What's the downsize of short-sale ? If the owners are delinquent in their property-tax, am I responsible?

Asked by Jenny O, Carmel Valley, CA Sun Dec 7, 2008

I know it will take a few months, but what can I do to ensure the sellers are not late on any payments?

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Jenny Darlin…, , California
Sun Dec 7, 2008
The downsize as a buyer is the length of time it takes to get an approval from the lender. If the owner is delinquent in either their property tax or behind in payments you are not responsible. When a buyer makes an offer on a short sale property the seller negoitates with the buyer the purchase price. The contracts are then signed and they are accepted based on lender approval. A short sale package is then summited to the lender. It often takes a couple of months to be assigned to an asset manager. The asset manager then looks over the sellers hardship letter and all the items included in the short sale package to approve the seller for the short sale. The offer that is on the table has to make since to the lender. They will often call for their own appraisal or a Broker Price Opinion from a third party. If the offer makes sense it is then accepted and escrow will proceed. At the time a buyer purchases the property they are given clear title so there is not the worry that at the end of the purchase the buyer will be held responsible for any of the sellers debt.

Often time a buyer gets discouraged at the time it takes to get back an answer from the lender and moves on. When a short sale does go through it is often at a good price for the buyer. I hope this answers some of your questions.
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Brian Monjaz…, , San Diego, CA
Mon Jun 4, 2012

From a lending standpoint, you will receive the property free of any encumbrances other than the mortgage you take out on the property. You and your lender wll be protected by a Lender & Owner's Title Insurance Policy.

The reason a property is sold throught the Short Sale process is the current owner has displayed to their lender that they are in financial destress and can not continue to own the property. In a large majority of these situation there are missed payments, back property taxes due, and even Tax Liens for past due State and Federal Taxes. The payment of these items is negotiated between the seller, their lender and sometimes the buyer. However the payment of these items is worked out, you will receive the property free and clear at the close of escrow.

Brian Monjazeb
Reginal Vice President
All Western Mortgage, Inc.
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Dawn Lewis, Agent, San Diego, CA
Mon Jan 26, 2009

No your not responsible for the back taxes from the previous owner. Good question though.

Dawn Lewis
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Jenny O, , Carmel Valley, CA
Sun Dec 7, 2008
Wow... thank you all so much for your replies.
Happy holidays!
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Seth Chalnick, Agent, Cardiff, CA
Sun Dec 7, 2008
Hi, I actually never used to show short sales... even would "fire" clients who insisted on seeing them, because 99% would reincarnate as an "REO"... after the short sale would take so long, the banks would seemingly always end up foreclosing. During a short sale, it seemed it was always someone's "butt" at the bank if they approved taking the loss. Then, later, once the asset was switched to the other side of the balance sheet (i.e. after foreclosure, as an REO), that's when they were willing to cut a deal.

I say, used to, because lenders have recently switched their tune in a major way. I have found the key is to look for the listings that already have lender short sale approval. I'm currently closing one next week (30 days total) and about to make an offer on another. They are starting to move as both sides of the bank are starting to get on the same page. Meantime, there is no downside as far as existing liens or unpaid expenses go... the bank takes the hit on that stuff.

Web Reference:  http://www.sethchalnick.com
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Susan Draper, Agent, Olympia, WA
Sun Dec 7, 2008
My experience in this arena has shown that the greatest deterent to an easy transaction is a buyer who is not emotionally equiped to wait out the lien holders response. Every lender has different timelines and mitigators who are experience and have developed positive relationships with the lender loss mitigation department are a great benefit.

Lenders typically will advise a seller that to qualify for the short sale negotiation process they must have missed at least one payment. Would love to see that change as we don't understand the need to push oneself into a negative credit situation to first meet that criteria.

In Washington State the seller is required only to disclose whether they are within 20 days of a foreclosure sale date. However, any saavy consumer should be able to access online information through the county or various other resources that are all public.

Ultimately, if your short sale purchase is managed to completion it won't matter to you as the buyer what payments or arrearages exist as lender is being asked to forgive the unpaid remainder of the mortgage and any closing costs, late fees, penalties, etc.

Hope that helps. Susan
Short Sale Listing Specialist
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Claudette Co…, Agent, San Diego, CA
Sun Dec 7, 2008
Hi Jenny,

During the escrow period, the escrow company will do a title search and identify any delinquencies including mortgage payments, taxes, HOA dues, etc.

As a buyer you are entitled to free and clear title (i.e. free from any liens). Any delinquencies and liens are paid through escrow by the seller to ensure you free and clear title prior to the deed recording in your name.

The agent you choose to work with during your purchase process can assure these items are taken care of and you enjoy a smooth transaction with no surprises :-)

Claudette Cooper

The Cooper Dodge Group
Urban Real Estate Services
620 1st Avenue
San Diego, CA 92101
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