In the last few years with home prices falling and mortgage balances rising, the unthinkable is now commonplace. Sellers are BRINGING the money to the closing….sometimes even more than the buyers!
Why does this happen?
I recently had a closing where the seller was fortunate to get $278,000 for his home. Unfortunately, his mortgage balance was about $275,000. This means that in order to cover the mortgage, commission, and other selling expenses, the seller had to bring $15,000 to the closing.
The alternative would have been to not sell the property and not move out of state. That was simply not an option. Even if the seller stayed, it could be years before prices are such that they could sell and break even or better. The other thought was that the lender might accept a lower payoff of the mortgage which is often referred to as a “short sale”. This is only an option when many mortgage payments have already been missed and the owner’s credit has already been compromised. So, they found a way to scrape together the money and get out of a bad situation while they still could with their credit intact.
This scenario brings up an interesting question. What risk does the buyer have in case the seller agrees to contract terms and then doesn’t ultimately have enough money to close? We always verify the buyers’ funds and the buyers’ mortgage but who verifies the sellers’ ability to close? Unfortunately, nobody. But you can protect yourself and should. If you are involved with a purchase in which it appears the proceeds will not cover the sellers’ expenses, you need to let your attorney know this. He can arrange for the seller to deposit the expected shortfall into an escrow account prior to the closing to insure there are no unpleasant surprises.
