Can I fund my FHA loan with $14,000 worth of "negotiation fees" on a 400k house. These fees are to be paid to escrow

Asked by Joeyjj, California Fri Sep 23, 2011

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21
Bob Phillips, Agent, Rancho Santa Margarita, CA
Fri Jan 27, 2012
It's too bad that Joeyjj hasn't returned to let us know the conclusion of his fiasco.

That happens far too often, in Forums such as this, where readers pour their hearts out to offer potential solutions, and then never find out how the tale ends.

This thread, and a few others like it, should be required reading for any buyer considering making an offer on a short sale - ESPECIALLY if they are being represented by an agent who doesn't have a clue how to guide such an offer to a successful conclusion. ( This should ALSO be required reading for agents like that.)
1 vote
Roswell Moore…, Mortgage Broker Or Lender, Scottsdale, AZ
Sat Sep 24, 2011
Joeyjj,

Your story keeps getting worse. What seems to be conspicuously absent here is any mention of your real estate agent. Do you have one? If they are not sure what to do or how to do it, you might want to get in touch with your agent's Broker. They shoul have some answers for you.

All the best,
Ros
1 vote
Thom Colby, Agent, Irvine, CA
Sat Sep 24, 2011
Bob,

As ususal I always enjoy reading your answers and you get a "Thumbs-up" from me.

Another twist in the deposit money in escrow to consider is if the seller files BK. That EMD money "could" become part of the BK Estate.

Like Bob, I am not an attorney and any of my comments should not be interpreted as legal advice.

Best of luck Joey -

Thom
1 vote
Bob Phillips, Agent, Rancho Santa Margarita, CA
Sat Sep 24, 2011
Hi again, Joeyjj.

First of all, I will assume that you have your own agent, and that he or she is NOT also the listing agent. Is that correct?

Second, if you've already proceeded that far into an escrow, that suggests that the original offer has been "accepted" by all the lenders involved. Is that also correct?

If you were advised to place funds into escrow, before you received such an acceptance, then YOUR agent advised you poorly, because - in my humble opinion - you should not open an escrow until you've received said lender acceptance. ( I know there are agents who disagree with that concept - who want to open an escrow as soon as there is SELLER acceptance, even though LENDER acceptance might take months to receive, but Joeyjj's story here should be enough to show you the folly of such advice.)

Back to you, Joeyjj. How much of an EMD ( Earnest money deposit.) have you actually placed into escrow?

The answer to that question should NOT be more than $12,000, which is 3% of the purchase price.

What the seller is demanding sounds as though it is illegal, and at the worst, two things are probably going to happen. First, your deposits in escrow will probably be held hostage there for quite a while - they require the seller's permission to be removed. ( ANOTHER reason to not open the escrow before the lender's acceptance of the offer.)

Second, the seller will probably get foreclosed out of the house MUCH sooner than he thinks, at which point HE doesn't get his $15,000, the listing agent doesn't get HIS $14,000, nor his commission, and at that point, with a nudge from an attorney, escrow should relinquish your deposit, less any of their "costs". ( Another hand in the till.)

Please bear in mind that I am not an attorney, and the suggestions I have spelled out here should NOT be construed as legal advice. They are not intended to be.

It sounds to me that you need to stop asking questions on this forum, and start talking to an attorney, or at the very least, threaten to - to all the agents involved. I wish you good luck in sorting this out. It sounds like you'll need it.
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1 vote
Thom Colby, Agent, Irvine, CA
Sat Sep 24, 2011
Joey,

Where is YOUR agent????

You need to get an attorney for yourself ASAP -

The Seller is attempting to commit fraud. You will likely have to sign an Arm's Length Affidavit which precludes you from providing any funds to the seller. If you provide funds to the seller outside of escrow and not included on the HUD, you could find yourself in very deep hot water. If the Seller's short sale lender knew about this, they would withdraw the approval and you might be off the hook.

Also, if the seller doesn't sign the deed and closing docs, seller has breached the contract.

Your attorney could potentially notify the Seller's Lender of the seller's actions. The agent seems to be facilitating the problem by having you contact the seller directly.

Keep all communication in writing or recorded telephone line - In CA you must notify the other party if you are recording the call.

Get legal help FAST....

