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Short Sale Denied; Advice to make Bank Reconsider?

Posted by wolfgang80 (My Page) on
Mon, Mar 23, 09 at 16:55

I am/was interested in buying a short sale here in CA. Six months ago, the process began with a purchase offer.
A week ago, the bank, after giving every sign that approval was going to be given any day, formally denied the short sale and said they were going to foreclose.
My offer was the only offer they received in the approximately 9 months that the house was on the market. They were going to take about a $250K loss on the sale.
It's a large loss, but I don't see any way that foreclosing will benefit them financially.

I want this house. I feel like the price is fair, the timing is right, and the property suits my needs perfectly.
Is there anything I can do to convince the bank to approve the sale? Will writing a letter do anything?
I think it benefits them to sell now or else I wouldn't think of trying to convince them to do so.

I figure that I will get another crack at this in foreclosure, but I am concerned that it may go to a lower bidder with an all cash offer, something that I am not able to do.

Thanks for your suggestions.


Follow-Up Postings:

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RE: Short Sale Denied; Advice to make Bank Reconsider?

Hi Wolfgang,

The bank's shortsale negotiators will accept about 85% of what they are highly confident the place will sell for at auction.

YOUR task is to figure out (from the same dispassionate business perspective they use) what that number is likely to actually be, and match it.

YOU may make a case that the "auctionable cash-price" is lower than what they might be thinking... but what you "feel" about it is meaningless to them. You'll have to document your argument by proving the interior deficiencies that need renovations (pictures, BPOs,) the costs of renovations (at least a couple contractor estimates/bids,) and closed-sale comparables of non-financed cash sales (get these from your realtor and/or title agent.)

WHOA... I just rread your last sentence... If you are bidding with a financing contingency, you can forget about any renegotiations.... You play by their numbers, or go play by someone else's numbers. As long as you're not in a position to irreversibly contract and draft a check to close in 10 days or so, they'll have nothing to do with your arguments.

GIVEN THAT... you're in Cali... and its a BUYER'S market (that's you.) So don't stress about this ONE deal... there's a lot more coming along just like it.

Luck!
Dave Donhoff
Leverage Planner


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RE: Short Sale Denied; Advice to make Bank Reconsider?

I see banks reject short sales all the time, only to see them come up in the MLS as Active, and then sell for less than what the bank was oofered months before. Get a realtor to set you up on a search, and if it makes it to the MLS, you will be notified the day it comes on the market.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

The other posters are much more knowledgeable than me, but I'll put in my 2 cents. I was watching a house that was the poster child of the housing debacle - buyers, lenders, and appraisers were all at fault. Short sales were denied, was forclosed on, and then was listed with a brokerage agency. This is where a new level of slime is affecting the housing market. A brokerage held this house for months, and then sold it to an "investor" for 60% of the original short sale offers. The brokerage firm said that they had shown the house 'at least a hundred times' and had a For Sale sign in the front yard. All lies. The bank lost more money than was necessary, and the investor and the brokerage co. are sharing the spoils.

Dave had good advice - don't stress about this one deal. There may be forces that are working against you that you can't be aware of.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

From what I understand, if there is mortgage insurance the bank will foreclose rather than accept a short sale because the mortgage insurance will then pay off. It is probably a good idea to check if there is mortgage insurance before getting involved in negotiating a short sale.

Dave, please correct me if I am wrong.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

Hi Terriks,

Dave, please correct me if I am wrong.

You're mostly correct, yes. If there is recorded (publically knowable) mortgage insurance, then the bank is assured any shortfall of their principal ABOVE the 80%-of-original-value mark.

The bank is still vulnerable to any loss below the original 80% mark.

If the current "cash sale" property value has dropped below that 80% mark, a short sale is still a viable strategy... but in the current environment (more than ever) bankers are really only "dealing" with cash buyers. Buyers bidding with financing are getting a sideways glance, at best.

Cheers,
Dave Donhoff
Leverage Planner


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RE: Short Sale Denied; Advice to make Bank Reconsider?

bankers are really only "dealing" with cash buyers. Buyers bidding with financing are getting a sideways glance, at best.

How many people can buy a home with all cash??? I would think this would be the minority of folks looking to buy a house... No???


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RE: Short Sale Denied; Advice to make Bank Reconsider?

Thanks for your responses. I talked to the bank today and they said that removing all contingencies from my offer wouldn't change their course of action. The only thing that would make them stop foreclosure proceedings would be for me or someone else to assume the loan.
They won't even look at any new offers that are presented.
The person I spoke with indicated that they aren't really seeking to maximize the value of each asset. They aren't equipped to be in the real estate business.

Maybe I'll get another hack at it when it's in foreclosure. Many REOs around here aren't selling to all cash buyers.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

Hi Jeri,

How many people can buy a home with all cash???

Mostly just r/e investors prepared for exactly this.

I would think this would be the minority of folks looking to buy a house... No???

In normal markets the majority of shopers are USUALLY what we call "nesters" (shopping for a home to live in, as opposed to re-selling or renting out,) and yes, very few nesters can buy a home in cash.

