How many closing costs will a short sale lender pay?

Question

For those of you working short sales:  how much does a lender typically accommodate commissions, escrow/title, taxes and other costs associated with closing the sale?  I'm working with a lender on a short pay off.  I'm the owner, having purchased the property subject-to over-encumbering senior liens.  Please note that this isn't a really a short sale as the borrower is not participating and I'm not selling the property.  Rather the lender will be approving a settlement offer/payoff.

I was not aware that the lender had done an interior BPO months ago when the borrower was attempting a deed-in-lieu.  So my first settlement offer was rejected because it was not anywhere near the BPO.  Since the net to the lender from me will be the total of the settlement offer, I need to better understand typical short sale costs before rewriting my offer.  If it were a true short sale, what costs do lenders typically cover?  5% sale commission?  Past due property taxes?  HOA fees?  Escrow fees?  Title insurance?  Anything else?

I want my offer to reflect the BPO minus any and all costs the lender typically pays on a short sale.

All ideas/thoughts welcome. Thanks!

Michael Quarles · Answer

Yep.  And you can actually pay a service to see the algorithm.    If you're doing a ton of shorts it's great knowledge.

Michael Quarles · Answer

My 2 cents.

I think it's about a net payoff    And I think the most BPO s a lender has done on a property I purchased was 6.  So they're flexible.  The argument is always justifying the costs.  Our job is the ability to substantiate those costs.

Some BPO realtors are lazy and skip a ton of stuff just point those items not addressed out.  Keep in mind some lenders use an algorithm model prior to a BPO.

Account Closed · Answer

Michael Quarles  Question:  What does an "algorithm model to prior to a BPO" mean?  Does it mean the lender already has dollar amount they'll accept based on a formula? And that the BPO needs to meet or exceed that number?  Thanks!

Account Closed · Answer

I can understand that there's not any standard.  But aren't the lenders always agreeing an agent's commission?  What happens to costs that the lender won't agree to?  When it's an investor buyer, I understand they'll pay.  But I've been seeing lots of shorts going to retail buyers in my area, and I would think it would be difficult or impossible for them to pay additional costs.

There's already a BPO amount that works for the lender and I've got to get to a net number that works for me.  There are some repair issues that wouldn't have been detected in the interior BPO (HVAC condenser, supply line leak under a slab foundation, etc.).  Have you ever documented repair issues with quotes?

William D. · Answer

Lots of good points on the BPO and closing costs.  Equally as important to calculating a short payoff from your point of view are three things: (1) Who the investor is, i.e., GSE, Conventional, HUD; (2) Is there mortgage insurance; and (3) is there affordability.

If I were you I would endeavor to answer all three questions so that you are playing with as much knowledge as you can get. Without knowing, any estimation you do is really just blind. Once you confirm the above facts you will know exactly what set of rules the other side is playing by and can tailor your strategy accordingly.

Elizabeth Arluck · Answer

It really depends on the lender.  They decide how much they are willing to cover.  Some lenders will cover everything, while others will cover nothing.

Dick Green · Answer

I've only done a few.......here's what I've noticed.

Much is negoitable.  Many times the guidelines are the same as traditional transactions except: seller contributions (none), home warranties (none),  repairs (none).  They will usually allow 3% towards buyers closing costs, and pay regular real estate commissions with co-operating brokers involved.  They may try to reduce commission on intra - office transaction.

Most lenders will pay delinquent property taxes but will not pay delinquent HOA dues.

If I were buying, I would start by disputing the lender BPO.  A BPO is just a cheap desktop review of the property.  Someone more knowledgeable with the subject property and the area can generally present a convincing case either positive or negative.  You can usually get the numbers to say anything you want them to say.  Start by getting them to say that the home is worth less.  Much less.  Make them fight to prove their price.  Especially if there is no buying frenzy on the transaction.

Make the value of the home depreciate right before their eyes.  Turn in repair estimates with your offer.  They need to see the property as a hot potatoe.  Sometimes with these lenders it seems like your shooting at a moving target.  Make the target move in your direction.

Never show them you have more money than what's needed for the transaction.  You know the song, "know when to hold dem, know when to fold dem, know when to walk away, know when to run...LOL."

Try not to over qualify for lending if financing.
Good Luck!

J Scott · Answer

Honestly, while I haven't done a lot of short sales (6 or 7 at this point), I'm seeing it all across the board.  Some lenders won't pay anything, and some will happily pay all typical closing costs and 6% commission.  On an upcoming closing, the lender will be covering $1000 in back taxes and $1500 in back HOA.

I'm not sure there is any standard...