Real Estate Questions

[SpunGirl]

Does anyone who posts here have experience with real estate issues? Jake and I are currently trying to buy a house that is a short sale, and there are a couple snags getting in the way that I find confusing and my agent (who has been working in the valley for 30 years) says she has not seen previously. I thought someone here might be in the industry or know a few things firsthand - if so, I can obviously be more specific. Thanks.

-K

[Fallen]

Wish I could help. Welcome back, S.

[SpunGirl]

Thanks! I'm in and out, summer gives me lots of free time.

-K

[SpunGirl]

A few people PM'd me indicating knowledge so here are the details for anyone who wants to throw out an opinion:

We put in an offer on a short sale at list price, solid financing. We were advised by the listing agent (who is also an attorney representing the bank in this short sale) that our offer is the "best and highest." However, the homeowner has now decided he wants to try and list his place at 75k above what we offered "for a week, to see what happens." I think he's an idiot as the places selling at his new list price are much more upgraded than what he has to offer. He has stated that if no one bites at this new, higher price, he will "reconsider" our offer.

The other problem is that he apparently also has a second mortgage on the house which was funded by the BUILDER, when he bought the house, and was used to put in the pool and some of the backyard upgrades. The builder has so far indicated they are completely unwilling to take a lesser amount via short sale, they want ALL of their money. But our agent told us that if the short sale doesn't work out and the house ends up in foreclosure, the LLC holding the second will get nothing. So it sounds like this is more of a personal/private loan than an actual mortgage that could be used to put a lien on the property.

I guess my question is, is this just way too messy and should we run away without getting any more emotionally invested in this deal? I love the house, it has everything we asked for and is a place we can see ourselves long-term now that we have actually committed to living in Vegas for the next 20+ years. There are a few things I don't like but they're all easily changed and upgraded as time goes by.

[Leloo]

I admit I do not have direct knowledge of this however I watch a TON of house hunting shows so I'm just giving an opinion based on that. But from what I've seen and the advice usually given, short sales are incredibly messy and are NOT short at all. They in fact usually take much longer then a normal sale. it is a misnomer and they are incredibly messy and take months and you can still lose the house in the end. I would suggest that you are not LOCKED into that contract, leave that as it is and go and look at new houses and see if you can find something else you love as much that isn't a short sale or a foreclosure. As much as you save money on those two they are very messy and often you can be screwed at the end.

And just for more info that is easy to understand. http://homebuying.about.com/od/buyingahome/bb/BuyingShortSale.htm
A clip from that:Buyers pursue short sales to get a good deal. So when you see a price listed for a home that you think is too low for the neighborhood, before you jump on that price like hot fudge on a sundae, ask your agent to call the listing agent to find out if the home is a short sale.

Because you might want to think twice about making an offer on a pre-foreclosure, short sale home. It's not as simple as you may believe, and very few can close in 30 days or less.

Many of my Sacramento home buyers have waited 4 to 6 months to close on a short sale, sometimes longer.


And the article goes on to list several things you need to consider and make sure you do if you go forward with a short sale. Like home inspection cause they don't pay to fix anything that's wrong, you take it as is. Obviously if it's your dream house then you need to try your best to get it but if not it's really messy and may be far better to find a normal sale. I know from what I hear las vegas has a LOT of foreclosures and short sales right now but they just both can be really difficult.

Hope that helps.

[Tibby]

I would second what Leloo is advising... in particular, "short sale" is a misleading term. It is called such because the bank has accepted the current owner's request to accept less than the full amount owed to them, in light of recent change in employment (laid off), or lawsuits, having an unplanned child, etc. Whatever the reason, the owner is short-selling the house because they can no longer afford to pay their mortgage. The bank which holds the mortgage has accepted whatever reason/proof was provided, and consented to allow the current owner to sell the house for an amount potentially less than what is still owed to the bank. I.e., the bank has agreed to be shorted.

There are several reasons a bank will do this: historically it has been only due to the fact that if an owner truly cannot pay the mortgage in the foreseeable future, the bank will be forced to foreclose the property in the first place, and still lose money on it (potentially more, because the proper will be listed in MLS as a foreclosure). Presently however, you will see far more short sales on the market, and this is due to the second, more ubiquitous reason - following the economic crash in 2008, congress approved a subsidy system, which put simply reimbursed banks for their loss on short sales. What this means is that banks are willing and even eager to agree to short-sell properties that they own stake in (a mortgage).