This is why most successful short-sales are navigated/negotiated by investors who THEN sell at discounted retail to owner-occupied nesters.

Cheers,
Dave Donhoff
Leverage Planner


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RE: Short Sale Denied; Advice to make Bank Reconsider?

Short sales are being sold here to Buyers with conventional financing every day. maybe the Cash thing is a local rule.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

"Short sales are being sold here to Buyers with conventional financing every day. maybe the Cash thing is a local rule."

The banks tend to move at least a little faster when cash is on the table.

All cash, no contingencies, they listen and react faster.

I have withdrawn offers when the bank sat on their hands.
Let them stew a few more weeks and put in another offer through my attorney.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

As I have said all along over the past couple years, banks are motivated by different factors than a traditional seller.

A potential retail buyer (or "nester") is unlikely to know exactly what those motivating factors are. If the note has been sold on the secondary market, and many have been, then it's the note holder & not the servicer making foreclosure/short sale decisions. Possibly, there are other factors such as the current borrower/owner having other outstanding loans with the bank that adds another wrinkle. Or, it could be how the bank is handling their accounting that makes the difference between short sale & foreclosure. It's really a fruitless process trying to second guess what they're doing & even more so...why. In many cases, due to legal reasons, a lender will decide they need to foreclose & due to confidentiality restraints they aren't supposed to discuss those reasons with you, a potential buyer of the distressed property. Another potential reason to not accept an offer from a retail buyer...they have sold a "block" of REOs to an invester & the particular property you are interested in is contained within that block. The lender has to foreclose to clear title before completing the transaction with the investor. We're seeing many more block invester sales now than 6-months ago. Anyway, it really is wasted energy trying to project your logic onto an institution that has a larger picture as their focus instead of an individual sale.

Cash or financing? Well, there's financing & then there's "financing". Cash is cash no matter where it comes from. If you present an offer on a distressed property accompanied by a Commitment Letter you're set to go when you find a property that suits your needs. If you, instead, submit a Pre-approval Letter...well, that's really not worth the paper it's written on. For instance, we have an open Commitment Letter from our bank that allows us to purchase property(s) up to a certain amount based on our personal guarantee (no collateral). After we close, we give a first mortgage to our bank releasing the personal guarantee portion of the Commitment for another property purchase. That loan may contain up to a certain number of these properties obtained via just personal guarantee at any one time.

How do you get a loan with just a personal guarantee? Well, again as I've been saying for a long time here, it pays large rewards to develop a "relationship" with a bank over a period of years rather than always shopping for the elusive "lowest rate, lowest fees". All I have to do is phone my bank & tell them I'm submitting an offer on such & such property & need a check in whatever amount on the closing date...I've got 45 days from the funding date to provide a lien. We've earned the bank's trust. It's a win-win for both of us.

brickeye,

"Let them stew a few more weeks and put in another offer through my attorney."

I can assure you nobody at the bank is losing sleep over your offer & they are certainly not in a "stew".

Executive management at the bank is entirely focused on the big picture. How a particular property fits into that puzzle only the bank knows. That's one of the reasons David, me, & others harp here regularily that to purchase a short or foreclosure from a bank requires a completely dispassionate approach. Interjecting what seems logical to a "nester" or even the small investor is almost guaranteed to be not relevant to the bank. I stress, again, the bank's need to focus on not only a larger picture but a different picture entirely.

The large lenders holding tens of thousands of these bad loans have set-up varying proccesses to move that inventory off the books. But, even so, at any given time a single property may (or may not) fit into the "guidelines". A property's classification can change overnight suddenly making it difficult, or impossible, to purchase. For example, the bank has multiple loans to the same borrower (CC, mortgage, HELCO, car, boat). A restructure agreement is reached with the borrower & foreclosing on the real estate is necessary to clear up title. Or, a borrower sues the bank. That would halt everything until bank counsel has had an opportunity to review the validity of the suit. There are just so many reasons a bank suddenly decides to not offer a short sale...it's impossible to list all of them.

I'm far more amazed at how many are actually closing than the fact some get stalled out mid-process.

/tricia


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RE: Short Sale Denied; Advice to make Bank Reconsider?

Thanks to both Dave and Tricia. This explains why the offer on a house I am trying to buy is going nowhere.

I would have thought that banks would care about selling property first and then work on cleaning up the mess caused by the previous owner. Its not like a house will improve in value if it sits empty for months on end. But they have bigger problems than what to do about me and my offer, I get it.

I am still confused about a house being listed at $239,000 by the current owner; his realtor stating that he is heading towards foreclosure soon; I see his property listed on a "soon to be foreclosed" website and it says that the default amount is $202.500; I march in and offer $210,000; I get told that my low offer makes this a short sale (?). Are there some fees or penalties I don't know about? If $239 is the rock bottom price he needs then why does his listing say "accepting any offer" and "willing to deal"? It almost seems that those in charge of this situation want the house to go into foreclosure rather than try and sell it. If that's the case then why even list it. Foreclose, clean your books, turn it over to someone that actually wants to deal with buyers and sell the house.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

Hi John,
The $202,500 'default' amount may likely be the default on the FIRST mortgage only. If there are additional loans and/or liens then your $210k offer may be insufficient to cover them all, and thus still be a Short-Sale.

