New Short Sale Wrinkle Could Add Complications

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As if Short Sales weren’t complicated enough!  After a deluge of complaints about the length of time needed to gain lender approval on Short Sales, deadlines are beginning to be imposed on lenders.  As a result of these deadlines, some sellers’ lenders are now “requiring” (as a condition for seller’s lender’s written approval of the deal) that the Purchase and Sale Agreement be REDATED to show the current date as the offer date. 

For example, you submitted an offer containing a Short Sale Contingency on January 10, 2010, the seller signed it on January 11, 2010 and it was sent to the seller’s lender(s) for approval.  Today, the seller’s lender says they will approve the deal, but ONLY if you rewrite the offer with today’s date on it. 

Why are some lenders requiring the change? 

One reason is that lenders are tired of being perceived as the impediments and bottlenecks to the Short Sale process and want (doctored) documentation to prove how efficient they have suddenly become.

The main reason for the request, though, is money, of course.  The recent HAFA (Home Affordable Foreclosure Alternatives) program is designed to help owners unable to retain their homes with a loan modification (HAMP) avoid foreclosure by completing a short sale or deed-in-lieu of foreclosure.  There are monetary incentives for owners, loan servicers AND lenders to complete this process quickly, beginning 4/5/10.  The owner can receive $3,000 for moving expenses, the loan servicing company can receive $1,500 for “administrative and processing costs” and the lender itself can receive up to a $2,000 match for allowing up to $6,000 of the sales proceeds to go to subordinate lenders.

In order to claim the HAFA incentives, though, the loan servicer must meet certain deadlines.  When an offer comes in on a Short Sale listing, it must be forwarded to the servicer within three (3) business days, including the entire offer and all addendums, buyer proof of funds or pre-qual letter and all information about subordinate liens.  Within ten (10) business days after the servicer received the RASS (Request A Short Sale) package, the servicer MUST approve or deny the request and advise the owner of the reasons for denial. 

Hmmmmmmmmm….. The servicer got our offer shortly after January 11, 2010 and it’s now almost May.  That’s a lot longer than 10 business days.  No incentive money for anyone on this deal UNLESS the contract is redone with today’s date. 

What’s an agent to do?

First, require that any such request be in writing and make sure this gets into the company’s files.

We could rewrite the offer with today’s date and have all parties sign it and promptly terminate the January 11 offer with a T&R disbursing the Earnest Money to the replacement contract for the same property.  BHGRE Metro Brokers is suggesting that the following language be added as a Special Stipulation to the “new” contract:  “Neither Better Homes and Gardens Real Estate Metro Brokers nor the _____ (insert Buyer or Seller, depending upon whom we are working with) object to the change of offer date on this Agreement provided that the Buyer’s lender, Seller’s lender(s) and closing attorney have no objection.” 

But what if the parties do terminate the original deal and one or the other refuses to sign the replacement contract?  Can you say, “Time to renegotiate”?

Anyone see any more potential problems?

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12 Responses to “New Short Sale Wrinkle Could Add Complications”

  1. Feder Joseph Says:

    Yes, I see a problem… What if you terminate with a T&R and the seller decides to take another offer that just came in? or if the seller’s lender has multiple offers sitting and once we terminate and add that new statement to the new contract, decides to go for a better deal for them while you are getting signatures on the new contract. We cant be under contract twice on the same deal, so one has to be terminated before the other one is signed correct? “Say it ain’t So… “

  2. Sandi Rodrick Says:

    Even as eloquently explained as you did, Ann, on a clear day I can see this new process will be a door to more problems creeping up! Heck! Even on a day as dark and gray as this one, still see the same issues. It won’t happen in all cases but there could be a lot of contracts in jeopardy the second time around. At least one of the contract principals was probably nervous about signing a contract the first time around. With so much time to think it over, well, I can see the “I’m not going through with this” illness setting in without a cure at the second signing! Good luck, agents! You deserve every penny your earn! Difficult as this may make the closing process, it’s good to know Broker Support and Metro’s “Legal Eagles” are there to back you up!

  3. Leslie Flint Says:

    So-if we just “go along” with this charade (because what “choice” do we have if we want to close the transaction) They can get their incentives-without speeding up the process-.
    In other words, what’s the incentive to speed up the process if agents are “willing” to convince everyone involved to sign new contracts when the bank gets around to responding?

    If we do this-we might win the battle but haven’t we lost the war?

  4. Feder Joseph Says:

    Anne, I was told by a co agent that this effects the lender initiated short sales in their understanding, not the regualar short sales where the owner seller decides to short sale their property because they cant make payments. HAFA incentives will be given if the bank contacts the owner because they are behind and tells them to short sale the property. Can you talk more on this to clear some of this up?

  5. Deborah Gaither Realtor Delivering On The Promise Says:

    I agree with Leslie regarding the seller’s lender gaining their incentives without compliance, with this change they are imposing.
    They can continue their charade without consequence.
    This new rule impedes any progress made for sellers and agents to get the property under contract in a timely manner to avoid the problems faced marketing a short sale, and keeping a buyer from walking away.
    Thanks for sharing the new stipulation for the contract.

    • ann bone Says:

      It does seem ironic that the lenders who were defrauded by less than truthful sales documents a few years ago are apparently so quick to think of this as a valid strategy to accomplish their own goals.
      Several years ago, Broker Support constructed similar language for contracts in which the parties wanted to increase the sales price to match a questionable appraisal. When the parties balked at the language, we knew that we had flushed out probably fraud.

  6. Dennis Doll Says:

    My concern is what the date changes will do to someone who is expecting the tax credit. These buyers went binding before April 30, 2010 but now that could change!
    Won’t this change cause problems there?

    • ann bone Says:

      YES!! Big problem. Although I wasn’t thinking of this scenario when I blogged weeks ago, this is yet another reason for buyers to have avoided short sales if the ITC was the buyer’s goal.

  7. Addie Jackson Says:

    I find myself in this secenario waiting for the title not being cleared before the house was put up for a short sale, contracts and agreements dated April 29, 2010 made, mortgage loan approved and now find out that seller is in bankruptcy court and 2 HOA liens and I am tryin to close by June 30. I hooe no one is playing games or being lack in this job to assure that this transaction go as agreed. Any suggestions??

    • ann bone Says:

      Addie,

      You have my sympathies. I actually blogged, preached and begged our agnts NOT to take any buyers to short sale properties who were trying to get the $8,000 or the $6,500 ITC’s. Too much is in the seller’s court to control on a short sale.

      Suggestions would be to inquire of the seller’s bankruptcy trustee whether this property can be released from the bankruptcy. Since there will be no proceeds for the seller, there is no money for the trustee to be concerned with.
      the HOA liens will have to be paid by someone – the seller, the seller’s lender or even you, but they must be paid in order to convey what we call good and marketable title.
      Showing your contract and the info you have about these impediments to your attorney would also be my suggestion. Good luck.

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