Do You Tell The Short Sale Lender "Buyer Walked"?

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Do You Tell The Short Sale Lender "Buyer Walked"?

Short Sale buyer walks

Karla Leahy started an interesting discussion on www.ShortSaleSuperstars.com. She asked "Do you inform the short sale lender when you no longer have an offer?"

From what I’ve seen the thought process behind not divulging the buyer walked is:

1. The lender will complete an appraisal or BPO that will speed up the next approval

2. The seller’s pre-qualification may be completed and ready for the next attempt

3. With some lenders, you can sneak in a substitute buyer

Bottom line, it “saves time” for the next buyer, the one you hope closes.

BUT-- IS IT RIGHT TO NOT DISCLOSE THE BUYER WALKED? Why should the short sale system be clogged because you are trying to speed up your next offer? Is it right to allow the lender to continue to work on an approval when there is no longer a contract? Sometimes there is another twist on trying to speed up an approval. “Fake” or “starter” offers are sent in to the lenders to get an appraisal ordered, when the “buyer” has no intention of closing. The “buyer” might even be the real estate agent.

Some of the lenders have a few hundred thousand offers in process. HOW MANY ARE LEGITIMATE OFFERS? The “real” buyers (and the sellers) suffer through longer wait times because others have tried to game the system, "dead" deals are being processed or offers with no hope for approval have been submitted. If lenders were only processing contracts that could actually close, all short sales would be speeded up, right?

So, I ask "Would YOU call the short sale lender and tell them to stop working on the sale if your buyer walked?"

It's Wendy!

Available Short Sale Agent Training:

Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.

Destin FL Real Estate

Call toll-free 1-877-ITS-WNDY (1-877-487-9639) or local 850-650-7883 ext 204

Email Wendy: itswendy@rulnickrealty.com

Posted by Wendy Rulnick "Its Wendy!" Destin Florida Short Sales on 10/17/2009 09:33 AM

Comments (79)

Short Sales in the Sales Strategies / Tactics Channel

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Originally posted at: Destin Florida Short Sales & Real Estate by Wendy Rulnick: Do You Tell The Short Sale Lender "Buyer Walked"?

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79 Comments on Do You Tell The Short Sale Lender "Buyer Walked"?

OCT

2009

Wendy, I think as a whole and many reason you should inform the lender.

Yes, I think the lender should be notified when the buyer walks. However, many agents are not making that disclosure. If you are going conduct an ethical business, you must maintain good faith by disclosing material facts.

What sucks about this whole thing is that the lenders have created the problem themselves. If there was a streamlined process with short sales people would not need to resort to desperate or deceitful measures.

Wendy...I agree with Bill, if the short sales moved along in a timely manner we wouldn't even consider these tactics. The banks have made their own beds and will have to sleep in them for quite sometime to come. I have not had the occasion to move a buyer in when a buyer exited a deal...but I would have to think long and hard about starting the process all over again when reviewing the hurdles in hind-sight.

In a perfect world I believe the lenders should be fully informed when they are working in my clients best interest.

But, this is far from a perfect world and from my experience they are staying afloat with taxpayer money and thus have no accountability or urgency to process the short sale files.

On a current file, my client is doing everything to mitigate damages. The bank is not and that hurts my client. These delays add costs to the process, especially once the attorneys are involved.

The banks must have some underlying objective that is in their best interest not to process quickly. I don't know what it is but I'm sure there are dollars lining someones pocket.

I'm personally am going to do what is in my clients best interest.

Wendy,

Do two wrongs make a right?

I can think of many reasons not to tell the lender, but not even one reason why doing so would be right! We've all had clients we've had to train, but they were normal intelligent people capable of learning! You're not dealing with normal intelligent people you're dealing with powerless low level bureaucrats. You can't justify your bad behavior claiming to train the the untrainable!

Tell them. Pull over at the first gas station that advertises Reg. $0.299 and call them, or inlue there of send them a letter it's only $0.42.

