In California there is no attorney involved, and the mortgage broker runs the closing. I’ve bought and sold houses in NJ, and so am familiar with the use of an attorney there.
As for the deal as a whole, I’m a bit fuzzy why the bank would accept some random assessor’s valuation, why the buyer would think that the house was actually worth $350K rather than really being worth $300K, and why an assessor would risk his livelihood for onesie twosie deals. Overvaluing properties when you get a steady stream of business from a bank seems much more plausible.
A short sale agreement is not a HUD-1 settlement statement.
In general, a HUD-1 settlement statement is only required when the buyer is obtaining a mortgage. If the buyer isn’t getting a mortgage, you can still opt to use a HUD for clarity and recordkeeping, but it’s certainly not required if there is no mortgage being taken out by the buyer. If you are buying a short sale all cash, a lender approval on a HUD may be a condition of the short sale, so by virtue of that, it will make the HUD a requirement in that deal.
A short sale agreement is provided by the lender to the buyer and seller with the terms and conditions of the short sale. The buyer and seller both must execute the agreement. As a buyer in a short sale, you are commiting to the terms and conditions laid out by the seller’s lender. If you do not adhere to those terms and conditions, the lender has the full power to reject the payoff and you will have bought property with a mortgage lien still on it. Your title company isn’t going to help you if you didn’t follow the instructions. You may also now owe the seller’s realtor commission, etc. The mortgage will only be discharged if all parties comply with the agreement.
I do know that - as indicated in the OP - when RE was rising, many of these same wheeler-dealer types made a lot of money by using inflated assessments to convince banks to give them cash backed by their phantom equity. So apparently you can work with these assessors somehow.
I don’t understand the question. Anyone actively shopping for a home would have some sense of what homes are worth. And people who are active in RE even more so (see e.g. zoog’s comment earlier about “a short sale listing that is priced way below market value”).
That’s very informative - thanks. But can you clearly state where it is that the buyer says that he has not made any side payments to anyone?
You might want to acquaint yourself with some recent (last year) legal changes in how appraisers work for banks. In contrast with past practices, banks now have to submit an appraisal request to a pool and the pool randomly assigns the appraiser.
This is intended to reduce fraud where appraisers are in one client’s pocket or another. In practice, it results in appraisers working in territories they know nothing about and their values can be wildly off.
Very possible. I think banks are also requiring two independent assessments in some cases. In the OP I wrote “By this or other means, the seller convinces the bank …” because I wasn’t completely sure how it’s done. But it’s done.
I’m not sure how I can make it any clearer. I’ll write out a sample of what I said since I am not at work right now.
Let’s say you are the buyer and I am the seller, and B of A is my lender. B of A has agreed to accept 100,000.00. We would both sign a short sale agreement provided by B of A that says:
Seller - LurkerInNJ
Buyer - Fotheringay-Phipps
Property Address - 123 Main St
Anytown NJ
Loan - 12345678
B of A agrees to accept $100,000.00 in cash or certified funds to release its mortgage loan from the referenced property subject to the following conditions:
The subject property is to be purchased by Fotheringay-Phipps for $100,000.00.
The commission payable to ABC Realty as listing broker is $3.000.00.
The commission payable to DEF Realty as participating broker is $3,000.00.
The legal fee permitted for the seller is limited to $1,000.00.
A realty transfer fee in the amount of $400.00 is permitted.
No other fees or payments by or on behalf of the seller are permitted.
Cash back to the seller will not be allowed.
Any funds remaining at closing are to be remitted to B of A.
Net payoff in the amount of $92,600.00 must be received by B of A (inset instructions)
And so on with lots of legalese about how any deviation from the agreement will result in the payoff being rejected and the agreement being terminated.
signed LurkerInNJ seller signed Fotheringay-Phipps buyer
When we did a refi, the bank picked the assessor, not us. During the bubble when the banks were writing mortgages for anyone with a pulse, the higher the value the bigger the mortgage and the more money they made, so in the old days when they picked an assessor there would be a bias towards assessing high. We’ll see if the house next door gets two.
As for the buyer knowing the value, I doubt it. Our assessment didn’t come out where we thought it would since there seems to be a strong impact from the number of foreclosure sales in the neighborhood. We don’t have that many, but it still made a difference.
In any case, the price is the price. What is the buyer getting out of this deal? If he turns around and tries to flip the house for $350K using an honest assessor and a buyer not in the scam, he is going to have a bit of a problem, I’d guess.