Getting to the immediate question: Why is the would-be seller acting weird? This is because in a short-sale, there is a stupid arrangement by which the bank provides its own selling agent (real estate agent to sell the home) to represent its interests, but ultimately it is NOT a foreclosure, and thus the seller has the ability to veto any offer. When a bank agrees to short-sell a home, the seller typically has up to six months or so prior to foreclosure... nowadays sometimes longer, due to the fact that the banks are being reimbursed for their loss by the US government. (Disclaimer: I am seriously not trying to push a political opinion or agenda here - this is law, as I have been made to learn over the past year)

So a savvy seller in a short-sale situation KNOWS that he/she and family will have no place to live when the house is sold. He/she will be relived of debt, but receive NO assets from the transaction. All they do is lose a home (and have their remaining debt forgiven by the bank). So it is in their best interest to take advantage of that six month (or so) window.

Think of it this way... if they live there another six months and then accept the last offer they get, then they owe six months more of back-paid mortgage... all of which is forgiven regardless when the short sale is complete.

If you'll allow me a moment of my own opinion... short-selling home owners who do this may be savvy to the ways of month-to-month finance, but it is a grave mistake, and here's why: If a house is on the market (real estate MLS listings) for more than 30 days, most buying agents (real estate agents representing the interests of a prospective buyer) will pass it over for review. That is, your agent often will not even bother to mention or show you a home which has been in MLS for more than 30 days, even if that home seems to be offered at great value. This is simply because it can be reasonably assumed that there is something inherently wrong with the home (foundation, roof, septic failure, etc). As an aside, bear in mind that the nature of compensation for many real estate agents derives from the quantity of transactions they complete in a fiscal year, more than the quality.

So these short sellers who hope to earn themselves and their families an extra 4-8 months of free living cannot really be blamed, but they are not understanding the nature of the real estate market. That is, if they reject yours and other similar offers early on, people in your position will take sound advice from folks like Leloo and move on to find another home to buy. Then they will cease to receive offers. The short-sale time will expire, the bank will crack down on them by foreclosing on their home. Now, when your home is foreclosed on it may seem just as good, because you can receive the debt forgiveness - again walking away with no home, but also no debt. However, a foreclosure sits on your credit report for... I believe it is 3 years, but don't quote me on that. It may actually be 5.

Anyhow that is - I suspect - why this seller is acting sketchy. He is buying himself time to continue to live in the home, because he still has the power to reject offers on the home, despite the fact he will see neither income nor loss from the sale.

On the topic of the unreasonably long "short sale" process, it is because your offer requires an extra step of approval - if the current owner accepts it, the offer still must be sent off by your realtor to the bank which holds the mortgage on the home, in order that it receive approval by the aforementioned bank agent. This agent is an in-house company employee moving literally dozens of houses quarterly, and often does not work on commission like other agents (such as your own). He/she will get around to reviewing your offer when he/she feels like it. God forbid they submit a counter-offer, wherein they may accept your proposed payment, on conditions 'A', 'B', and 'C' (YOU pay for septic repair, or YOU pay for pest inspection, closing costs, etc). Again, you will only reach this stage if the buyer (who thinks he has no reason to accept your offer) accepts your offer first.

I feel for you. I was in your exact shoes 8 months ago. I really, really wanted that house. And to be fair, short sales do eventually go through, and they don't always turn out to be as brutal as I am describing. I really hope you can get your dream house, which is why I provided such an extensive explanation of the facts motivating the involved parties. If you have a slick agent, you can make this work, but I want you to know what you may be getting into, so that you can decide for yourself how badly you really want this house, versus how soon you want [I]a[I] house.

I hope this helps. Good luck to you!
-Tibby

[Tibby]

PS: I apologize for the numerous typos, it is late : (

-Tibby

[cwolff]

I guess my question is, is this just way too messy and should we run away without getting any more emotionally invested in this deal? I love the house, it has everything we asked for and is a place we can see ourselves long-term now that we have actually committed to living in Vegas for the next 20+ years. There are a few things I don't like but they're all easily changed and upgraded as time goes by.

I'm a loan officer, not a realtor, so I can't answer a lot of your questions but I can answer the one posted above. NEVER get emotionally involved. Even talking about emotions in a transaction like this makes me cringe. This is straight business transaction not personal. If you can maintain that attitude you will be ok. If you can't maintain it, then you are really vulnerable.