Thom
1 vote
Thom Colby, Agent, Irvine, CA
Sat Sep 24, 2011
Joey,

AGAIN, The Listing Agent is responsible to negotiate the Short Sale as part of their commission. That's what a Listing Agent does. Any ethical Agent / Realtor would not attempt to grab money from a Buyer for heavily over-inflated negotiation fees.

You are being "taken".

Unless you really want this house and if you have not removed your contingencies, I'd walk away.

Best of luck,

Thom Colby
Broker
Newport Beach CA
1 vote
Thom Colby, Agent, Irvine, CA
Sat Sep 24, 2011
Joey -

You've received some good answers from many folks on this site - but I'd like to add my own .02

First, in any transaction, if the BUYER is being charged the Negotiation Fee - FIND ANOTHER HOUSE TO BUY !

Second, a negotiation fee of $14,000 on a $400K purchse is ABSOLUTELY OUTRAGEOUS - no matter who is paying the cost. FIND ANOTHER HOUSE TO BUY!

In a short sale, when the Listing Agent signs the Listing Agreement with the Seller, they know it's a short sale and they immediately assume the responsibilities of negotiating that short sale for the seller. If the Listing Agent is 1) not able to negotiate, 2) cannot negotiate, 3) doesn't want to negotiate, or 4) are just too busy to work short sales, and 5) the Listing Agent hires a 3rd party negotiator - then that agent assumed the responsibility to pay the negotiation fee.

Let me ask this ---- is the Listing Agent also representing you as the buyer?

To get back to your question, trying to bury $14,000 of negotiation costs into any mortgage in this economic climate is highly unlikely. You have received good opinions from mortgage lenders on this thread who are far more qualified than me to discuss lending practices. I expect you will receive similar opinions as more folks answer.

If it were me, I would go back to the agent and tell them to pay the negotiation fee as they engaged the negotiator, YOU did not.

There are plenty of houses to be bought other than this one at a $14,000 premium to you, especially as appreciation on housing is only to rise by 1.1% per year for the next 5 years (per NAR) if you are lucky.

Finally, a market-typical 3rd party negotiation fee on this transaction would be about $4,000 - and paid by the Listing Agent.

Best of luck,

Thom Colby
Broker / Owner
Thom Colby Properties
Newport Beach, CA
Moving Lives Forward (TM)
We NEVER DOUBLE-END Transactions in our Brokerage. IN MY OPINION, there is NO benefit to the Seller or Buyer and benefits only the Agent.
888-391-5245 Direct
THOM@THOMCOLBY.COM
DRE# 01398570
1 vote
Bob Phillips, Agent, Rancho Santa Margarita, CA
Fri Jan 27, 2012
No Bad, Gregorio.

Your contribution was relevant, and accurate.

Hopefully, someone who is contemplating such a transaction, TODAY, will take heed of the relevant answers given by a few of the respondents to this thread, and not get into a ridiculous scenario such as Joeyjj's.
0 votes
Gregorio Den…, , San Diego, CA
Fri Jan 27, 2012
Oops, my bad, didn't check the date of the original post after it was dug up again.
0 votes
Gregorio Den…, , San Diego, CA
Fri Jan 27, 2012
I'll simply answer your question here.

NO!

Where do you plan on putting these fees? You cannot increase the rate to do a lender credit for it because YSP cannot result in cash back to the borrower.

I assume your agent was competent enough that you have a financing contingency. Have your loan officer submit it with the higher rate and $15,000 worth of YSP rebate to the seller and it will get denied in 5 minutes. This should be sufficient to warrant return of your EMD since financing will be denied.

After that, report all of them.
0 votes
, ,
Fri Jan 27, 2012
This is all too much, if I read it correctly, the agent is asking you to pay $15,000 on the side or they will not allow the escrow to close and will not let you have your deposit back.

I would say a call to the California Dept of Real Estate is sooooo in order here. Also call your county attorny general. You will have your deposit back rather quickly, I would guess, and hopefully this agent will be out of this business.
0 votes
Bob Phillips, Agent, Rancho Santa Margarita, CA
Sat Sep 24, 2011
Thanks Thom, I did likewise for your answers. It seems like we were both answering at the same time and when I pushed the submit button, I noticed your answers, also. Since yours seemed to be along a similar line of thought, as mine, I figured I was on the right track.