Bill

Wendy,

I just had one that took forever to finally close. The first two times the lender dragged their a-ss...we told them the buyer walked and they had the nerve to tell us...go find another buyer...too bad...why not tell them? If its their fault then they should know.

Oh and I can also tell you that I've heard title companies that put in offers just to get the lender to give them an approved sale and then either they buy it or they walk. It is irrelevant anyway ..if you have a BPO done and for example the deal dies yet you already have a written approval..six months later they have to do another BPO anyway and the value might change...just happenedto me...the banks took too long..told me to drop the approved price 20K lower...we closed but they lost 20K for taking too long the first time. On top of that ...it was before the law changed regarding lenders negotiating our commissions if the loans are Fannie Mae or Freddie Mac..the first time they told us take X or the deal is dead...well in the end when we closed they paid us the full commission and a processing fee to boot...that's their loss and mistake.

I keep hoping that the lenders will develop a triage system that will allow them to clear the simple ones first and get them out of the que. They would not run up penalties and legal fees because of delays created by the lender.

Frank and Roy - I see two sides to the argument, and understand your positions.

Bill G- What you say sums it up, makes sense. How do you deal with a system that is a mess in the first place?

Steve - Who wants to go back through the extended punishment?

Mark - Another interesting perspective - doing what is in your clients best interest!

Bill A - Do you actually go out of your way to call in, go on hold for 30 minutes and let them know? Would they even figure out you called in? Mailing the short sale lender a letter - I am sure that would be probably funneled to the right department in a timely manner, there's a thought!

Neal - The fake offers are a problem. And you are right, a BPO only lasts so longs, some are only good for 90 days. Your perspective is correct, too, in that they likely caused the deal to die.

Ted - If only they had a system to recognize simple ones! If they were that good, everything would flow better.

BofA, NO I won't all the others, yes I will.....

Hi Wendy... I would tell them. Intentionally misleading anyone has the potential for a plethora of bad repercussions, not the least of which is bad karma.

The contract is between buyer and seller. The bank is not a party to the contract, so I would not assume there is an affirmative obligation to inform the bank if the buyer cancels.

Whendy,

Yup!

I'll"Pull over at the first gas station that advertises Reg. $0.299 and call them, or inlue there of send them a letter it's only $0.42."

"Mailing the short sale lender a letter - I am sure that would be probably funneled to the right department in a timely manner..." Personally, I like to smile at people, it's the right thing to do! Do I care if they don't aprechate the courtesy? Not really. Let them drown in their own bile vile.

The "Golden Rule"works, if only in providing the self satisfaction of knowing I did the right thing.

Bill

I do not let the lenders know anything pertaining to the short sale that might hurt my client's chances of closing a short sale. Besides, because of the way I do short sales, I hardly lose buyers and even if I do, I want the offer to go through to see what price the bank will let it go for.

OCT

2009

I wouldn't tell them...I'd just bust my butt to get another!

There is a balance here. . if I absolutely believe that telling them will hurt my client's chances and a foreclosure on their records. . I would do anything possible to make it happen. enuf said!

No, unless they specifically ask for notification. We need a price and an approval. Since the lender/bank won't do it until we give them a contract, that's what we've done. Once we have an approval, we at least have something to work with.

Good Morning, Wendy. Depending upon where we are in the process, I may or may not divulge that information. If we are waiting for our initial call from the negotiator, for example, I might just wait for that call and tell her/him that we are now working with a different buyer and could I just fax that offer and HUD-1 right over? I've found that if you fax offer after offer ito the main fax line of these banks, it truly muddies the process.

Hi Wendy, If the short sale process wasn't as slow as sometimes it can be, then this wouldn't even be a question. The process desparately needs to be streamlined. We recently had a lender that reassigned the package to 5 different loss mitigators over the course of a month. Every single one of them asked that every piece of documentation be RESENT to them. They couldn't get it from the previous mitigator that gave them the package - UNBELIEVABLE!

