Many homeowners owe more than their home is worth and are in financial distress and need to sell their home. One method to get out of the mess is to sell your home as a short sale, where the mortgage holders agree to release the property for less than they are owed. This gets the distressed homeowner out of the situation and prevents the bank from having to foreclose on the property, which is time consuming and expensive, though the bank may still take a loss of hundreds of thousands of dollars.
In a short sale, the mortgage holders go through a lengthy review process where they review the financial condition of the seller, evaluate the market value of the home, and determine the payoff amount they are willing to take to release the homeowner from the debt. When a bank approves a short sale, they provide a payoff amount, an approved HUD-1 Settlement Statement and set of conditions that must be met by the seller and buyer. One of those conditions is a “waiver of funds” where the seller relinquishes all rights to receive excess funds from the transaction. Since the bank is being asked to take a large loss on the transaction, it makes sense that they don’t want the seller to walk away with “a little extra” at the closing table. Here is an excerpt from a recent short sale transaction that we closed:
“Any overages must increase the net proceeds and any escrow/impound balances, which also include any insurance and property tax refunds. These will be applied to reduce the total debt of the loan.
The seller shall not receive any proceeds from the sale of the property.”
Seems pretty clear, doesn’t it? The problem is, there are some listing agents out there who promise a “kickback” of some of their commission after the sale closes to give the seller some spending money. I recently came across a situation where the seller was promised $3000 if they chose this particular agent to facilitate their short sale closing. This is in direct violation of the short sale payoff agreement that the seller signs with the bank. I’m not a lawyer, but there are also possible violations of licensing laws in such a scenario. As a real estate broker, we are obligated to act in “good faith” with all parties to the transaction. This includes adhering to the written bank agreement. If you are presented with such a scenario by a potential listing agent, as appealing as it may sound, recognize that they are asking you to willingly violate the bank’s short sale agreement. Seek assistance from a reputable agent experienced in the short sale process instead.