This is the 3rd tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.
This is a very frequent question, and its analysis is a bit complex because “cost” is such a broad term. Later in the eBook, we will look at Promissory Note requirements, cash contributions and association dues as potential “costs” of completing a Naples short sale. For this section, let’s simplify things a bit and look at standard transaction or closing costs and what you should expect to pay (or not pay).
With regard to ordinary closing costs, a short sale should cost you very little. Here’s why. In a short sale, the lender will agree to absorb many of the ordinary closing costs that are customarily the seller’s responsibility. In our experience with Florida short sales, lenders will usually agree to absorb at least the following closing costs:
- Real Estate Commissions
- Title Insurance Premium (Owner’s Policy)
- Closing Services Fee
- Title Search Few
- Documentary Stamp Tax on the Deed
- Property Taxes
With regard to Real Estate Commissions, short sale lenders often agree to pay up to 6% of the purchase price. Sometimes, though, a lender or its investor may “cut” the realtors’ commissions to 5% or even less. It is a good idea for you to consult your listing agreement – the agreement between you and the listing broker/agent – to understand what your obligations are with respect to real estate commissions if the lender demands a reduction.
Lenders will also absorb much of the costs related to title insurance. The cost of the owner’s policy of title insurance, customarily the responsibility of the seller in most of Florida, is typically covered up to the state promulgated (i.e., the rate proscribed by the State of Florida) rate. Short sale lenders will also pay (I say “pay” because the cost is ultimately coming out of the bank’s pocket) a customary “Closing Services Fee”, which covers services performed by a licensed title insurer, title insurance agent or agency, or attorney agent in the agent’s or agency’s capacity as such, including, but not limited to, preparing documents necessary to close the transaction, conducting the closing, or handling the disbursing of funds related to the closing in a real estate closing transaction in which a title insurance commitment or policy is to be issued.” Fla. Stat. §627.7711(1)(a). Recently, many short sale lenders have become reluctant to absorb title search fees. Unfortunately, this is a hard cost which is required for the issuance of title insurance. In other words, we could not issue title insurance without a title search and the title search itself costs money to produce. Fortunately, though, the cost of the search is low relative to its value – ordinarily about $150. In these instances – where a lender refuses to absorb a necessary hard cost – you should expect to pay that cost.
Naples short sale lenders typically agree to account for property taxes as well. There a few basic scenarios for dealing with taxes worth discussing.
Lenders will almost always pay for back taxes which may be due from previous years. These outstanding taxes create a lien on the property and lenders understand that it is a cost of the success of the transaction.
The current year’s taxes may be treated a bit differently. As you likely know, Florida property taxes are paid in arrears, meaning that your 2011 property taxes, for example, are not due and payable until November, 2011. If your short sale should closing before November, the lender will agree to absorb charges for property taxes to account for the number of days you owned the property during that year. You may hear us at the title company refer to these calculations as “prorations.”
Should your short sale close after November, the lender would likely absorb the full payment of the property taxes and would receive a prorated credit from the buyer of the property for the number of days the buyer will have owned the property through the tax period. This all gets a bit confusing; but suffice it to say that you should not ordinarily anticipate having to pay for property taxes in order to close your short sale.
If you have any questions about the cost of your Naples short sale solutions, or you would like to be referred to a Certified Public Account to find out more about Short Sale Tax Consequences, please don’t hesitate to call me at (239) 985-4142 or contact me online. Join our short sale survivor club to get the tools you need to survive your Naples short sale.
All the best,