Wendy, I guess for me it depends on where I am at in the process. If it's BofA and we haven't been assigned anegotiator yet then I just keep moving forward and try to get the property back under contract. Usually I can resell it in a matter of adys anyway. Now if they ask I certainly tell the truth.

In my opinion, the bank, including higher-ups, need to know that the buyer walked. At this point they seem to think they can take forever to respond to a legitimate offer and the buyers will just hang around. No matter that many will lose out on the tax credit due to the banks' lack of professionalism. So I say, let them know that their poor attitudes caused the loss of a buyer and will perhaps cost the banks money as they have to pursue a foreclosure.

I have little simpathy for bankers that drag their feet. We gave them billions to bail them out and they return the favor by messing up short sales, adding fees to their clients accounts, and dropping credit limits and thus lowering credit scores. They created a lot of the mess we are now in and are doing precious little to help get us out. Can you say "executive bonuses"?

I don't do a lot of short sales so keep that in mind. However, I would inform them. I want to be able to sleep at night.

Wendy~ Honesty is always the best policy. I would notify them immediately either by phone or email or letter. (whatever takes less of my time) But I would notify them.

Wendy, thought provoking and so tempting ... I see you've heard from both sides of teh coin. I too believe you should proceed with alerting them, but I do believe that your response should be at least as timely as their response to you.

In past short sale deals, I haven't told the banks when a buyer walks away from the deal. I'd rather get the approval, or at least a counter-offer, so I can adjust the list price, if needed. The downside of that, though, is that when I do get an "approved" price, the subsequent "new offers" come in at even lower than the price that was approved. I guess their agent didn't explain "approved price" to their customer. *sigh*

My Sacramento short sales sell so quickly again that by the time I'm able to get through to the lender to let them know that the buyer walked, I have another offer to submit, so what's the point?

Some banks will close the file on the news and open a new file for the new buyer, starting over, like Bank of America. Some will simply accept the new buyer's offer and keep working on it.

I am in agreement with Bill A ....it is simply the right thing to do. Putting the shoe on the other foot, what if you had a listing where the buyer had already made a decision to walk away, had a contingency in place that hadn't been removed so they were protected, and you relied on what you considered to be the most timely information in communicating with your seller. Wouldn't be too cool, would it?

I think the banks have much to learn....BUT if you can't deal honestly with what is happening, don't work on short sales.

Hi Wendy. I'm in Tampa Bay and yes I would disclose that. ~ Lana

Wow. good topic. I don't know if I would tell or not. I understand the ethics. However,, as many above pointed out, the banks are moving so slow, especially B of A. (no thanks to Countrywide) But then again, they move slowly because of this very topic. Who's on first, I say?

Wendy, it doesn't make sense to tell them, because they won't help the seller until they have an offer. Keep working the sale and get another buyer asap.

Very important note: It's not a question of ethics, as #13, James Miner, an attorney, pointed out. The banks, let's use Chase as an example, don't even follow the HUD guidelines concerning FHA loans...we work for the seller. We are not breaking laws or doing anything unethical.

We are working in our client's best interest, and our client is not the bank.

Wow what a question. I am tempted to say no for obvious reasons. If I say yes because it makes more sense, how much does it really help the next in line? I would ask my client and do as they instruct.

I think the problem is a concern that this will put the whole process back to the beginning and delay getting the job done which could cause the next buyer to walk as well.

Wendy- We never tell the lender the buyer walked. 99% of our short sales that are in the funnel have a back up offer buyer calling us every week asking how they can sneak in:) My answer is always as soon as the offer to release escrow from the first buyer is executed.

We are working for the sellers- not for the banks, not for the short sale note owners, not for the government. We work for private citizen sellers and therein lies your answer- never do anything to detriment your seller. We don't owe ANY duty of any kind to the lenders- they are NOT a party to the buyer's and seller's contract.

Most banks will accept a substitute buyer so we send them the new contract with of course all the terms of acceptance met or even better from the new buyer.

BofA makes you start all over again but we have been able to get assigning managers to get the new offer to the front of the line.

