Surviving A Short Sale Swamp

A short sale transaction is like pulling your Achilles tendon.  It’s painful, needs lots of massaging, plenty of ice, and it keeps reminding you that it’s not going away for a very long time.

After working diligently with a listing agent and seller on a short sale for four months, when the bank and investor finally offered us verbal “terms” to make it happen, my client quickly accepted and was jumping with joy. But the seller had a different plan and pulled a white rabbit out of his hat. Out of left field one of his “relatives” popped up with an all cash offer and we were left high and dry.

Totally unethical, yes, but in reality something totally out of our control. So what are banks doing to avoid just these types of situations?  Not much.

If you find the “Holy Grail” and the bank issues you with the final short sale approval letter, it should stipulate some or all of the following terms and conditions:

• Notification that they will accept a short payoff.
• An approval “exclusive” to the buyer referenced in the letter.
• They may pursue a deficiency judgment for the difference, unless agree to otherwise or prohibited by law.
• If the loan is covered by mortgage insurance, the mortgage insurance company reserves the right to pursue the seller for the deficiency as well.
• The closing must take place on or before a specific date, which is typically 30 days from the approval date.
• The approved sales price and name of the buyer.
• Another buyer may not be substituted without the prior written approval of the bank.
• A detailed breakdown of the closing costs associated with the transaction as of a specific date, including real estate commissions, total closing costs and any allowances for the junior lien holder, HOA liens, repairs and/or inspections.
• The minimum net proceeds to the bank.
• The amount of funds to be contributed by the seller, which may be in the form of a promissory note to be signed and returned to the bank upon the close of escrow, or a certified funds contribution.
• Seller shall not receive any proceeds from the transaction.
• The property must be free and clear of liens and encumbrances, other than those recognized on the approved HUD-1 settlement statement.
• There are to be NO transfers of the property within 30 days of closing.
• If the seller is entitled to receive any proceeds for insurance claim on the property, or any other proceeds, the bank reserves the right to retain or claim the proceeds.

Navigating your way successfully through Phases One, Two and Three, as some real estate professionals like to put it, is quite some task, even for an experienced broker. I am confident that any of my real estate colleagues will attest to such a bumpy ride.

My advice is to ensure that you stay on top of your seller, keep your short sale addendum valid, and you may want to consider adding an addendum giving your buyer a right of first refusal should the bank counter the terms of your contract.

It’s challenging to hold together a short sale, yes, it’s a real Florida swamp.

Florida Foreclosure Laws

If you are planning on purchasing distressed property in the state of Florida, then you should be knowledgeable of the foreclosure laws. Please find the quick facts:

•  Timeline: Typically 180 days
•  Right of Redemption: Yes
•  Deficiency Judgments Allowed: Yes
•  Primary Security Instruments: Mortgage
•  Judicial Foreclosure Available: Yes
•  Non-Judicial Foreclosure Available: No

All mortgages are foreclosed in equity. The foreclosure claim shall, if tried, be tried in the court without a jury. In a mortgage foreclosure action, the court severs, for separate trial, all counterclaims against the foreclosing lender.

The court order of foreclosure is required to specify how the foreclosure must take place, and the foreclosure must take place on those terms. When a legal advertisement or notice of the foreclosure is required to be placed in the newspaper, then it is the responsibility of the lender or their representative to place such an advertisement or notice.

Equitable Right of Redemption ends at the foreclosure sale. There is a period of time after the sale that “the court reviews the sale to ensure that a fair price has been paid.” This period of time, which is typically ten days, allows parties to object to the sale on the basis that proper procedures were not followed or collusion existed between bidders, for example. Following this period of time, the Certificate of Sale is filed and the sale is confirmed. If the sale is not confirmed, then another sale is ordered. Following the confirmation of the sale, the lender may sue the former borrower to obtain a deficiency judgment.

Recently, mortgage law experts claimed that the incentive to walk away from a home loan is highest in states that have anti-deficiency statutes, which prohibit lenders from suing borrowers for additional funds following foreclosure. This handful of non-recourse mortgage states includes the high-foreclosure states of Florida, California and Arizona. According to Donald Lampe, a North Carolina based mortgage lending attorney “the statutes generally prohibit or limit a lender’s ability to go after the borrower’s assets to satisfy unpaid mortgage debt.”

For more information on buying a foreclosure or bank owned property in Miami, please do not hesitate to contact us at info@miamiangelproperties.com or 305.673.5300.