Seller in Default - Who Knew?
We’re T minus 2 days to closing. The borrower has a timely acknowledged CD and a final approved loan. We are ready to close. Then news hits that the seller’s closing attorney has not been able to obtain a payoff and is having serious difficulty getting it—lame but not terribly unusual yet…should have that payoff any minute, right? Not so fast!
They can’t get a payoff because the seller is 6 months behind on his payments. WHAT???? How are we are all just finding this out now???? Yes…a real story…hard to believe but true…and not from 2010 either – this happened in April 2018. Apparently the seller never told his agent and the agent never asked and the closing attorney didn’t ask either…or bother to start working on it until quite late in the game I might add. So here we sit with “not really sure when we’ll get a payoff…maybe 10 days.” Yikes!
Represented by a really good buyer’s agent (and with a little help from yours truly), the buyer agreed to a closing date extension but only in return for a sizeable price reduction (3% of purchase price) for her trouble as all her things were packed, she had to be out of her apartment, etc. The seller, fortunately, had sufficient equity and agreed to the price reduction because…well…he was kind of in a bind. Patience, stress, wait, pray…and this one did have a happy ending. The loss mitigation department was cooperative, the payoff finally came in…about a week later…and the transaction closed. This was a crazy and scary one as the seller could have been past the point of no return on his foreclosure proceedings or it could have turned into a last minute short sale but this one was meant to be for the buyer and she ended up with a pretty sweet deal on it in the end.
THE MORAL OF THE STORY
There are several but as a listing agent, you might think it’s an uncomfortable question, but you really need to ask your sellers if everything is “A-Okay” on their mortgage(s). This seller at least, didn’t think it pertinent or necessary to advise his agent of his predicament (or his closing attorney). I highly recommend you request your sellers provide you the most recent copy of statements for all liens against the property. Just make it part of your listing procedure. A)For every transaction, you’ll be able to give your sellers a much more accurate net sheet (we all know sellers don’t always quite recall their loan balances accurately) and B)In the rare event your seller is in default, you will know from the outset so you can represent them well by taking the necessary action to bring their sale to a more beneficial and timely close.
Hopefully this story help YOU avoid mayhem in your real estate transactions.