The highs and lows of parenting and real estate.

Just When You Thought It Was Safe…

Houses Shown: A Number Higher Than My 5 Year Old Can Count (And he can ramble into the hundreds. Just ask him sometime if you need a nap.)

How Bad I Want to Meet the Seller in a Dark Alley on a Scale of 1 to 10: 13

Girl Scout Cookies I Consumed While Stress-Eating During All of This: 5*

For a long time in 2008 and the beginning of 2009 I did everything I could to warn my clients about getting involved in short sales. I had a brochure on the evils of short sales, I had a prepared speech, I even had a waiver I made them sign if they really wanted to get involved in one (That said: “I, Dumbass, Non-listening-to-my-Realtor’s-perfectly-sound-advice Client, will hold harmless and totally not sue my Real Estate agent, or her brokerage for any drama, horror, or even paper cuts I get from dealing with this whole short sale debacle, because PUH-LEASE, she tried everything she could think of to talk me out of this and I am just a ridiculous, stubborn buyer who doesn’t know what’s good for me. I promise to only think sweet and nice thoughts about how much I love my Realtor, even when I’m pouring all of my time, money, hopes and dreams down a black hole labeled ‘Short Sale’. Because it’s not her fault. At all.” It’s possible I paraphrased that.)

About mid-2009, however, short sales began to become so prevalent they were literally half the pool of available houses. It was almost impossible to avoid them and still have reasonable houses to look at in many price ranges. Also, the banks started to get a clue, hire more personnel to deal with the short sale situations and move the process forward a bit more quickly. I began to see and experience short sales that were actually successful, if not relatively pain-free. We all started to get the hang of things a bit more and the industry made strides in systematizing and automating the process.

So I shorted up my ‘SHORT SALES WILL MAKE YOU DIE’ speech, stopped telling some of the worst stories I heard and showed more short sales (and not even under duress anymore!). I developed a false sense of security about short sales.

Let tell you, this little security blanket was abruptly ripped from my snuggled down and napping body last week, on the scheduled day of close of escrow for my buyer because the Idiot (and when I say ‘idiot’ I mean ‘Alleged Idiot’) Seller of the house at the last minute decided (as recommended by his alleged imbecile of a lawyer) it might not be in his best interest to sign to sell.

Basically, here’s what went down (broken down into Seven Steps of Misery):

1. My client saw the house in late October and loved it. We wrote a contract that was accepted in first position by the seller. He signed to accept that contract pending approval with acceptable terms by the lien holder (the bank who loaned him the money to buy the house).

2. The listing agent’s ‘short sale team’ let me know just after Christmas that the bank and the seller were close to coming to agreement on the terms of the short sale. She said they were going back and forth, but that it was a productive negotiation and wouldn’t affect our contract.

3. On January 28, 2010 I got an email from the short sale team letting us know that we had an official approval and that we should pull the trigger on inspections and appraisals. This email constitutes a ‘Notice of Agreement’. At this point, the sale morphs into a traditional sale. We have approval by all parties; we move forward.

4. My buyer had an inspection done to the tune of $275, a termite inspection at $55 and an appraisal at $450. Minor things were found, but value on the appraisal came back good and my buyer was comfortable going through with the purchase.

5. The loan was completed and the paperwork was sent to the title company on Thursday, February 18. The buyer went in to sign her portion early on the 19th and the goal was to fund and record by Tuesday the 23rd. She even brought a cashier’s check in for her down payment (more than $5,000).

6. Tuesday morning I was informed, for the first time, by the title company that the seller had not returned the signed paperwork. I called the listing agent (this time I bypassed the ‘team’ and called the man himself). He told me that his client had a lawyer advising him the wording of the approval letter from the bank would leave him open to being sued at some time in the future for the deficiency of the loan. The listing agent told me he was 90% sure he could get his client to sign, and that he would call to let me know by 11am.

7. By Thursday, when we still weren’t hearing anything definitive or positive back from the listing agent or seller, we put in for a cancellation and refund of deposited funds due to non-performance by the seller. My client received her earnest money and the money she’d brought to title for her down payment back. She did not, however, get any kind of reimbursement for the $780 she spent on inspections and appraisal (which is, in some ways, the least of her investment into all of this. We spent an hour on Saturday before the supposed Close of Escrow matching paint chips to various walls in the house, for heaven’s sake).

My client plans to pursue damages from the seller in mediation and arbitration. The seller had a chance to negotiate his issues with the lender, and he said he was finished. We were told all parties were in agreement. I’m not an attorney, but I believe she has a strong case. Let me tell you, though, she will never be a winner in all of this, even if she is awarded damages. To begin with, getting money from a seller already in default on his mortgage seems a bit like trying to squeeze blood from a stone. If it’s not there, how can you get it? And secondly, vindication in court won’t get her a place to live. She had put notice on her apartment and found out yesterday they have rented it out to someone else. She has to be out by April 12. We’re doing our best, but I don’t feel particularly confident that we will find her an acceptable house that can close by then in the next week.

So for now, I’m wary of the shark infested waters of the short sale, and believe you, me, this is a story I will be telling to all of my clients who want to look at short sales in the future.

*Units of measurement are in boxes.

5 Responses to Just When You Thought It Was Safe…

  1. Pingback: Top 10 real estate posts of the day for 3/3/2010

  2. Elizabeth,
    I think I’m going to forward a link to this article to all my buyers who ask me “What’s the worst that can happen if I find a house I like and it’s a short sale?”

    It’s getting tougher to avoid short sales, or at least to find alternatives- in some areas, at some price points, Short Sales are now well over half of the homes on the market. I just ran a search for a client last night, and of the 6 listings that met their criteria, 4 were short sales. The other two were lender-owned properties.

    And then there’s my pet peeve- the listing agents who either “forget” (giving them the benefit of the doubt) or flat-out don’t change the status of a listing once they’ve submitted an offer to the bank. Nothing like calling the occupant to schedule a showing (per the instructions in the MLS) and having the occupant tell you that they have already submitted two offers to the bank. To this day, the status in MLS or that listing is still ‘Active’.

  3. Pingback: Elizabeth Newlin – Arizona Real Estate Agent » Blog Archive » CDPE – Certified Disaster of Proportions that are Epic

  4. I agree, Dan, that is so obnoxious. I think they’re working on that at ARMLS. I read there are new boxes to mark that lets everyone know you’ve got a contract into the bank but are still collecting backups. That wold be nice. Actual clear info. Wow.

  5. Elizabeth, I LOVE your idea of making buyer clients who insist on looking at shortsales sign a disclaimer! Can I borrow the idea?

    Can’t tell you how many potential clients my partner & I have turned away in the past 2-1/2 years because they insisted on looking at shortsales and we’re just not willing to bang our heads against the wall for the very slim chance our buyer will ever get a home and we’ll ever get a paycheck. It’s downright painful turning away business, but not as painful as going through this sort of nightmare!

    Wish you hadn’t gone through this, but thanks for sharing.

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