Tip 38-2011: Short Sales and Early Possession – Part 2

(Short Sales and Early Possession – Part 2)  Last week’s Tuckers Tip discussed the possibility of allowing the Buyer of a Short Sale property to “early occupy” the house prior to the approval by the Short Sale lender.  The obvious benefit with early possession is to allow the necessary time for short sale approval.

In addition to having a patient buyer, other benefits include the ability to escrow the rental payment to create a “contingency fund.”  Since the Seller is not paying the mortgage payments, the rental income can be escrowed and allowed to accumulate.  This contingency fund can be used to deal with extra Short Sale lender demands or closing costs the lender will not allow to be paid from the sales proceeds.  Another benefit in allowing the Buyer to occupy the house is that someone is now maintaining the property instead of allowing it to deteriorate if it is vacant.  Finally, the Buyer, while living in the house, will be further invested in the approval of the short sale.  Accordingly, the Buyer may agree in advance or be willing to help participate with additional cash contributions.

Even if the short sale is unsuccessful, and a foreclosure eventually happens, the Buyer will not have to vacate immediately.  Foreclosing lenders are required to provide tenants ninety days to vacate and they may even pay moving expenses to the Buyer (now the tenant.)  In other words, the Buyer will probably be offered “cash for keys.”

Again, this “Early Possession by Buyer” strategy for short sales is not without risks.  It should be carefully reviewed based on the specific circumstances of each particular short sale.  But if the facts warrant it and parties understand the risks and benefits, then the “early possession” may be very beneficial for a successful short sale.

Please contact our firm if you have questions or need legal advice.  

Tucker Griffin Barnes - Where deep insight equals powerful advantage.

Senior Partner

William D. Tucker, III
Tucker Griffin Barnes P.C.
Charlottesville, Virginia
434-973-7474
Tucker@TGBLaw.com
www.TGBLaw.com

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Tip 37-2011: Short Sales and Early Possession – Part 1

(Short Sales and Early Possession – Part 1)  One of the problems with a short sale is convincing the Buyer to be patient with the long period of time required for short sale lender approval.  This is especially true if the Buyer needs a place to live prior to obtaining the approval.  The average time for approval is usually 3 to 4 months, but unfortunately sometimes it’s extremely longer.

A new strategy to keep the Buyer on board is to allow the Buyer to “early occupy” the short sale house prior to lender approval.  Depending on the specific facts regarding the short sale, this strategy may work extremely well in certain circumstances.  The VAR “Possession by Purchaser Agreement” (Form 1000A), with necessary modifications, is suited for these situations. 

The “early possession” by the Purchaser is not without risk in that the short sale may not be approved and the Purchaser may have to move out.  However, many times the rewards of preventing the Buyer from walking due to the long delays with short sale approval will outweigh the risks of non-approval.  In fact, once the Short Sale lender has accepted the contract price based on its own BPO, the success rate for a short sale is extremely high if the Buyer continues to be patient.

The next Tucker’s Tip will discuss some of the other benefits of early possession, and why the risks may not be as bad as they may first appear.

Please contact our firm if you have questions or need legal advice.  

Tucker Griffin Barnes - Where deep insight equals powerful advantage.

Senior Partner

William D. Tucker, III
Tucker Griffin Barnes P.C.
Charlottesville, Virginia
434-973-7474
Tucker@TGBLaw.com
www.TGBLaw.com

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Tip 36-2011: Issues with "Closing Cost Credit" - Part 2

(Issues with “Closing Cost Credit” – Part 2)  Last week’s “Tucker’s Tip” discussed certain problems as to what will be allowed as a Seller paid “closing cost credit.”  Even if the contract language is clear as to what constitutes a closing cost credit, what happens if the closing costs only total “$5,000 and the contract allows $6,000 as a credit?  Does the Seller benefit and get to keep the extra $1,000?  If the lender allows it perhaps the contract can state that any unused portion of the “closing cost credit” can be applied as a decorating allowance.  Other alternatives include increasing the “points” paid to lower the interest rate or reducing the contract price by the amount of the unused closing cost credit. This last solution may create a lender issue by attempting to amend the contract price at the last minute.

Another issue with closing cost credits involves short sale lenders.  Some short sale lenders will not allow any Purchaser closing costs to be paid from the sales proceeds. In these cases, the short sale lender will usually allow an amendment to the Contract reducing the contract price by an amount equal to the closing costs credit. 

An additional problem that may occur is the short sale lender, in approving the final HUD, wants to review a break-down of the Purchaser’s closing costs.  The short sale lender may then decide not to pay a legitimate closing cost, even if it is clear in the contract.  Should this occur, everyone needs to remain flexible as usually a solution can be worked out.

PS:  If you have any thoughts or comments, please let us know for possible follow ups.

Please contact our firm if you have questions or need legal advice.  

Tucker Griffin Barnes - Where deep insight equals powerful advantage.

Senior Partner

William D. Tucker, III
Tucker Griffin Barnes P.C.
Charlottesville, Virginia
434-973-7474
Tucker@TGBLaw.com
www.TGBLaw.com

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