Your realtor, is also the atty representing the bank which holds the 1st mortgage on the house? Is that right?

[crb]

A holder of a second mortgage would have a lien on the property junior to the first mortgage. They would need to release that lien for the short sale to go through, it varies by state, but generally that is the law. As a condition of a short sale the primary lien holder (first mortgage) agrees to forgive the excess debt difference between the selling price and the amount owed. Junior liens have to release the lien on the property to allow it to be sold, but that does not necessarily mean they release their rights to go after the borrower for the money still, the debt is not forgiven. Depending on local laws and how the loan was structured.

So the builder would have to release his lien for your short sale to go through, but probably would still want to go after the borrower for the money, which makes the borrower desperate probably.

If the first mortgage holder put it into foreclosure the builder would still also get nothing though, so it isn't as if he has anything to lose to not release the lien. Unless he really thinks the home will sell for more money.

But that all depends on the state laws and terms of the second mortgage. Generally though you cannot sell a property with liens on it, so either way you need that builder to release the lien.

Sounds like the house might end up in foreclosure, if you've not found a home by the time that happens maybe you can buy it for even less, just make sure they haven't ripped all the fixtures out.

[Candor]

I thought a short sale was a sale to a midget?

[Taelinn]

I made an offer on a short sale where the seller signed off right away. You would be surprised at how unmotivated the banks can be to get the house off their books - 8 months later and they were only on the second round of approvals. I backed out. A couple months later, the house went into foreclosure and sold for 40k less than my offer (very quickly).

My guess is your seller thinks your offer was made so quickly that if he had waited, he could get an offer above his debt load and therefore avoid short sale penalties. There is no benefit to him that I'm aware of to selling higher if it ultimately is still a short sale, as it all goes to the bank.

Good luck, and be patient - these things can work out, it just takes a long time :)

[Whirlin]

I actually am personally purchasing a house at the moment as well... I'd be curious as to how far you got in the process.

If you created an offer, and they accepted it... Sadly, it's not legally binding until a purchase and sale agreement is signed. The agreed upon bid should outline a pull-out period for the buyer, and a date for the purchase and sale to be signed. This also highlights the timetable on the other things like the financing, etc. Between the bid acceptance and purchase and sale agreement, is also when you line up the inspection, mortgage, and all that crap.

The buyer can pull out up til a drop dead date identified within the bid, OR if a mortgage is not obtained before closing (which offers another way to get out!). The seller can back out at any point until the purchase and sale is signed.

I'm not sure how it applies in short sales... but yeah Bid/acceptance is just the first part in the process, and is not legally binding, it's just setting expectations for the future.

[SpunGirl]

Thanks everyone for your replies. To clarify a few points -

Our agent is not the attorney, the listing agent is (and he is representing the bank in this sale, not the homeowner).

Real estate out here is a fucking mess. In 2004, we bought our first place (1k square foot condo). We sold it in 2006 before everything fell apart (we were lucky) and rented for three years before buying our current place in 2009. We paid only a LITTLE more for our current house than we did for our condo - and we are now living in 1800 square feet with a big yard and a pool. That should tell you how much prices fell during the collapse. The problem was that when we bought this place, every investor and his brother was also snapping up houses in that price range and we got trumped by cash offers over and over. Eventually, my parents had to buy our house with cash and we had to turn around and buy it from them.

Now, because of the good interest rates, we can afford a bigger/nicer/better investment and pay relatively close to what we're paying now in terms of mortgage. The good news is that we are in a position to wait out a short sale, because we're fine where we are now and we don't *have* to move. Based on what I'm seeing around the valley our house will probably sell quickly.

We also found out that this house we want (listed in February) was under contract until May and fell out of escrow, because the buyer found another place and pulled their offer since the bank still hadn't accepted. Honestly, that's probably where we will wind up. It's frustrating because again, I love this house, but I guess I have to step back and just figure we've done what we can do and either it will happen or it won't.

It seems stupid to me that the owner has any say in accepting the terms of a short sale. This means that they can do what a previous poster mentioned - draw out the process as long as possible and continually frustrate people in hopes of living free for as long as possible. You'd think having a foreclosure on credit would bother him, but his credit is probably already fucked. You'd also think the banks would have a greater interest in processing the short sale and getting the bad debt off their books, but that's obviously not the case!