And especially if there is a sale date for auction that has not been canceled yet! Wait til the judge cancels the auction date or the lender cancels the date! Katerina

I'm not a SS biggie but I've done quite a few. And I will extend the same courtesy and professionalism I would want.

I have negotiators STILL communicate with me kindly and cheerfully, months after a closing. Is that valuable?

I've had them agree to leave a file open for the next buyer because we communicated honestly. Is that valuable?

I would not lie by omission.

We don't tell. To me, they should be hiring enough people to process these files and quite often, we will find a buyer before the bank knows any different.

Great post!

Wendy, I would tell them the buyer walked. Too many tangled webs show up, when you try to pull a fast one. Honesty-best policy. Hate it, but the truth hurts...too punny?

Typically what I do anymore on short sales is get an investor to submit a very lowball offer to at least get the whole process started. In the 3-4 months it takes for many lenders to even respond to the initial offer, I can normally find a better buyer and then the response time is sped up dramatically.

I listed one with National City Mortgage back in April and got an investor to submit an offer. National City told me that it takes 12 weeks before they will even look at the file. In the meantime since I submitted the offer, I kept dropping the price every 2 weeks or so and by the time late August rolled around, I received a cash offer from a good buyer for about 20K higher than the lowball offer. National City was happy with the higher offer and the deal closed about 30 days later (as opposed to waiting another 12 weeks).

The lenders bring this stupidity upon themselves. How come they can respond to an REO offer in 3 days, but can't respond to a short sale offer in 3 months? Dumb!

Wendy- I would think if you didn't disclose and the truth came out there could be big problems. Even without that, I would say you need to tell the lender. Wouldn't you tell the seller?

Wendy - I have this dilemma right now. The seller asked me not to tell the bank because she was afraid they would reschedule the foreclosure that had been postponed. I felt that the right thing to do would be to inform the bank even though I see the reasons why someone might not want to. However, I have called the processor several times since the buyer walked and he has not returned my phone call even once so I can't disclose even though I want to.

I had one where I didn't. They didn't answer us for over four months. The person that was suppose to be working the short sale, NEVER, NOT ONE TIME, returned a phone call. We spent hours trying to talk someone to save the sale. We were not going to spend hours trying to talk to someone to tell them the sale was blown. The potential short sale was putting the foreclosue off. We did get a new buyer and by the time we closed the seller's pre-payment penalty had fallen off and it was no longer a short sale! The mortgage company got all of their money (minus the pre-payment penalty that was due and preventing a reasonable list price) and the sellers got $900. We totally acted in our seller's best interest all all times and we never intentionally mis-lead anyone. We just didn't waste hours trying to reach someone at the mortgage company that was not returning phone calls.

Wendy - Great discussion here and a great question. I agree with Katerina ... the seller is our client and we have back-up offers 9 times out of 10. I also agree with Bill and Steve is that the banks kinda force you to do practices like this due to length of time to get a response in the first place.

We never and I mean never submit a "run it up the flagpole" offer that we wrote..the imaginary or not serious just to see what they would take buyer wrote....don't believe in it...it IS what clogs the system. We often have a back up buyer not too dissimilar from the primary buyer...and as long as they are of course qualified....sliding is a good sport !

this is a great discussion... because the theory is that all buyers who write the contracts will close.... but agents watch their hard work go down the tubes when these buyers walk... so that is a tough call.. depending on the situation.

I usually wait for some type of response, and if a counter offer is not made, I deam it expired. However, we do notify them if possibly, either through phone or fax. Go get the next one? Of course, but I believe that each offer should be handled in a professional manner, giving the same courtsey that you would expect to receive.

Great discussion, Wendy. We don't have a large number of short sales in my area (crossing fingers that it remains that way), so there often is not another buyer waiting in the wings for these properties. That said, I had buyers walk from one of my short sale listings and no, I did not notify the bank. I notified the seller and had the appropriate cancellation signed. The bank is not my client and I was not about to derail the efforts of the seller by calling the bank and giving them a reason to push that file to the bottom of the pile. When asked, I certainly disclosed that the buyer had cancelled. But until then, my lips are sealed.

