People facing the decision to sell a home under distressed conditions are looking for help in a number of ways. The most important of which is the cost of selling the home, and the impact it will have on their finances. It’s not just the fact that they are unable to maintain the home and the mortgage obligations, but the concern is also on how they will get the money to be able to vacate the home and have something for a deposit on their potential rental.
As with most home sales, there is no cost to the home owner to sell the home, except for whatever work they commit to do to make the home more attractive to a buyer. All fees to the listing agent are paid in the form of the commissions received at the end of the transaction. A short sale transaction is no different, and the sales costs come out at the end of the transaction, and with very few exceptions, the bank holding the mortgage will pay the commissions, but technically the seller still retains the obligation.
There are many fees associated with a real estate transaction from the seller’s side.
Attorney fees
Taxes
Agent’s commissions
Secondary liens
Trade Liens
For condos, HOA fees
Deficiency
Attorney’s Fees: At the close of the transaction, there is always, here in Connecticut an attorney to represent each side of the transaction. With a short sale, this attorney would also serve as the representative for the bank holding the mortgage. The attorney may require a retainer up front to cover the cost of the work that will be done to initiate the file and set up communications with the bank. The rest of their fees would be included on the HUD-1 summary sheet that is submitted to the bank with an offer when that is secured. In instances where funds are limited or non-existent the attorney will work with the sellers on the fee arrangement.
Taxes: Taxes are usually paid as part of the mortgage to the bank and the bank will pay the towns when they are due. When the seller is no longer able to make the payments, the bank may continue to pay the towns as they want to retain a control of the asset, and a town can seize the asset, or home, for failure to make tax payments which would further complicate the process.
Agent’s Commissions: The commissions for the sale are covered from the buyer’s offer, which is usually the case with any type of real estate transaction. When the HUD-1 form is submitted some banks may attempt to negotiate the amount of the commission, but they will usually pay a commission which is industry appropriate.
Secondary Liens: This type of lien can take many different forms, such as a Home Equity Line of Credit, (HELOC); mechanics or tradesman liens; and even subordinate mortgages, which were very common at one time.
Home Equity Lines of Credit Liens can present an issue with a short sale as they are given to take equity from a house with no restrictions on how they are used. If the HELOC has been drawn against the house using the same bank that maintains the mortgage, negotiations can be easier. These are negotiated for the seller and take the forms of an unsecured loan for the seller to maybe even total forgiveness.
Mechanics or tradesman’s liens: These are placed on the home when the homeowner has had work done to the home but did not have the necessary funds to pay for the work. The amount owned is recorded as a lien on the title of the home, which must be resolved before the home can be sold.
These liens justify the negotiating time spent by the listing agent or even the attorney’s staff before the sale can be completed. In Connecticut, no home can be sold that has liens on the property.
HOA Fees: Banks do not like to be paying any outstanding association fees on a condo or Pud. These should be negotiated with the association before the property can go to the closing table, and again this is negotiated by the listing agent or the seller’s attorney.
Deficiency: The difference between the balance of the outstanding mortgage and the settlement amount of the short sale is the deficiency. This is the net amount paid to the bank holding the mortgage. In the case of a secondary lien by a bank, this amount must also be negotiated before the sale can be completed. If the secondary mortgage holder takes a hard stance on the amount owed, it can cause the short sale to fail, again as a sale cannot be completed with outstanding liens, and these secondary liens can be equivalent to as much as 20% of the original mortgage. Negotiations here are the most crucial to getting the deal to close. The primary lien holder, or mortgage holder, knows that they have a better opportunity to close the sale working with the sellers and not allowing the home to go into foreclosure. For this reason, many banks will work with the short sale knowing it will be the cleanest way to resolve the 
non-performing asset. In addition, if the process is presented properly, the seller can receive a waiver of deficiency, which allows them to walk away from the sale not only owing no money to the bank, but with no tax obligation as well for phantom income, which would be the deficiency amount.
Walking away from the Short Sale: Getting a short sale approval is a process not very different than that which seller went through to get the mortgage initially. Full disclosure of all assets and income is required as well as 2 years tax returns. Going through this process, also allows the bank to get the seller reviewed under a government program known as HAFA. With this review, the sellers may qualify for a relocation stipend of $3,000 to move and get into a rental.
As shown, a seller can not only walk away from the short sale with no obligations, but also getting an extra amount of money.
If you are in trouble with your mortgage and feel the need to sell your home as a short sale, we believe we can help you. Call us for a confidential meeting to discuss your situation, as we may be able to not only get you out of trouble, but get you started on your new life phase as well.