Monday, January 19, 2009

Short sale buyer beware

If you're a buyer out there who's looking to purchase a short sale, here's a little story for you. And it's not a pleasant one.

Some clients contacted me last Friday about seeing short sale property that had just come on the market. The house is at 401 N. Brighton, Burbank, and the mls is S559692. The house is a 3+2, 1446 square feet, and is in a nice neighborhood. I was a little suspicious because the house was only listed at $420,000 and is not a fixer. That's really low, even in this market, for a house that size. I can't see a lender ever approving anything that low -- the comps are much higher. And, as we all know, the lender has to sign off before a sale can be concluded. Was the agent courting a bidding war?

I spoke with the agent late Friday afternoon. She confirmed the house was available.

I went over on Saturday afternoon. The key was missing from the lockbox. Being the breaking-and-entering Realtor that I am, I entered through the side garage door. The house isn't bad. It needs decorating, but it's workable. There were several other Realtors trying to show the house to clients while I was there -- no surprise, with a price that (artificially) low. I called the Realtor, told her the key was missing, and asked if it could be replaced by Sunday at noon. She said she'd try.

I met my clients there on Sunday. Alas, now the entire lockbox was missing, and the house was shut up tight as a drum. The listing agent's voicemail was full.

This morning, the house appeared on the mls as pending. As in under contract, not taking back up offers, in escrow, la la la.

Uh-unh. Most lenders won't approve a short sale until the house has been on the market for thirty days. This has been on for five days. Most lenders will not approve a sale unless the price is at least somewhat in line with the comparables. And lenders don't work on legal holidays (today is Martin Luther King day), let alone weekends. It would be almost impossible to get a written approval that quickly. And no escrow companies are open today, either.

So what's up? How can a house that's impossible to show get sold this quickly? Does the agent not want it shown because she has her own offer? Are the sellers and agent in league with each other to try to sell it to somebody they know for that low price? Or does the listing broker just not know the short sale process? Am I jumping the gun here with these suppositions? I don't think so, and most banks are getting wise to these schemes. Personally, I'm irritated to have wasted my and my buyers' time on this.

6 comments:

  1. Judy, you are right on at least one of those suspicions. The very hard thing is that as recently as 4 months ago I could predict with confidence that a short sale listing was a waste of my buyers time. Now, the field is confusing. There are legitimate, workable short sales out there. The only constant is that they are, without exception, frustrating and lengthy processes with no guarantee of success. I warn my clients to be prepared and do not get attached to the outcome. I know you do the same.

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  2. Kendyl, thanks for your astute comments and thanks for visiting my blog!

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  3. I couldn't agree more. My husband I have been involved in the purchase of a short sale for four months. At first everything seemed to be going fine. The sellers had a trust handling the short sale on their side. Almost four months into it, they raised the price on us and the trust company asked us to give them $5,000 outside of escrow as their fee. Of course, we were not going to pay anything outside of escrow and our agent contacted the sellers lender to find out if the short sale was approved. It was discovered that it was approved and we were not listed as the buyers. It was also discovered that the approval was for about $35,000 less than we were in escrow for! This trust company was planning to have two sales happen in tandum on this house, one to their trust buyer and then us, making a nice profit. It have blewn up and the lender canceled the short sale. The trust company now wants for represent us to get the property sold and is asking for $25,000 cash up front to negotiate on our behave. We have hired an attorney to sue for fraud and extortion. What an ordeal, there are crooks out there, beware! This is taking place in Orange County, CA.

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  4. rle@lclark.edu2:03 PM

    Cindy2972, we are in a short sale situation just like yours where the seller is requesting payment outside of escrow. The bank has approved the short sale, but the agent(dual agent) won't allow us to schedule a home inspection because we have not completely 'agreed' on the terms. Clearly the offer was approved by the bank, the additional terms to them means the cashiers check directly to the seller. This is in the San Gabriel Valley. Sad, what Fraud!!!!

    We have contacted the bank directly and now waiting for a reply.

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  5. Anonymous1:19 PM

    We are buying a house on short sale for $180000.WE did not close at the required time so ask for the extension.A week ago, we signed the settlement papers and gave the escrow company the amount needed as closing cost.We got hazard insurance and home warranty coverage as well.2 days later I receive a call from our agent saying the lender wants $23000 more on settlement.How did it happened they said it should have closed Oct 23, so terms changed.the escrow company said that our agent told her that the extension for the purchased changed the selling price too.We did not receive that counteroffer at all.We were surprised about that counter offer because I re-applied this loan to another broker Oct 30 and nobody mentioned about the change of price.Our agent was so upset knowing that I am e mailing the escrow agent about this.I told her if I have known the asking price will be $193,000 instead of $180000 I would have not approached another broker.Ineed some advice.
    Thx.
    LER

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  6. Phyllis Harb5:18 PM

    Judy great post. Seems that as part of the short sale process, the short lender should require that buyer/seller/both Realtors, state under penalty of perjury that this is an arm's length transaction.

    Because too many of these short sells seem fishy.

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