Thanks, I vaguely remember hearing about that. Around here at least last year, a lot of deals didn’t go through because the properties appraised too low. I don’t know how much of this was from actual declines and how much from the effect you mentioned.
I, too, am skeptical about the “widespread” nature of these deals. First of all, I have no doubt that at some point in the described deal, the buyer is signing something that is false, and he is committing fraud. I don’t know exactly where that is, but I would bet my lungs that it is there. Furthermore, the buyer knows it is there because he has a lawyer advising him. In return for putting himself at considerable risk, the buyer (in the described deal) is getting $30K of putative “value” in the property he is buying.
If this is indeed a scam, the target is not the bank, but the foolish buyer.
As an unreliable anecdote from a different time and place, in A Year in Provence (or possibly one of the sequels), the English author relates a typical real estate transaction in rural southern France: since there’s a tax based on a percentage of the purchase price, and nobody wants to pay taxes, the official price is usually much lower than the actual price. At the key moment, the notary excuses himself to go to the bathroom, and the unofficial part of the deal is transacted. Thus leading to a saying that one job requirement of a notary in that area is having a weak bladder.
Now, there’s a lot of room for exaggeration between what was actually happening, what the residents told the English writer to entertain him, and what the writer put in a book to entertain us, so this story doesn’t really say how common this scheme was, but it does show that people at least thought about it.
I’m not a legal or RE expert, but it looks to me like these clauses are primarily about what happens to the $100K that the buyer is putting up. Such and such goes to this one and such and such to that one and the bank takes the rest. The enumerated fees don’t seem to be about side payments.
Unless it’s included in “No other fees or payments by or on behalf of the seller are permitted. Cash back to the seller will not be allowed.” But the thing is that - even if these clauses are about additional payments - in this case, the payments are ostensibly not being made to the seller.
In sum, I don’t see where in your language it precludes the buyer from making a payment that is a) over and above the purchase price, and b) not to the seller but to another party.
I’m sorry, I don’t mean to give you a hard time about this, and you could be right about what you claim, but I’m already aware that this goes against the spirit of what the bank is trying to do, and what I’m wondering about is whether it violates some black-and-white clause.
[Apparently, Clinton never had sex with that woman …]
We’ll have to leave it as a disagreement here. In the actual case of the guy I know - for example - the RE agents are waiting to see what the bank will approve before lining up buyers.
[This involves a big developer who has a lot of units in his various developments, so perhaps there’s some difference here. But I’m pretty sure it sometimes works this way in other cases as well.]
My impression about the two assessments is primarily based on the fact that when I myself recently took out a mortgage (in September) the lender had two assessments done, and I was told this was sometimes done these days. That’s why I wrote I “think” it’s being done “in some cases”. I’m not saying it’s universal practice.
In my case I was pretty close, which surprised me, since I am not focused on RE prices at all. An active shopper would have a very good sense. And a professional RE investor - which most of the people involved in these deals are - would have an even better sense.
He might. For the most part, I think the buyers rent them out, either until the market turns around or longer, depending on what business he’s in.
[As I indicated in the OP, in some cases the buyer and seller are actually the same people - the seller gets people to front for him as buyers. In these cases the seller is just trying to get the debt and the payments reduced. A RE lawyer I know told me he knows of someone who got a letter from a bank recently saying that they suspected that he was doing it and threatening to sue. But he was doing a lot of these transactions and he left a paper trail that he was both seller and buyer.]
Quite a few of the higher ups in these banks ended up in prison.
If you are buying a house, take the time to go on line and see what comparable houses in the neighborhood sold for recently. If you can’t figure out how to do it, go to any real estate office and ask them to pull some comps. It could save you some nasty surprises down the road.
Short sales are extremely complicated–the bank dwants to make sure the seller doesn’t walk away with an extra dime. If they later find out the seller made $20K, a lot of people are in far too much trouble to risk over such a relatively small amount.
In fraud, function over form. If the buyer has to say “they aren’t ostensibly made by the seller” to justify what is happening, you can probably get nailed for it as fraud.
i.e. what is there in black and white is not likely to be enough to protect you should someone pursue.
Don’t ask for homes currently on the market. Anybody can list any house for any amount. When I was in real estate, listing a property for more than it was worth in order to get it listed, and then telling the seller a couple of months later to lower the price was called “buying a listing,” and it was definitely frowned upon.
Get listings of similar properites that have sold in the last six months. Make sure they are in your neighborhood (location, location, location) and in similar condition.