This subject and question comes up frequently. Here is a summary of the items that are important to check. I have had perfect credit short sales go through, too, because of the nature of the hardship and the type of circumstances!
Seller decides to do a short sale....what shouldn’t he stop paying?
We’ve seen sellers walk with their tails between their legs, feeling defeated. What we can do for them, besides offer empathy, is to advise them on what they can and cannot do to make the short sale move forward.
Part of that counseling is to ensure they don’t do anything to jeopardize the sale.
Please note, no one will or should tell the seller to stop making their home mortgage to qualify for a short sale
Seller is financially strapped and would like to stop paying for several things. So what can he stop paying? Rather, what shouldn’t he stop paying?
By all means, do NOT stop insurance coverage. This is still the bank’s property, and they need to protect their investment. There must be adequate coverage. Otherwise, the seller is at risk should anything happen to the property before it sells.
If and when the bank finds out the property is not insured, it will put a forced place insurance which is a higher cost than regular insurance the seller would pay for. Further, the bank will charge the seller for the cost of that insurance.
According to Money magazine, Forced place insurance is defined as “an insurance policy taken out by a lender or creditor when a customer does not carry insurance on an asset. The charges for this insurance are passed on to the customer.”
In case of properties where there are Homeowners Association Dues, the sellers are counseled NOT to stop paying these expenses because HOAs can file liens, too. Further, HOA can foreclose on the properties!
Here’s a San Francisco Chronicle article on “Can HOA foreclose your condo?”
Some sellers elect to vacate. This is not a good idea to totally vacate the property but if they absolutely have to, sellers should leave some utilities on: electricity and water. Leave some furniture in the house and put lights on a timer. And when agents show the property, they can turn on the lights, run the water
If there’s a refrigerator, it’s important to have electricity on because without it, that fridge will look like a gigantic Petri dish. When mold and mildew form in a closed fridge, cleaning it can be a real challenge. People will get an idea that it’s worse than it really is.
Side note: Vacant property may be fined
Some cities have ordinances that either impose a fine or write a condition on vacated properties. Such conditions must be satisfied before a sale is concluded. Alameda CA has one such ordinance called Alameda Vacant Buildings Monitoring Ordinance. This is for $603.
Here’s a recent article about “$500 a day fines in for failing to register vacant houses.”.
Yes, besides the mountains of paperwork required on a short sale, there are certain things we should know to help our sellers help themselves and get this short sale on the move.
- Alert the media: Force-place insurance WILL delay short sale
- Who pays forced place insurance after short sale closes?
- Dear Short Sale Seller....please understand...and help us help YOU
- Why do short sales fail?