Short Sale Pitfalls – Why You Need An Experienced Realtor

Like many people, you may be thinking of short selling your home. You may also be thinking that you need the help of a real estate agent well versed in short sales. That need is all the more apparent when you realize the pitfalls involved in a short sale. Without assistance and knowledge, a short sale could end up costing you some real money.

Here are some short sale traps to look out for:

  • One of the first things you should do is immediately close out any accounts you may have at any bank that services your mortgage and second mortgage. The reason is that banks can take funds in one account to pay for another account. This clause is in the fine print of most bank’s account agreements. So if you are late on a mortgage payment, the bank can sweep your checking account, for example, and even extend your overdraft protection to cover the mortgage payment. Then you cannot close out the account until the overdraft is paid.
  • The second mortgage holder can refuse to let the short sale close unless you pay money to them outside the escrow. This is known as “greenmail”. Remember, in many cases if the home goes to foreclosure, the borrower would have no obligation to a second mortgage lender. If you are subjected to “greenmail,” you should seek immediate legal advice before paying any money to a second lender.
  • The lender can make a promise, either verbal or written, for a modification or extension of trustee sale and then later retract or deny the offer.
  • The lender’s mortgage insurance company can ask for money from you before the short sale closes. You may not even be aware that the lender had purchased mortgage insurance on your loan. This is another instance where you need legal counsel before paying out any money.
  • Let’s say you vacate the home and the home is vandalized so you are responsible for the damage. Your homeowner’s insurance covers the damage, but the lender tells you to sign the check over to them for repairs after the sale closes. The lender then refuses to pay the repair contractor and sticks you with the repair bill.

These are some very real issues today’s short sale. This list contains just a few of the hidden pitfalls, so getting an experienced and knowledgeable real estate agent to help you navigate your short sale is to your advantage.