To negotiate it properly you need to have direct access to the seller in order to get all the financial details and properly prepare & present their hardship package.

Luck,
Dave Donhoff
Leverage Planner


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RE: Short Sale Denied; Advice to make Bank Reconsider?

And, the "default amount" may, or may not, include costs of foreclosure (advertising, legal, accrued interest, penalties, fees, auctioneer if required, title work, on & on). Hard foreclosure costs alone run several thousand dollars. There's also a realtor fee in there somewhere if it's on MLS??

As far as who's in charge...that's easy.

Until the property is actually foreclosed the owner is in sole control. The lender may not do ANYTHING except through the owner, or his/her agent, counsel, etc. A lender may NOT deal/negotiate directly with a purchaser of a short sale property. The regulators would frown. The filing of a Lis Pendens does NOT give the lender control of the property...that's basically just a public notice of intent. Many properties with a Lis Pendens filed never reach foreclosure...the owner brings the loan current, the property sells, or Gawd knows what else might happen.

Have you considering bidding at the foreclosure sale?

/tricia


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RE: Short Sale Denied; Advice to make Bank Reconsider?

If it ever goes to foreclosure then I will make an attempt to bid on it. In early November 2008 I was told he had 45 days left. I had looked and bid on this property about a year ago. He wanted more money for it. I said "good luck" and if no other offers come in to contact me. Months go by. Realtor calls in November telling me about the foreclosure. I do a walk through with a remodeling contractor and make a new (lower) bid and put down earnest money. Realtor says well this will be a short sale - which baffles me. She won't comment on whether the info I have on the default amount is correct. Now it's March of 2009, I ask if my offer ever made it to the bank, is the house still heading for foreclosure, and who holds the note? She says to be patient and that everything is up to the seller and that he has turned in his packet to the bank but that these things take months. All of this I understand, except that its been way more than 45 days.

At some point I guess they'll be able to answer my questions but right now its a sit-and-wait game.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

trianglejohn,

I don't know what state you live in? Foreclosure times vary quite a bit around the country...some as fast as 90 days & others a year. In your state, do the statutes allow for a redemption period after a foreclosure sale?

The redemption period is granted to homeowners by state law and gives them additional time to live in the property, without the danger of being evicted. The bank can not continue with the foreclosure process during this period of time. The exact terms and length of time of the redemption period is determined by the state foreclosure laws, and not all states have a redemption period. Some states give the homeowner a lengthy period in which to save the home, and other states have redemption periods of only a few days. Certain foreclosure laws place the redemption period before the sheriff sale, while most others place it after the sale but before the eviction.

Also, if the seller/owner filed BK that would slow down the foreclosure. The lender is automatically "stayed" from foreclosing for several months. In order to break the property free the lender has to obtain a "Relief of Stay" from the BK judge. It's 'usually' a rubber-stamp procedure but not always...and it does take a bit of time (like 2-3 months in most of my cases).

So, I guess what I'm saying is that the time line you gave isn't out-of-line...yet. :) Hang in there...

/tricia


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RE: Short Sale Denied; Advice to make Bank Reconsider?

Thanks. I live in Raleigh, North Carolina.

You know how it is when you're out driving and stumble upon a secret neighborhood you never knew existed and see a couple of properties for sale. Well this house is one of those. I would love to buy it and fix it up but I don't have to, where I live now is fine. I can afford to take some risks. But I also know how much work will be involved to remedy all of this house's problems and I don't want to stretch myself too thin. So I've been patient and can continue to wait, I was just confused.

Wolfgang - sorry for the hijack. My problems may end up the same as yours. Good luck.


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RE: Short Sale Denied; Advice to make Bank Reconsider?

"I can assure you nobody at the bank is losing sleep over your offer & they are certainly not in a "stew"."

Has worked well multiple times over many years, most recently;y last fall.

"Executive management at the bank is entirely focused on the big picture. How a particular property fits into that puzzle only the bank knows. That's one of the reasons David, me, & others harp here regularily that to purchase a short or foreclosure from a bank requires a completely dispassionate approach. Interjecting what seems logical to a "nester" or even the small investor is almost guaranteed to be not relevant to the bank. I stress, again, the bank's need to focus on not only a larger picture but a different picture entirely."

The banks often need to be gently reminded that they are carrying at a loss, and that the carrying costs are just further eroding any money the bank might recover.

The banks remain focused on the bottom line, and in their slowness to respond and react are only costing themselves more money.

I have an RE attorney that is very experienced in dealing with dolts and prodding them along.

If PMI is present on the property it can help with some of the loss depending on how much was purchased (usually the difference between 20% down and the actual down payment made).

It is a more drawn out process, and not for the faint of heart or those on a tight schedule.


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