As an experienced Sarasota Short Sales Agent & Realtor, many clients come to me to discuss a short sale in Sarasota when their mortgage is in default, and they want to know if they should continue to pay property taxes and insurance.
Normally when your mortgage is in default, your lender will continue to pay property taxes and property insurance with your established escrow account which has been managed by the lender.
What happens, however, if you don't have an established escrow account or if there aren't enough funds in your escrow account to cover taxes and insurance on your property which is threatened by foreclosure?
If you find yourself in this situation, I highly recommend you enlist the help of a qualified real estate agent who is a Short Sale & Foreclosure Resource (SFR) and Certified Distressed Property Expert (CDPE).
As it happens, property taxes are normally paid in arrears, which mean they are paid after the tax period for which they are due. As such, property taxes are a somewhat known expense and are addressed in negotiations with lenders in the short sale process. However, property insurance is handled much differently in short sale situations.
Property insurance is paid in advance. When there is a first mortgage that will be satisfied without a short sale and a second mortgage that will be accepting less than what is actually due (by completing a short sale), it is critical to monitor the payoff of the first mortgage throughout the short sale process. Your lender's payment of "Forced Placed Insurance" can drastically change the payoff amount to a first mortgage at the last minute, and can jeopardize a short sale.
When your lender pays the property insurance (forced placed insurance), your insurance premiums could be as much as 4 times what you would pay (had you selected your own insurance). This dramatic difference can be an unwelcome surprise based on the timing of a short sale approval and the timing of the lender paying the property insurance. If you are unable to pay your property insurance in this situation, it would be wise for to pay your own property insurance and cancel the insurance after the sale of the property closes.
Again, all of this is much easier to manage when you are working directly with a highly qualifed short sale agent. As a Short Sale Real Estate Broker with Keller Williams Realty in Sarasota, I am not giving legal advice, but real estate tips. My mission is to help homeowners negotiate and complete a successful short sale in Sarasota and Florida. My team and I have been blessed in successfully closing hundreds of bank-negotiated short sales / foreclosures in the last several years.
