If you are working with a client on a short sale, you should be aware that the process is unique and may force a title company to step outside the norm. In our experience, title companies often can cause more problems than they help resolve in the closing of a short sale. You need to select a title company that understands the short sale process and can help you manage the sale efficiently.
As a short sale agent, you are responsible for gathering important financial information that will impact the seller and the lender. For example, you need to know what fees the short sale lender will pay. Many lenders won’t pay attorney fees, fees for surveys or home warranty costs, or in some cases, for escrow fees. You also need to know all the costs that are involved in the short sale, which may include second liens, mechanic liens, HOA past-due fees, and back taxes. This is where a good title company comes into play.
Once you start the short sale, request that the title company give you a preliminary title report. This report will be provided at no cost, and it will identify most of the liens, judgments, and other costs about which you need to be concerned in a short sale. However, the preliminary title report will not list past-due HOA fees. You will need to figure those out on your own.
At the end of the short sale process, send your approval letter from the lender to the title company, not to the buyer or seller. The title company will prepare a HUD-1 settlement statement. As the agent, you need to compare the approval letter from the bank to the HUD-1, to make sure the numbers on the HUD-1 equal what the bank needs to net. If they don’t match, you need to figure out what needs to be done before you can finalize the short sale. For example, the taxes may have been misestimated—the sellers’ bank approved payment of $2000 of back taxes, but the HUD-1 shows that $3000 in back taxes are owed. In this case, you could explain to the buyer that the final number from the bank requires an additional $1000, so you need to increase the price of the home by $1000. Or, you and the other agent can decide to absorb the cost yourselves. Just be aware that the bank won’t eat the loss, and since it’s a short sale, the seller cannot provide the money.
The final HUD-1 should be run right before closing and before you notify the buyer and seller that you have an approved short sale. If the numbers don’t work out, you will have to go back to the drawing board and make necessary changes for the final tally to be equal before the short sale can be approved. Working with a title company that understands and has experience with the short sale process can make the steps go much more smoothly and help ensure your sale is successful.
If you would like more information about the short sale process, please contact our office at 972.342.0011. We will be happy to assist you.