Short Sale Lien Holder wants our escrow refund to be applied to our principle

We closed on our short sale house this last Friday, December 28th and moved in that day. Yesterday we received a notice from the title company that the short sale lien holder (Wells Fargo, FHA loan) will not allow the extra money we have in escrow to be refunded directly to us. Instead they will only allow that the money be applied to our mortgage principle. The title company is basically saying that the short sale lien holder can unwind the transaction at this point if we do not agree.

It is not much money but the idea that the sellers lien holder has ANY right to dictate where MY money goes is baffling to me. All the terms of the contract have been completed and there is nothing that I can find that says they have the right to dictate where my money goes. Also, it sets a bad precedent because it tells future buyers of short sale home to put as little earnest money down as possible otherwise the short sale bank can force any refund to be applied to the balance of your loan. If I had less earnest money and brought money to closing then they wouldn't ask for me to put extra money towards my own principle. That is basically what they are asking me to do. The entire process is just wacky that they can ask me to do something with money that is not theirs and the result of what they are asking does not even benefit them. 

I am an insurance underwriter and in insurance we apply the rule of insurable interest. You cannot insure something without having an insurable interest (otherwise you would be gambling that something unfortunate will happen to someone and then seek to gain from that). I do not see that the lien holder has any interest in my extra money in escrow and I do not think they have any right to tell us what to do with it. 

I have filed a complaint with our state AG (WA state), emailed my representatives and emailed some other folks but wanted to get the advice from this forum. 

PS - I have read a lot of advice on this forum and it has been invaluable to me throughout both of our short sales. The first one was a dud and I saw a lot of red flags which led us to pull out. I believe at times I knew more about the short sale process from what I read on here than my own real estate agent or the sellers agent. 

Views: 1715

Reply to This

Replies to This Discussion

If it were me, I would apply the 550 to the principal and live happily ever after. Had WF realized there would be an excess at the end of the transaction, they would have reduced their seller concession amount. I have had several situations where this occured.

Congrats on the new house!

One other point I would like to make, as you are angry w/WF, WF (or any other lender) has no obligation to ever approve/allow a short sale to occur. I also can count on my fingers how many I have gotten through w/seller concessions.

 

I hope you don't have too many hours invested in this $550

 

Joseph,  Did you actually have $5,500 in true closing costs or were your closing costs only $4,950 and the short sale lender is allowing the extra $550 to be spent but not to be refunded to you..... 

Many Buyers think if they and a seller have agreed on a closing cost figure they get the whole amount no matter how much the actual closing costs are. - not true.  Only the actual closing costs are paid from the agreed-upon amount and any overage typically "disappears" and is not paid at all. 

It sounds to me like the short sale lender is allowing the additional $550 to be paid to you BUT is specifying it be applied to your principle rather than paid to you in cash.

As others have said, only you can decide what's best for you and your family - BUT NOTE, Wells Fargo can reject / reverse the wire and reverse the sale leaving you in a house you do not own.

Best of luck, and let us know how it turns out.

Most mortgages will have a clause in the terms when you signed for the purchase of the home stating incase of default they have the right to apply any escrow funds to assit in covering deficit. 

Look in your original loan docs, not the contract from a Realtor but from your bank. Then check the approval form of the short sale from the bank most will have that notarized at the closing. Those are the most common places to find the terms about escrow funds.

You must have put a large EMD, as FHA requires a 3% down payment and there are closing costs and pre-paids.  As long as the bank has gotten what they agreed to in the first place, there should be no problem.  They had to approve the HUD (settlement statement) which shows your refund before closing in order to close.   Did the title company not get HUD approval prior to closing?  The bank can't change the rules after the fact.  If the title company did not get HUD approval, they are the ones I would think are liable.  You need a Real Estate attorney to sort it out.

My loan officer got us approved for a program in WA that pays up to 4% of the loan at 0% interest and acts like a 2nd mortgage.

I finally figured out how this all became an issue. The Title Company didn't get the docs until Christmas Eve. She informed me that they needed to have the sellers lien holder approval and we wouldn't be able to sign until Weds. On Weds she indicated that I'll need to bring $1,450 to closing which didn't make any sense to me but at this point I had only heard that we might need to bring around $600. I asked the Title company for the Hud-1 as the amount didn't seem right to me. Without even sending the HUD she asked if I paid earnest money and I responded that I paid $2k. She indicates in her email that we not only do not have to bring money but we are getting money back. 

I realize now that she initially sent the bank the Hud-1 with us owing money and the bank (sellers) signed off on that since it showed we owed money. The title likely didn't catch the mistake until after we were already in the house and the funds had been dispersed. At that point they tried to get the sellers lien holder to sign off on it and they would only do that if the money is applied to the principle. 

Joseph. short sale are different creatures and you willingly and successfully entered into one. I suppose since you did not need the $5500 to close maybe Wells Fargo should have kept the $550 they Over Paid to help YOUR closing.  Be happy and move on.

Wow I hope you are not a real estate agent because you are very bad if you are one. How much money I have and how much someone else agrees to pay are two completely different things. I should have asked them to pay more towards closing and I should have offered less on the house because they would have accepted it. Unless you hate money negotiating IS a part of real estate. The bank got what they wanted and then some and the problem I have with this part of the transaction is that they are telling us how to spend our money. They did not keep it nor could they have since we have a signed CONTRACT. Even others have indicated it is possible the contract could have unwound but they could not just take my money. Why they have the ability to tell me where my money goes is my issue even if it was $1. But you don't respect money so I can see how you wouldn't care. 

Joseph, for the last time.....the seller's Lender did nothing wrong, and the title co. did nothing wrong.  It is standard practice, and common knowledge that buyers can't be getting funds back from closing in a short sale, as has been explained to you numeorus times, along with the reasons for it. You and Your real estate agent simply did not understand the implications of getting that much closing cost assistance, combined with your EM deposit.  Of course, you could have simply had the assistance program there, give you $550 less so you could have Spent the $550 on your closing costs, instead of paying down your mortgage.

Yes, the seller's lender could have canceled the transaction....would that be better?

Words of wisdom....Let It Be, Let It Be.

Enjoy Your House!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

 

Hey guys. Joseph asked a legitimate question and has every reason to be pissed off about a lender he has nothing to do with dictating where his money should go.

I think we have given as much info as possible and should now move on before this turns into an attack thread.

Don't make me............

No, no, not the Smite!
I will, Let It Be...

With respect to the board (which I have a lot of respect for) I am only going to post updates to anyone interested. I think all other views have been expressed. This may give insight to any wishing to pursue RE transaction issues with either the CFPB or AG for free without paying an attorney. If it results in no action than others will know it is a waste of time. 

Last week I received a revised Hud-1 and, without my agreeing to it, the money has been applied to the principle of my loan. 

Yesterday I received a call from the Consumer Financial Protection Bureau (CFPB) as the title company indicated it was not their problem. I re-explained what occurred, was placed on hold and the CFPB told me that they primarily handle issues with lenders - banks, credit unions, etc. but not with Title companies. They were willing to go after Well's Fargo even after I explained that I had no interaction with WF personally. Within three hours of that call from the CFPB I received a call from the executive division of WF indicating they are addressing the complaint. CFPB advised that the best way to submit a complaint with regards to the title company is with state AG which I have already done. 

Thanks for the update Joseph

RSS

Members

© 2024   Created by Brett Goldsmith.   Powered by

Badges  |  Report an Issue  |  Terms of Service

********************************** like buttons ************************