How to cope when deals take longer, lenders play games
November 21, 2008 04:30 PM
By Ilyce Glink
Inman News
My mailbox is full of questions from homeowners trying to complete short sales. Here are two fairly common situations I'm hearing about:
Q: I signed a contract for an alleged "short sale." The price of the house is listed online at $280,000.
After accepting the seller's asking price, I made a down payment of $10,000 to show my interest in purchasing the home. After about a month, the seller's agent said the "PMI" company wants $23,000 more or they won't agree to the sale.
I declined to pay more as I accepted their purchase price and I didn't feel it was fair to ask for nearly another 10 percent more in cash. After dragging it out for nearly three months, they sent me back my down payment and put the house back on the market for $299,000.
I still want the house but I'm not willing to pay more money for it. Since both the seller and I signed the contract, is there any legal way for me to purchase the house at the original price?
A: A short sale means that the buyer is offering less than what is owed on the existing mortgages. The funds in the deal will be "short" the amount needed to pay off all of the lenders and closing costs. To complete a short-sale transaction, all lenders must agree to accept less than what they are owed.
In your case, while the principal lender was willing to accept less than what was owed, the home equity line of credit lender (or the second-lien holder) was not.
Here's some background on this: What has been happening is that the second mortgage investors have been getting nothing out of short sales, while the primary lender gets whatever is there. Increasingly, second lenders haven't been willing to just suck it up and lose everything.
This has nothing to do with you and everything to do with the owner and his two lenders. It's unlikely you can salvage this deal, and it was nice that you got your earnest money deposit back without having to chase anyone for it.
The only thing that might help you is time: As the weeks go on and the credit crisis deepens, banks and mortgage lenders are being encouraged to clean up their books and get rid of all the real estate on it. Once a few weeks have passed without an offer, the second mortgage lender might be more receptive to getting the property off the books.
As far as your contract with the seller was concerned, you should talk to a real estate attorney about that issue. But your seller will be unable to give you clean title to the property if he does not have the cooperation of both of his lenders to undertake the short sale. Also, if your contract stated that the sale was contingent on the seller obtaining the lenders' permission for the short sale, you would be unable to force the seller to close on the original deal you struck.
You could also offer to pay a few thousand dollars to get the deal done, provided that cash goes directly to the second mortgage lender. If they get something, even a small amount, they may be more than willing to get the loan off their books.
For more details and perhaps other options, consult a local real estate attorney. By the way, the attorney may be able to help you negotiate a deal with the lenders directly.
Q: My husband and I are in the process of selling our home, which is a short sale. We have two mortgages on the house, and one of the loans is interest-only.
The primary lender is being very helpful, but the second lender is not returning my calls. We found out today that if the buyers cannot see that these companies are going to cooperate soon, they are going to take their offer off the table.
What can I do to get the second lender to call me back? Should I go over their head? We cannot afford for them to cost us the sale of this house.
What can I do? I have called the second lender's negotiator three times and the supervisor of the department three times, and no one is calling back.
Do you have any suggestions?
A: You're in a very tough situation -- but one that is shared by so many people nationwide. Second mortgage companies have been wiped out entirely in short sales because the primary lien holder (the first lender) wants as much money as possible. To "stick it" to the first lender, the second lenders just don't do anything, causing the deals to go south.
If you can figure out a way to offer the second mortgage company something, then you might get them to respond. (Please note my previous response.)
You might also want to try moving up the food chain to see if you can find someone with authority at the bank to return your calls and see if your situation can be resolved.
You might also want to call your primary lender to see if they have contacts at your second lender's office that can assist you in obtaining an answer. You can also talk with a real estate attorney to see if having him or her write a letter or pick up the phone will help you get the second lender's attention.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
***
What's your opinion? Leave your comments below or send a
letter to the editor.
To contact the writer, click the byline at the top of the story.
Copyright 2008 Ilyce R. Glink
