Question on how to remove a seller's judment from a short sale house in contract
Hello, we are in contract to purchase a single home which is in short sale. The seller, and both lenders have approved the sale. We have ordered inspections and very close to closing. I just made tentanive arrangement for the termite treatment/tenting because we had reasonable expectations the we were going to close within a couple of days. Tonight I have received a call from our agent, who has explained that he has received a call from the sellers agent indicating that one of the owners of the property (there are two unrelated owners are on this property) has a judgment against her, and that we cannot close escrow until the judgment is settled. Wow!!! Since we have a binding contract signed by both sellers, and the banks, there are no leans against the property, does this seller have a legal ground and ability to stop or hold up the close of escrow? If so, what does it take to release the judgment attached to the property, since there are no proceeds to go to the sellers?
Thanks so much for taking the time to answer. We are very concerned as we have given notice and must move out within two weeks.
Replies to This Discussion
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Permalink Reply by Loren Hoboy on
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I am sorry about your problems. In a short sale you can never assume it will close smoothly or even close at all for this and many other reasons. Sellers can even decide that their Bank's debt release language is unacceptable and decide not to proceed.
The solution to your current problem will vary from state to state. Consult with your escrow company and/or a real estate attorney for a possible solution. They will know what it will take to get clear title. In Arizona, we are often able to use the Homestead Exemption to address this types of problems if this is the seller's primary residence. Arizona statutes protect $150000 of equity in a home from creditors. Since there is no equity in the property it protects that too.
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Permalink Reply by Marta Phillips on
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Thank you for your input
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Permalink Reply by Carolyn Lien on
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Marta,
I have had this happen. Title company thought they did a full search but did not. Seller had 2 judgements and the only way out was for the seller to pay money to get them to go away. I wish you the best. Chances are this will probably not come to fruition. It all depends upon what the seller is willing to pay and what the holder of the judgement will take. If it has gone to a lawyer for collections it is even harder. They stand their ground because they get a cut of the money that they collect. It is no skin off their back at this point in the transaction to say no.
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Thanks Carolyn!
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This is exactly what we are hoping will happen. I should know in a day or two. Thanks!
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I will draw your attention to my earlier reply.
The solution to your current problem will vary from state to state (I am in AZ). Consult with your escrow company and/or a real estate attorney for a possible solution. They will know what it will take to get clear title. In Arizona, we are often able to use the Homestead Exemption to address this types of problems if this is the seller's primary residence. Arizona statutes protect $150000 of equity in a home from creditors. Since there is no equity in the property it protects that too.
Call if you want to discuss. 623-688-0004
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Permalink Reply by Laura Marshall on
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I am an agent in California. I had this happen on one of my short sales last year. The darn thing took nearly 2 years to get the approval for the 1st, 2nd and a buyer to stick...all at the same time. In the end, we did a HAFA short sale. Be careful with HAFA short sales. If the payment toward the judgement was not previously approved, they will not allow anyone to contribute towards the payoff or lien release. As the agent, I was willing to contribute most of my commission to take care of it, as the seller had no money and the buyer had been waiting so long. I was told that NO one can contribute anything additional towards lien releases. I tried to argue that this was not a lien against the property, but a judgement against the owner...but it went nowhere. They said that our only option was to back out of HAFA and start over as traditional - where they would allow payment, We were able to settle it outside of escrow PRIOR to closing, as we needed the satisfaction of judgement to move forward. We closed the HAFA transaction.Some of the guidelines may have changed regarding the relocation allowance being able to be used towards the lien release or satisfaction of judgement. I would definately suggest looking into it. I would hate to see everyone work hard on the negotiation, only to find out that the lender will not allow it.
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The entire judgement was paid off, outside of escrow - prior to closing. With the payoff, the satisfaction of judgement and lien release was issued. It was filed, submitted to title & cleared. That was the only way we were able to close this one. If the release of lien had not been issued, we would not have been able to close. HAFA would not allow 1 penny to go through escrow towards this lien, however, if we had changed to a traditional short sale - the bank might have. The problem was that we couldn't let this buyer walk, and changing to traditional would have meant starting the process over. This was about a year ago, so there may have been some changes with HAFA. I would suggest checking into it. I would just hate to see everyone jump through hoops, just to find out that the solution to the problem is not allowed.
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