Profile picture for tytusgals

Is it expected(or legal) for the buyer of a short sale to pay off any liens on the property?

In May my daughter put a bid on a short sale home, $2500 above asking price, with the hopes of securing the property. Her mortgage was pre-approved, and the sellers accepted the bid.  She knew it was going to be a long process waiting for bank approval and was initially given a July settlement date.  As that date approached it was changed to early September and was told that it was just a paperwork issue but go ahead and get a home inspection and finalize with her lender (which also included an appraisal), which she did.  Three days before settlement, she was told there was a lien on the property and Bank of America was not willing to give any money from the sale of the house to the second bank.  My daughter was not informed of this lien until September when the realtor was aware of this in June.  The agency has since fired that agent. A new settlement date was given for late December and today she learned there is yet another lien on the property.  What can happen now if BOA does not budge as it all seems to be at a stand still?
  • November 18 2013 - Bald Eagle Township
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Answers (3)

You haven't provided enough information to really give an informed answer by a Realtor/Agent.  

What position is BofA on the Prelim?  Was your daughter provided with the latest Prelim that shows all updated lienholders?  Depending what liens are on there, your daughter can satisfy the debts (if she really wants the property) or she's facing a dead deal (like Craig mentioned).  Allow me to elaborate:

Purchase contracts are typically different state-by-state, area-by-area (i.e. Northern California typically uses PRDS (Form RDS) or C.A.R (Form RPA)). Under the California Association of Realtors purchase contract (Form RPA), paragraph 12A and 14B, your daughter would have 17 days (or whatever was opted for on this item) to accept the condition of the property's title or reject it after the day the purchase contract was accepted, thus constituting a dead deal and her Realtor would submit a CC or DCE to get back any deposits and end the transaction.  Whatever state your daughter is in there is likely similar forms that would accomplish this.

Because this happened 3 days before COE (close of escrow) and it materially affects the condition of the property, the CAR contract (per 14B-3), she has 5 days (or specified) to cancel the agreement.

Granted, I'm speaking in terms of California's contracts.

  • November 18 2013
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Profile picture for craigfial

ALL subsequent liens have to be negotiated, and the 1st lienholder holds the cards.  BOA typically allows $3,000 to each sub lien, but not guaranteed.  They probably said they would not give any money to sub liens becuase they were not made aware of them.

Unfortunately, it looks like this is a dead deal unless the sellers attorney can open negotiations and short-sale paperwork with the sub lien banks.

I've been in these situations and it rarely turns out well.

  • November 18 2013
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Its part of the Terms neg w/in the contract.  The lien holder in this case sounds like BOA can choose to pay any, partial or all of the lien in question.  I would find out what type of lien it is.  Most liens do not hold up after a property goes into foreclosure. (HOA, Mechanics..etc...) therefore you may can negotiate w/ them personally.  Its best to do this ASAP, as getting your attorney/title company to run a search looking for liens or any other imperfections in the title.
For Ex: on a short sale home I negotiated on last year it had HOA lien of about $6500.  I was able to contact the HOA and neg this down to the amount down to $2200 w/ the bank (lien holder) paying all $2200.  I explained to the HOA that this property was going to go into foreclosure unless my client purchased it, resulting in them getting nothing for their lien.  Also I reasoned with them of the fact that this lien was  to punish the current, not the new homeowners.
 Just like any contract or counteroffer, until all terms are signed off by all parties you do not have a legally binding contract.  Some exceptions can be made, but this usually consist of using such paperwork as Power of Attorney.

Def get a Realtor & Attorney whom is familiar w/ the Distressed (shortsale/foreclosure) properties,

Thank You,
Kevin Stocks - Realtor
  • November 18 2013
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