I am the buyer in a short sale.  We received bank approval for the short sale from both the first and second mortgage holders on May 23rd.  I was told there was an IRS tax lien associated with the property but that the bank had agreed to pay it (which was pretty much unheard of per my loan officer).  We were scheduled to close on June 25th, a Monday (our closing deadline was the 28th).  On Thursday the 21st, I get a call saying that someone at the closing attorney's office noticed that in fact there are two IRS liens, not one.  They (person at the closing attorney's office) thought they could get a letter from the IRS stating an intention to release the lien in time for us to close by the deadline, which of course didn't happen. 

 

My realtor gave me an update yesterday saying that they are waiting for new short sale approval letters from both mortgage holders and that the seller has submitted all paperwork to the IRS to have the liens lifted from the properties and has been assigned a caseworker.  The IRS is apparently backed up right now and they're estimating 6-8 weeks to get the liens lifted. 

 

The sellers have moved out of the house.  I have my concerns about it being vacant for the next 6-8 weeks (yard is a mess, utilities are shut off and the doors are unlocked).  I also had renters set to move in to my current home last weekend.  They are willing to wait to move in but their landlord has also found new tenants and they're anticipating being kicked out shortly.

 

What are everyone's thoughts about doing a pre-occupancy agreement in this case?  It would be best for everyone if we could just move into the house while we're waiting on paperwork.  I know it's risky, but the banks already approved the sale once already and our financing is good to go.  From what I've read, it seems like the IRS liens are not difficult to get lifted, just time consuming.

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I would advise my Buyer not to do it.  Short Sales can crash and burn at ANY time.  Until those approvals are received and approved, that home is not yours.  IRS liens are a personal lien against the Seller, but what if they are not removed..and that can happen.  Proceed with great caution.

We have some buyers contemplating the same thing right now, but we also advised them that it may not be a good idea. Who knows what could happen while waiting on that approval letter.

Tia - Your big consideration might be: are you prepared to move out if the sale is not approved?  Two moves are a headache. On the other hand,  I've had many sellers accept pre-occupancy and had successful closings.

Absolutely NO.  What if some other new lien pops up just prior to closing and you cannot close.  What about insurance?  The sellers likely do not have it insured and if the bank force-placed insurance, you are not covered for liability.  Is the lender going to be notified you have taken possession prior to closing?

So let's say you do move in and someone gets seriously hurt during the move - on the property - who's covered / who's responsible? Then, what if you never close?

 

Pre-Occupancy in a short sale is a disaster waiting to happen.

I've done this twice and it worked out quite well. 

There are risks, and as long as everyone understands the risks, it can work.

Tni - It's great that yours went well....... 

I wonder how an E&O company would handle a transaction if it hadn't gone well in this situation?

In both cases, I was on both sides.  I don't know if I would have been comfortable if I hadn't at least met and spoken with the buyers.  Buyers who cannot handle any risk should not do this.  The short sales were both unbelievably long due to lender processing delays (about 5-6 months to closing), and letting the buyers move in kept the short sales from being 12 month short sales (or longer), due to losing buyers. 

E&O always has a fit about everything.... they are an insurance company and don't want you to ever take any risks... but that can sometimes interfere with representing your clients. 

I understand. It can be stressful for the buyer.  I suspect in your cases the sellers had already moved out.

I never do both sides of any deal.  Just my personal Philosophy.

Yes, the properties were vacant.

Funny, these were some of the first deals I ever double ended because coming from a legal background I didn't like double ending.  So, that was my philosophy as well.  However, I think my seller and buyer got a BETTER result from my working both sides in both these transactions.  Short sales, after all, are different. 

If a short sale is not selling, I will hustle up and make sure it sells.  Short sale sellers benefit from this and I will put myself out there to make sure they get an offer so they can get the process started.  If I wasn't willing to do that I would put that in writing to them. 

In all cases where I have double ended a short sale, the sales would not have happened if I hadn't ran a number of buyers through the property and brought an offer.  I am, after all, responsible for making sure the property sells -- bottom line. 

I used to be very uncomfortable with double ending but doing it on short sales (to me) is not as difficult.  And of course, contrary to perception you often earn less when you double end on a short sale because lenders often reduce your commission.  However, the goal is to get the seller the short sale and get the buyers the property.

In both these cases, I was able to make sure that they closed as quickly as possible (considering the lender's delays) by being in direct communication with the buyer and working out a deal that worked for everyone.  Of course, I made sure that an interim lease was in place. 

My E&O provider probably wouldn't have liked it -- but the only thing they "like" is my check arriving every year.

Tia,

My belief is if you are comfortable with the risks, then in this situation it can be a win for everyone as you have mentioned.  Traditional real estate suggests moving in early is never a favored policy.  Are the seller and listing agent on board with this?  When this situation is presented to either party it complicates things further to an already shaky transaction, meaning it puts more work and accountability on both agents.  Why would either agent want more work and potential accountability (liabilities) to a transaction that may not close.  Are you comfortable with the listing agents ability to get the approval?  So far it looks like they have been able to get results.  If it is good for the seller and good for the buyer, tell both agents to make it happen.  Good luck, hope it works for everyone.

Some sellers allow it and only charge a dollar a month for a year and it does put pressure on the bank as the lease has to be honored. I would charge less than a FMR in this case.

The IRS usually releases liens and puts them on other assets.

Well our renters have decided to walk since I posted this and our agent basically ignored our email about the possibility of pre-occupancy. So I guess we're just back to playing the waiting game. I'm a little confused as to what exactly is going on right now though. At first she was saying we'd try to get a closing extension; now she's talking about waiting on new approval letters. Can anyone shed some light as to what might be going on right now? We're pretty unhappy with our agent at the moment, she's gone from promptly answering our emails to flaky to flat out unresponsive...

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