Ever heard that one before?
If you list and negotiate short sales, I’m sure you have. During the past year, the time frame required to close a short sale has increased as more and more properties hit the market in a distressed state. Short sales occur when the bank allows the owner to sell the home for less than they owe.
On all buyer contracts, I require that they put up a non-refundable portion of their earnest money for a specified number of days. When I started with distressed properties, I required a 60-day non-refundable period with $500.00 of the earnest deposit held to keep the buyer in the game.
Actually, this is my advice to the seller, who then agrees to the terms of the contract which is in their best interest. I do not make the terms, I only advise them what would be best.
Since the time it takes to close a short sale has increased dramatically, so has the time that I recommend the seller require the buyer to be non-refundable on that portion of their deposit. There is so much work involved in negotiating with investors –> THROUGH –> servicers, that it’s required by my sellers to hold on to the buyers as long as possible.
My most recent lost buyer, which occurred this evening at 11 something PM, had passed their 70 day time frame and were well within their rights to cancel with a full refund of their earnest deposit.
Who is at fault? Well, I’m not about pointing fingers, but in this particular case, the culprit is the investor who backed the 2nd mortgage.
2nd Lien Holders Don’t Get Their Money
When the owner of a home doesn’t pay, the 1st lien holder (after property taxes and other senior liens) can foreclose on the property. If there is a 2nd mortgage, they lose everything.
During a short sale, if the 1st lender agrees to a certain amount, they usually offer somewhere in the neighborhood of 10% of the 2nd lien holder’s balance to appease them and make them go away. If the 2nd does not accept the offer, the 1st can eventually foreclose and the 2nd will get NOTHING! NOTHING! Do I have to spell it out to the investor? NOTHING! Even if they demand more than the 1st is willing to pay, and the seller, or agent, or grandmother agrees to bring money to the table for the 2nd, the 1st lien holder MUST APPROVE OF THE SALE and if they don’t, THE 1ST gets the additional payment, leaving with 2nd again, with NOTHING ABOVE AND BEYOND WHAT THE 1ST AGREED TO PAY THEM.
So, now that the 2nd, in this particular case, has held the deal long enough to allow the buyer to surpass their non-refundable time-period, there is now no buyer for the property and the seller is faced yet again with the burden of paying their mortgage with money they do not have.
So What HAS been accomplished?
Well, now we know the bottom line and as long as the bottom line is fair market value minus all expenses, we should be able to find a buyer for the property. If we don’t, the idiots who caused the delay, which allowed the buyer to bail out, will get NOTHING! I don’t think I need to repeat myself again.