Mortgage Loans and Rabbit Holes

Thanks to Jane Kolocotrones, our Underwriting Manager extraordinaire for some much needed sanity about allowable fees and payments on the Purchase of Pre-foreclosure or Short Sale Properties!

The following is directly from Fannie Mae’s Selling Guide to distressed properties. While it is permissible for the borrower to pay a short sale processing fee for example, they do not allow the borrower to be reimbursed by an interested party (such as the seller or the real estate agent).

If the buyer is reimbursed, the fee is then characterized as a concession. And as we continue down the rabbit hole, a concession spurs the need for a dollar for dollar reduction in the sales price of the property.

Purchase of Pre-foreclosure or Short Sale Properties — Allowable Fees and Payments

Borrowers may pay additional fees or payments in connection with acquiring a property that is a pre-foreclosure or short sale that are typically the responsibility of the seller or another party. Examples of additional fees or payments include, but are not limited to, the following:

short sale processing fees (also referred to as short sale negotiation fees, buyer discount fees, short sale buyer fees);

Note: This fee does not represent a common and customary charge and therefore must be treated as a sales concession if any portion is reimbursed by an interested party to the transaction.

In a recent transaction, the buyer was going to pay the $6000 short sale review fee because the seller wasn’t paying it. (In conventional loans, these aren’t typical fees that a buyer pays.) In this scenario, the fix was to move the seller paid contributions to the seller paid closing costs.

As with these types of deals we have additions to our typical line to include short sale departments and lawyers and probably too many moving parts. These machinations tend to get a little gunked up unless every single move is checked and lubricated.

As a mortgage professional I completely understand why the short sale lender needs to confirm that the buyer is willing to pay more money for the house. The short sale lender needs to know and have the ability to re-negotiate the short sale once they know the buyer is willing to pony up more money. The lender needs to get as much as they can to mitigate the short sale. However…I don’t believe these transactions should ever be about lining a lawyer’s pockets with outrageous fees.

At the end of the day, if a buyer is willing to pay, then let’s add the expense to their side of the HUD and move on with our lives. The caveat here is the requirement by FNMA that the short sale lender get the opportunity to renegotiate and avoid slipping and sliding down the dark and winding distressed property rabbit hole.

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