I have a client who wants me to take over a short sale that failed. She was offered $25,000 from Chase Bank. LCS is the second. LCS blocked her contribution from Chase, stating it wanted the money. Chase refuses to give the money to LCS. She tried to negotiate a discounted contribution to LCS, but Chase refused that as well.

I'm wondering if it would make sense to ask Chase Bank to buy the loan from LCS as part of the approval process? Has anybody triggered this kind of negotiation?

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won't happen.  You need to negotiate some sort of buyout with LCS, then show it on the HUD as a "Buyer contribution"  It cannot go on sell side or Chase will deny.  How you get the money to the buy side is a matter for the attorney to figure out.

The main problem with transferring anything to the buyer's side, apart from possible mortgage fraud accusations but let's overlook that little snafu for the moment, is the buyer's lender won't approve it. It would have to be a cash transaction.

Wrong and wrong. As long as it is disclosed on hud there is no issue. The extra cash must be underwritten by buyers lender as a cash contribution and not financed.

Elizabeth. That's a difficult one. Is the seller willing to go forgo the $25k? IF so maybe they do an agreement with the 2nd to settle after closing.

If the 25k needs to come from a buyer then I would certainly look for a cash buyer so you don't have to deal with RESPA. Having RESPA out of the way gives you much more freedom.

Bryant, why would you avoid RESPA with a cash buyer? Any payment technically must be disclosed on RESPA. Either way, as long as it's not a Freddie loan, I have never had an issue with a buyer contribution.

Simple. RESPA does not apply to cash transaction. RESPA is for financed transactions. Even with financed deals there are exceptions. But cash purchases have nothng to do with RESPA. This is extremely important to know especially with short sales. What if the 1st agrees to let the 2nd be paid outside of closing? If its a cash deal then no problem. If its not a cash deal then the payment needs to be on the HUD.

From the hud.gov:

FAQs About RESPA for Industry

  1. What kinds of transactions are covered
    under RESPA?

    Transactions involving a federally related mortgage loan, which includes most loans secured by a lien (first or subordinate position) on residential property. This includes: home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages.

  2. What types of transactions are generally not covered?

    The following are kinds of transactions that are not covered: an all cash sale, a sale where the individual home seller takes back the mortgage, a rental property transaction or other business purpose transaction.

There are more exemptions as well.

Broker Bryant is correct, Joseph. Something else that is not common knowledge, and certainly not among short sale banks, is the HUD is not for the seller. The HUD is for the buyer, and how it is prepared is dictated by RESPA.

As for disclosing on the HUD in a financed transaction, none of the major banks I've dealt with will let a buyer make a cash contribution on a short sale. They feel it is part of the purchase price and the buyer is overpaying. That is why Broker Bryant is correct in that the way to make this work is for a cash buyer, not a buyer obtaining financing.

I've also considered the seller passing on the Chase contribution. However that won't work because LCS will want way too much money to do the short sale. LCS is really difficult if not almost impossible to work with on a short sale. I don't believe they do very many short sales. There must be some kind of taxpayer monies that are bailing them out after foreclosure. Plus, this is hard money so it has recourse. Ugh.

Bryant is correct about the cash deals, my mistake. As for lenders allowing buyer contributions, however, they most certainly will.  I do it ALL THE TIME.  Every major lender allows this unless the investor is Freddie Mac. We have seen title companies either put it on the FINAL HUD in the 100 section or the 1300 section as "Buyer contribution to"  This absolutely works.

In my experience Fannie will protest over a Buyer' Contribution too.

never have had it happen

Elizabeth. I have had buyers make cash contributions to the sellers lenders and I have had them pay directly to the JR lien. I've done this numerous times with most of the major lenders and have done it with Fannie, Freddie and HUD.

Recently I had a buyer make a 10k cash contribution on behalf of the seller. the 10k was on line 104 on the buyer side and 404 on the seller side. Then it was just added to payoff. this was fully disclosed to and approved by Suntrust on a Fannie deal.It was also a financed transaction with 20% down. The extra 10k was not financed or reflected in the purchase price.

I'm closing next week on a FHA PFS where the buyer is paying $3,700 to the 2nd lien. This time it's just on line 104 as a payment to GMAC. BofA is the 1st and approved this with no issue.

I have also had sellers and buyers make the payments as POC items on the HUD.

 

Elizabeth -

 

This is a CA deal correct? 

 

The Seller / Borrower CANNOT contribute anything to the 2nd (or the 1st for the matter) .  The money from Chase is being offered to the Seller/Borrower. It becomes their money so therefore it cannot be transferred to the 2nd.  Any contribution to the 2nd must come from either the Buyer or the Broker Commission.  Believe me, I know, I've been there - it's not fun.  SB458 / SB931 made this clear.  The lenders can only approve or decline the short sale with no deficiency and no money from the borrower.

 

The loss of commission paid at closing might be collected under your Listing Agreement with the seller ;-)

 

This is one of the places California dances to a different drum.......

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