Thanks for your input, as well. Have a great weekend!
0 votes
Joeyjj, Home Buyer, California
Sat Sep 24, 2011
Unfortunately, contingincies have been removed. There is actually a new problem with this deal also. We were directed by the listing agent to contact the seller directly. The seller has informed us that unless we pay him $15,000 on the side he will not sign closing papers. He will not cancel the deal either so we can't get our escrow deposit back. He believes he can live in the house free for another year or so until the bank forecloses on him.
0 votes
Joeyjj, Home Buyer, California
Sat Sep 24, 2011
I really appreciate all of your answers. To be clear, the listing agent is also the negotiator and the "negotiating fees" would not be included in the loan. They were hidden in the contract this way: "seller agrees to pay HOA liens, other liens, fees and negotiating fees not to exceed $18,000". At the time we were told by the listing agent that he would be able to reduce these liens. Which he has. We were not told that every dollar of lien released would become a dollar added to the negotiating fee.
0 votes
Emily Knell, Agent, Huntington Beach, CA
Fri Sep 23, 2011
Although this does seem very high for a $400K purchase price, it is possible to receive a seller credit towards closing costs & pay out negotiation fees. The issue is really with how it is worded & how it is disclosed.

Normally I'll have the buyer contribute not towards a "negotiation fee" but towards the listing side of the commission & then my broker will pay my partner who is on my team & is a licensed real estate agent as well.

It is not fraud unless the fee or contribution is disclosed to all parties & is on the HUD.

EmilyKnell1@yahoo.com
562-430-3053 c
Realtor Since 1996
Main Street Realtors
0 votes
Roswell Moore…, Mortgage Broker Or Lender, Scottsdale, AZ
Fri Sep 23, 2011
Joeyjj.

Lauryn & Melissa are correct. You cannot use seller credits towards the down payment. The guidelines will not allow this.

The $14,000 can be added to the purchase price of the home, so that provided the home appraises for the new higher value with this $14,000 additional cost, you could move forward with the purchase. You will need new addendum's signed documenting the increased purchase price.

The sum of $14,000 to negotiate a short sale seems awfully high. That's 3.5% of the sales price! More than the customary real estate agent commission. So is this a third party above & beyond the your agent & the listing agent who are both usually averaging 3% each? Where do I sign up for this?

All the best on your closing,
Ros

Ros

Roswell Moore, CMPS
Certified Mortgage Planner
480-422-5095 direct
http://www.ezAZloan.com

We are a Direct Lender, Mortgage Bank where we originate, process, underwrite, fund, and service our loans, in-house, FHA (w/a 580 score), 203k, VA, USDA, Jumbo, and Conventional.
0 votes
Melissa Zava…, Agent, Escondido, CA
Fri Sep 23, 2011
Sounds like this might be buried short sale negotiation fees to be paid from your closing costs to the short sale negotiator. If that's what this is, the answer is no. (See California Department of Real Estate Short Sale Fraud Alert of of September 2010). If it is something else, looks like the agents here need more of an explanation as to what those fees are for.
0 votes
Rudi Hofmann, Mortgage Broker Or Lender, El Segundo, CA
Fri Sep 23, 2011
Joey,

What are "negotiation fees?" On what document are you seeing this?

Happy funding, Rudi
Web Reference:  http://www.umboc.com
0 votes
Lauryn Eadie, Agent, Reston, VA
Fri Sep 23, 2011
Joey,

on FHA the sellers credit can NOT be used for your down payment, but it can be used for closing costs and if the 14K exceeds your closings costs, the additional funds can be used to pay down the rate, pre-pay hoa/condo fees etc.

You can receive "gift" funds from relatives that can be used for a down payment, but you should check with a lender to get more specific instructions and information specific to you.
0 votes
Bob Phillips, Agent, Rancho Santa Margarita, CA
Fri Sep 23, 2011
Elias, Joeyjj isn't being credited by the seller in this transaction - it is a short sale, and the agents are trying to get Joeyjj to come up with $14,000 in "negotiating fees", which will be a cash outlay, over and above his down payment.

He is asking if there is a way to "bury" these extra fees into his FHA loan - so it is NOT a cash outlay. I'm not a lender, so I am not qualified to answer the question, other than to say I have serious doubts that a lender is going to include such costs into their loan.
Web Reference:  http://bit.ly/mls-search
0 votes
Elias Anguia…, Agent, Vacaville, CA
Fri Sep 23, 2011
Your seller's credit can be used for down payment but yet can get most of the down payment gifted from a relative..You have to use ant $1000 of your own money on a FHA..
0 votes
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