We are a little over a year into a short sale (we are trying to buy the house). Developments have been few and far between for a long time. But last month, our attorney let us know that she had heard from the seller’s attorney that the bank that holds the mortgage had just ordered a title search on the property.
At what point in the process does the bank generally order the title search? At the beginning, or at the end? This is all just guessing, of course, but we’re trying to find any glimmer of information as to when this whole thing might conclude.
IME, toward the end.
Have you already seen a copy of the HUD-1 Settlement form? Most lenders want one that’s 30 days old at most so that’s a good indicator of whether there’s a light at the end of the tunnel.
No, no HUD-1 (or whatever the equivalent is these days). We’ve had nothing since the initial offer paperwork (including short-sale specific forms the bank required).
And aceplace57, a year is not unusual, apparently. Our realtor told us that this is not the longest short sale he’s been involved in.
A year is not at all unusual for a short sale, considering the house may have additional liens from the homeowner’s financial difficulties over a span of years; there may be money judgments, mortgages may now be in new hands, that sort of thing. All it takes is one entity to disagree w/ a settlement term to hold up the whole shebang. There’s very little that can compare to a run-of-the-mill house sale process.
The bank orders the title search whenever it wants to. Banks are notorious for having their own way and dragging their feet, especially in a short sale. If any previously unknown liens are found, the bank may have to pay them, and they are already losing money, so they think they have the upper hand and can call the shots.
[WalterCronkite]And that’s the way it is [/WC] in mortgage-ville.
Competence plays a part. I don’t think I’ve even HEARD OF an American house sale/purchase (save for the ones that rich people have arranged) where there wasn’t at least one complete idiot or collection of idiots making a mess of things.
Something like a Title Search should be done before anything else, from a simple logic point of view. After all, if the property isn’t really yours to sell, there’s no point in doing anything else.
But that logic gets messed up by the counter logic of who has to PAY for each thing that has to occur. Since the BUYER usually pays for the title search, they wouldn’t want to pay for it before they know that the loan company will approve their borrowing ability.
Personally, I am convinced that a LOT of the add-on costs of home buying and selling should be relegated to the dustbin of history. Remember how we used to have to wait weeks for a check we deposited to “clear the bank,” and couldn’t use the money we supposedly had for that time? Remember how the government had to step in, because banks were using our money to enrich themselves through investments during those weeks, because the time it took to “clear” had been cut to near nothing by electronic communications?
Things like Title Searches should be far less expensive than they are, and title insurance should be paid by the people who avow the title searches.
Title searches from title companies are free to those who order them, like Realtors or banks. If the customer gets charged, that’s admittedly a gouge, but whatcanudo?
The bank already has title insurance from the previous sale, but that only protects them (or any buyer) from pre-existing conditions. In a typical sale, the seller foots the bill for the title insurance (although who pays is typically negotiable). But a short sale isn’t typical in many ways, and you are at the mercy of the bank. Not so unreasonable, IMHO – the bank is taking it on the chin because they fucked up or took too much risk somewhere along the line.
Excuse my ignorance of the mysterious conventions of the US property market, but why is the seller ordering a title search? It’s the buyer, the buyer’s lender, and the buyer’s title insurer who are exposed.
The bank that holds the primary mortgage (for the seller) is ordering the search. Ultimately, they are the ones that have to approve the sale. The seller and I have already agreed on terms. But since the bank has not (and since they will be getting less money in the sale than is owed on the mortgage), they have the upper hand here.
Their reason for ordering a title search is (I presume) to find out what other liens, if any, are currently attached to the property. Because those will all factor into the final settlement, and the amount of money they can expect to receive.
Ok, so they’re finding out any liens that they must clear, in anticipation of satistfying your title insurer’s requirements.
Separately, I’m not sure why you feel why the bank has the “upper hand” here. The bank made a poorly-judged loan in the past. That has no bearing on the current market value of the property. The only thing that would make either party feel they are more anxious to make the deal go through would be if the market has (over the past year) moved higher or lower than the price that you agreed to buy the property from the bank.
Because no reasonable buyer would purchase property without knowing what liabilities they might be exposed to or responsible for after the sale. Most liens attach to the property, not the person, so a buyer might pay $10K for a property and potentially acquire $10Million in liabilities. Title insurance protects against that, and title insurance companies will only insure if they feel there is no risk to them.
Title insurance is commonly paid by the seller, although it doesn’t have to be.
