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.

 

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Permalink Reply by Marta Phillips on June 17, 2012 at 11:25am

If the property in question was below market value, we could afford to contribute. However, it is not. There were six bids on this house, we were willing to pay the most, and BTW the appraisal came back at our offer price. Besides which, to say that this is a fixer upper, is a major under statement. It is more like a blower upper. The only positive is the location. That is the only reason why we hung in there this long and put up with all the stalls, unanswered questions, constant prodding for answers, etc... The big plus is that our agent is on top of it, and we will see what needs to happen, and if it is still a possibility.

 

Thanks for your input.

Permalink Reply by Dean E Eshelman, CPA, CDPE, IRES on June 17, 2012 at 9:26am

Chad Gelsinger  has the answer. That is exactly what we did, paid the judgement $1,000 to release the real estate and he kept the remaining $21,000 against the individual. The Judgement holder has to realize if the home goes to foreclosure he will get nothing from the real estate transaction. Actually the buyer put in $1,000 and per HUD had to appear on the HUD-1 as follows: "Line 1400 needs to state “Seller Consideration -
$1000 to Lien Release”."

Permalink Reply by Marta Phillips on June 17, 2012 at 11:41am

I like your answer. That tells me that even though the judgment against the seller is substantial, having it released is possible with a relatively small amount from the buyers (us), and still have the seller be kept responsible for the remainder, of the judgment, sounds like somethings we could live with.  Can you tell me how long did this process take from the time you became aware of the lien and until it actually was released.

 

Thanks!

Permalink Reply by Flippin Jay on June 17, 2012 at 11:53am

TIP:  Check your state's Homestead section of the Code (law) to see if civil court judgments even attach.

If so, sometimes, all you need to do is serve the judgment creditor (plaintiff) and/or their attorney or registered agent with a Notice of Homestead and 31 days after service of process, the Lien is vacated!

Worth checking into...works here in Iowa like a charm..no matter who the creditor is or how much the judgment is for.

Good Luck!

Jay

Permalink Reply by Marta Phillips on June 17, 2012 at 1:10pm

Thank you, we will check as you suggest.

Permalink Reply by Dean E Eshelman, CPA, CDPE, IRES on June 17, 2012 at 4:58pm

Flippin Jay  Very familiar with Iowa Homestead law, grew up near Adair. Missouri has no such law. Don't know about Marta's state.

Permalink Reply by James Miner on June 17, 2012 at 12:07pm

Do not where you are located, however I have completed several of these transactions.

However, the solution is always the same; here is Arizona you can Homestead the home (market value has to be less than $150K), and the judgement cannot be an IRS or restitution order/judgement.

Homesteading in Arizona takes about 15 minutes and is a one page doc, simple and easy.

Good luck.

Permalink Reply by Marta Phillips on June 17, 2012 at 1:13pm

Wow, Arizona makes this easy. I bet CA is not as simple. Also market value of the subject property is well over 150K.

Permalink Reply by Lauren Nemeschansky on June 17, 2012 at 3:37pm

A seller in a short sale in most states does have the right up until the last moment to stop the sale. If there is a judgement against the house then that is a lien and it would probably not clear title anyway since the creditor wants to be paid, sometimes these can "pop up" late in the sales process and be missed by the listing agent and seller. The listing agent should contact the creditor and try to negotiate the debt. I had this happen with a credit card debt that in the 11th hour became a judgement against the property and we negotiated it out for 10 cents on the dollar, luckily for us it had only been for $5,000 though and both agents and the buyer paid off the debt since the sellers were destitute and the sale closed.

Permalink Reply by Marta Phillips on June 17, 2012 at 3:46pm

How long did the whole the process take, once the lien/judgment was discovered until it got negotiated, paid and the sale closed?

Permalink Reply by Dean E Eshelman, CPA, CDPE, IRES on June 17, 2012 at 5:04pm

In our case we knew about the judgement from the Title work in the beginning, but did not try to negotiate it until we had an agreement on the short sale, excepting the judgement. Say it took probably a month. We had an attorney negotiating the short sale, because of the judgement.

Permalink Reply by Marta Phillips on June 17, 2012 at 5:42pm

Thanks. 

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