be issued will affect seller's tax liability
3. If AZ is a recourse stateâ€¦then collections can hang around for that many years
4. Foreclosure scoring has heavy impact on FICO scoring and credit reports
What can we do?
1. Seller hired you in good faith to sell and negotiate his property and defaulted mortgage.
2. If you are not sure, what to do, go to your brokerage, meet with some of the â€˜seasonedâ€™ agents who do shortsâ€¦and last but not least.
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I recently closed a loan on a short sale and Bank of America required the seller to sign an unsecured note for $15,000 with repayment terms spread over 5 years.
So, basically, the seller had 2 options, foreclosure or short sale on Bank of America's terms and from my understanding the bank was not willing to budge.
Cobalt Financial Corporation
The last resort that we used is that we ask buyer to bring funds to closing or else we sell to someone that is willing to do so. When you inform a buyer that you are forced to sell to someone else, most times they bring the funds to the table.
Feel free to contact me should you have any questions.
HouseStar Realty Group Inc.
Real Estate Broker
Certified SFR Short Sale and Foreclosure Resource
O: 407.429.5243 | P: 407.301.3401 | F: 407.373.0064 | eFax: 407.264.6260
It may be in a seller's best interest to pay money at closing or agree to a promissory note.
Hope this helps, I see you're in AZ so you may not have the same foreclosure laws.
Oh and if this is NOT the seller's primary residence and he is forgiven any loss by the lender, he may end up with a significant tax liability. The lender will send a 1099 to the IRS for the amount of the loan forgiveness and the seller may have to include it as ordinary income. On a primary residence there may be an exemption for the 1099 "income"
All the best,
Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states
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Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
The seller can just say â€œnoâ€. The lender cannot get blood from a turnip.
The seller can offer to sign a note for $20,000 at zero interest for 10-20 years.
The seller can come up with the cash.
The seller can offer to pay a lesser amount.
There may be other optionsâ€¦I just canâ€™t think of any.
Negotiations go on until you reach an agreement or the bank pulls the plug and denies the short sale. The lender may want $20K but will not get that by foreclosing.
Does the seller have the cash? (Do not answer that question in this public forum.) Is the lender asking for that contribution because the seller has the cash or is the lender taking a shot in the dark?
Basically the decision is your sellers. Does he want a foreclosure on his record or is he prepared to sign a note or bring money to closing. There is nothing to stop you going back to the note holder with a counter proposition. So, sit down with thh seller. Discuss all the options and ask him for his decision
Best of luck,
The negotiator needs to get harder with the secondary. they will get ZERO with a foreclosure. often the primary will allow 3000 and a max of 5000 for the secondary... they need to take it and be happy. If they refuse unfortunately the bank will probably need to foreclose and force a BK for your seller. You may check into getting an attorney to do your negotiations. I have one here in this area that is good at getting the job done. Attorneys can also charge for services like us and get poaid, even for the mitigations.