One of my clients has an interesting situation in regards to his Short Sale Approval. Any one of you out there may have run into the same situation or may have an interesting solution?
He is choosing to Short Sale his home. During our negotiations we were under the impression we were negotiating with the bank and only had one loan to contend with. It seemed fairly easy to move the ball forward and submit the package for approval. Through the process, we find out that the lender has ordered a Private Mortgage Insurance policy. Normally, PMI would be ordered when you purchase the home and have less than 20% equity in the property. In this case, the owner did not have it and, to protect themselves, the lender assigned it independently.
We did receive the Short Sale approval on March 23, 2011 and were very excited until we read the terms. The Mortgage Insurance company would not allow the Short Sale to go through unless my client paid a $140,000.00 promissory note to the bank, interest free for 10 years, or $70,000.00 at close of escrow as a lump sum payment. In fact, we were negotiating with two entities, not just the one bank.
How do we close the deal and appease the lender? This is an outrageous amount for a common citizen to pay while trying to sell their home. I have seen contributions for 2nd lien holders settle in the amount of $3K, $5K, even $10K, where usually the buyer and seller can split the cost and close the transaction. This is the 1st lien holder and the PMI company is holding the seller hostage. The buyer and seller could split the amount but it is very unlikely the buyer would agree to such a high out of pocket expense. What is our next step? We need to build a case and counter the terms of the PMI’s Short Sale condition.
After talking to a few lawyers and other negotiators it was agreed that my client will gather updated financial information and show the Insurance company that the dollar amount is not feasible and they will settle for a lower dollar amount paid as a lump sum at close of escrow. This is just the start of the negotiation and may be an uphill battle. If the approval expires we will need to get an extension, or start over again for a new approval. If the bank has a foreclosure date and the PMI company is not satisfied, the PMI company will force my seller into giving up the house at auction because the seller can not comply with the high terms.
Be aware when considering putting your home on the market for a Short Sale. Call your lender and ask if you have Private Mortgage Insurance placed on your home. It may avoid sticky negotiations like the one above.
Sincerely,
Sarah
925 330-4257