Short sale property has additional liens... what is the impact?

Asked by Otto, Pleasanton, CA Wed May 29, 2013

A short sale property has additional liens totaling approx. 8-10% of market value. I want to make an offer right at market value -- what could be the impact of these additional liens on the bank's decision to approve the short sale? (The short sale is not pre-approved by the lender, and there is no second lender.) Thanks!

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Ali Qureshi, Agent, Pleasanton, CA
Thu Nov 13, 2014
I am happy that we don't have a lot of short sales left nowadays.
0 votes
Nancy 2006, Home Buyer, Newport Beach, CA
Thu Nov 13, 2014
You can make an offer with a condition that the lien must be cleared by the seller. Because you are buying a short sale property at the market value, there is a high chance that the bank will take your offer.
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Ron Thomas, Agent, Fresno, CA
Thu May 30, 2013
Yes, there is a 2nd lender; in the form of the other Liens:
They are acting like a 2nd, in that they have a junior position.
The good news is that they are more likely to negotiate on this, as opposed to waiting for the Foreclosure, where they will probably get nothing.
The bad news is that the 1st Lender has a reverse incentive to approve this deal; they will get less, having to deal with the other Liens, and the house will be worth more as time goes by.
I would say that even without multiple offers, your chances of getting this house are about 10%.
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Otto, Home Buyer, Pleasanton, CA
Thu May 30, 2013
Thanks to everyone for these answers.

@Evangeline, what do you mean by pre-escrow as a way to decrease the time to close?
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Sally Blaze, Agent, Pleasanton, CA
Thu May 30, 2013
As Michael said, the market value of a home is subjective. So the market value in your situation is the price you are willing to pay for the home. Remember, inventory is very low and so someone else may think the market value is higher than what you are willing to pay.

However, assuming your offer is accepted by the seller, then it must be reviewed by the lender. The short sale lender will determine their fair market value of the property, and then the other lien holders need to be paid. Some of these secondary lien holders will decide it is better to get something rather than nothing, so will negotiate a settlement. Other lien holders will decide to wait for full value, since they perceive the market value of homes in still going up.

It is always best to discuss details of your situation with your real estate agent. He or she most likely has experience with short sales and can advise you on the best strategy for the specific property you have in mind.

Sally Blaze
Alain Pinel Realtors
Lic #01856137
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Michael Koen…, Agent, Pleasanton, CA
Thu May 30, 2013
Hi Otto,
The market value of a property is rather subjective. A property is worth as much as a willing and able buyer can offer and pay. The list price will not necessarily be the sale price.

However, to simply things, let's say the winning bid on a property is $700k. Are you saying there are additional non-mortgage liens that need to be paid in the amount of $60k or so? Are these mechanics liens? past due HOA dues? past due taxes?

The only way the sale can close, is if all liens are satisfied. That doesn't necessarily mean they all need to be paid full face value, they can be negotiated down. Some lien holders are more open to negotiation than others.

If any of those lien holders don't 'play ball', that could very well kill the deal, especially if they demand an exorbitant amount (in my experience, past HOA dues sent to collections can be rather difficult to deal with). Then again, how badly does a buyer want the property? Some buyers are willing to pay more than the perceived market value of the home.

Bottom line: Be sure to talk with your agent to find out the nature of those liens, and how 'open' they are to accepting less than full face value. It's best to get a realistic view of these things up front, to save yourself allot of extra time and unnecessary heartache.

Hope that helps...
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Jim Olive, Agent, Key West, FL
Thu May 30, 2013
Remember, too, that the additional liens can be negotiated down, the lien-holder may well take less than the face amount just to get the account closed (depending on who they are, municipalities are often less flexible than business entities). If it comes down to crunch time and looks like the liens may kill the deal, perhaps you can get the seller and the bank to "find some money" to help satisfy the liens, just to make the deal work. Best of luck...
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Suzanne MacD…, Agent, Succasunna, NJ
Thu May 30, 2013
Somebody will have to pay off those liens. Often the lien holder will negotiate a lower amount but, if the owner cannot afford to pay them, then the buyer will have to. Certainly the bank will NOT pay them off so find out who holds the lien, what the amount is, and decide what you, the buyer, would be willing to pay to have them lifted, then if you decide to go forward, make your offer accordingly. Always plan for the worst in a short sale and hope for the best.
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Sandy Beach, Other Pro, Paradise, WY
Thu May 30, 2013
HI Otto,

The way the market is going right now with multiple offers in on properties being sold, you will have to give at least asking price and over, homes are going up to $60K and more often and since it's a short sale multiple offers will be presented. The addition liens on the property are the sellers issue and will have to be resolved by the end of escrow. When I was on the short sales team as the buyers agent we would put the short sale in pre escrow so it wouldn't take too long to close. Since it's not approved by the lender it could take up to six months or more to close. If you need further assistance on this matter please feel free to contact me at (510) 469-3148 Cell or Email: It would be my pleasure to give you further details if and when you need it. I hope the information above has helped you.
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What do you mean by pre-escrow? Thanks.
-- Otto
Flag Thu May 30, 2013
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