Of course. Hence my question about why the seller was ordering a title search; which I think has been answered - to get ahead of resolving any problems that arise when the title insurer orders a search (or perhaps to do the search on behalf of the title insurer).
I never heard of a transaction with an insurance policy for the seller and another for the buyer. There’s only one policy, issued by one company, which protects both, in effect. Commonly, the seller pays for it.
(I’m posting this out of sequence – it sat in my editor for a while, forgotten.)
There is only one title insurance policy issued. It protects the buyer from the unknown, but potentially catastrophic consequences. It also protects the seller from being sued by the buyer, so everyone wins.
The bank calls the shots, because if they don’t approve, the property cannot be sold by the owner, and will revert to the bank through foreclosure, but that takes time and the bank is losing interest, possibly principal, and adding up costs daily. OTOH, they don’t want that, either. So…
It’s a game of bluffing, but the bank has the upper hand and controlling interest. Read a mortgage agreement sometime to see how much power they have.
Again, I understand this perfectly well. My question, which is quite reasonable and which I made abundantly clear, was why the seller as opposed to the buyer would order a title search. (And I think it has been answered.) But feel free to disregard my actual question and explain what title insurance is for a third time.
That sentence is self-contradictory. The mortgage-holding bank’s position relative to the prior owner does not determine who is in a strong position in this transaction. De facto, the bank’s economic position is that it already owns the property, and it’s in the bank’s interest to sell it at as high a price as possible, as soon as possible, or it will lose more money. So the bank is not in a strong position relative to the current buyer unless they are confident that the property market has moved higher and they can easily find a better offer for the property from another buyer.
First of all, I speak with experience only in my state; other places may be different. Second, short sales operate under different rules (the bank’s rules, usually) than typical residential property sales between two willing parties.
In a typical property sale, we (the agents) turn over the transaction to a title company, typically of the seller’s choice, which orders a title search, prepares the closing documents, creates/sells a title insurance policy, and handles the closing, which includes all payments to all parties and all registering of all pertinent documents simultaneously. Ordering the title insurance isn’t up to buyer or seller; it’s required by the sale contract and executed by the title company.
(In other states, attorneys and/or escrow companies provide these services.)
The mortgage document determines who has what rights, and most give the bank an enormous say in such matters.
I am not a financing expert or underwriter. The actions of banks are often a mystery to me, but I can tell you how it typically works IRL.
In a short sale or a bank sale for a foreclosed property, we (agents, buyers, sellers) are forced to play by the bank’s rules because they can approve or disapprove the sale. All parties are often given a long list from the bank telling us how this is going to work. The long list often has no options, no choices for buyer or seller, and no protection for either; it’s the bank’s way or the highway. If you don’t like it, bye-bye!
You can’t argue with the bank; you can’t even reach a human who has authority to change any provisions – those are the underwriters or VPs, and you can only talk to the clerks who are “just doing their job.”
How can they do this? I often wonder, but typically in a foreclosed or short sale property, there are multiple buyers lined up, because the property is a real steal and the experts know it. I made an offer for a buyer not long ago for such a property, and there were 15 buyers all waiting with cash. Non-cash offers were not accepted. Offers with conditions were not accepted. Offers that required payment of a commission (by the bank) were not accepted. The bank said "we will accept the highest offer and we will not accept any conditions (like inspection contingencies, prior sales, etc.) They just want to convert the property to cash, fast. Is it any wonder that the bank can set the rules, logical or not?
Again, I don’t work inside a lending institution, but I’m pretty sure as logical as “the bank’s economic position is that it already owns the property, and it’s in the bank’s interest to sell it at as high a price as possible, as soon as possible…” is, it doesn’t work that way. Sometimes a bank wants to be rid of the property at any cost, as fast as possible. They are not speculators, and won’t wait for a higher price or better terms. You’d have to ask an underwriter why that is, but my guess is it’s simply the way the numbers crunch.
If you’re a buyer looking at a $100,000 property and think you can buy it for $30,000, you might just decide it’s worth it to follow the stupid rules.
At the same time as the short sale is in process, the current owners are likely still paying their monthly mortgage as it’s apparent they want to avoid foreclosure; as far as the bank and its investors are concerned, there’s no loss to mitigate yet. (For most banks, their decisions are made by the investors’ criteria as analyzed by the underwriters w/ the information from the other parties involved in the transaction.)
This isn’t a foreclosure auction, where the house is doing nothing but lose money for the banks every day no one pays to live in it. In a short sale the bank is being asked to do a favor that may not be in their most profitable interest, that’s where they hold the power.