The closing cost which usually causes the biggest problem is delinquent HOA dues. The short sale lender will typically allow current HOA dues to be prorated. This does not include delinquent dues. In a condo or a townhouse project with large monthly dues, these delinquent dues can add up to thousands of dollars. This is especially true when the short sale lender takes months to approve the short sale during which time the dues continue to accrue. Also, fees for disclosure packets and other HOA fees are usually not allowed by the short sale lender.
The best practice is to advise the Seller to keep their dues current if at all possible. The short sale lender will allow the Seller to occupy the house until the short sale is approved. All they expect is that the Seller maintain the house, keep the utilities on, and pay HOA dues.
P.S. If real estate taxes and insurance premiums are being escrowed, the short sale lender will continue to pay those even if the borrower is not paying the mortgage.
William D. Tucker, III
Tucker Griffin Barnes