If it ia Countrywide and you are in Stage One they won't let you sub in a new buyer. You have to start over. If I am close to Stage Two where I can sub, I will keep my trap shut. They make these silly rules, and in the words of In Living Color, Homey don't play that.

Great question. I agree with comment #13 that the contract is between the buyer and the seller. But, if the lender is processing information from buyer 1 and buyer 1 is no longer in the picture, then I would think that you have the obligation to inform the lender. I'm going to check with an attorney as well on this one.

I think Bill Gassett hit it. We should have an obligation to inform them, but they should have streamlined the process in the first place.

What is brokers could sue the banks for lost commissions if the bank were to take more than 4 months or so to get back to an offer?

Wendy.. What a great topic on SHrt Sales. I'm many cases, the BPO should have already been ordered before a buyer would walk. Now ordered VS completed.. Another story.

The right thing to do is to disclose it, the smart thing to do is to get another offer before you have to disclose it.

OCT

2009

Great discussion. Tell them . . . maybe they won't drag behind the next one when it comes through.

Kim and Stacey- What the right thing to do is to protect and represent your seller. The bank is not your seller. The servicer and the note owners are not your sellers in a short sale. The seller who is the homeowner is your client. What is 'right' to one person is 'not right' to another. Your feelings of what is right are not the issue. Making sure your seller is not foreclosed on is the issue and as long as it is not illegal- I am going to do my darnest to make sure our sellers get the best negotiations possible from us, if that means a buyer walks and we keep the ball rolling and sub another buyer- there is no harm in that, and it is not illegal. I can sleep at night knowing I fought for our seller. The bank is not a party to the contract, the bank is not my friend, my client, my anything. Katerina

I would absolutely advise the lender that the short sale buyer "walked". Although I would actually advise the short sale lender that:

"The buyer decided to purchase another property. They just got tired of waiting with no assurance at the end of a long process that the contract would receive lender approval. The buyers were uncomfortable with the lack of communication about status".

Of course, you must tell them. However, I think telling them truthfully why is just as important.

Of course, they should be advised, but they are the ones who employ a stupid system of their oen making Karen

I don't thin k there is any harm if you have a backup offer- you just send them a new contract. If you don't have a backup you have a problem bigger than disclosing anything to the bank.

This is an interesting discussion. It magnifies the importance of always having a viable backup buyer and makes it's stand by proclaiming we owe our loyalty to the seller client !!!

Hi All- Thank you for the fantastic discussion. I see about 90% of you would not disclose the buyer walked.

Wendy ~ I like Katerina's comment. We work for the seller not the bank, government or anyone else. We are trying to sell their home. If buyers did not have to wait so long to get approval from the banks they would not be walking!!

I live in a area where most our inventory is either short sale or bank owned properties. My short sales all have back up offers. When a buyer walks, (it has not happened to me yet) I have heard the best thing to do is get that back up offer in and hope the bank will keep going with the process and make you start all over!

Thanks for starting the discussion Wendy. It is always great to read and get other opinions from people all across the country. Each area is different but all advice and ideas are so great to hear!

Wendy,

Sure, I would tell them the buyers walked, but I may take as long to get around to it as they have taken to responding to the package in the first place!

To answer your question: Hell yes I would call!

You are absolutely right about clogging the system. Trust me, it's clogged.

I have had multiple offers on most every listing that I have had and continue to market for back up offers. This is exactly one of the reasons that I do so, so that I do not have to deal with a lender with out an offer in place.

I agree with Bill, Steve & Neal on this - it's their fault so make it known (they're incompetent time wasters that's not getting the job done). I don't think you should fake offers just to get your listing attention, that is another problem that adds to the bad situation.

When I read the responses, I see both sides of the argument but I also noticed many agents voicing opinions as if the lienholder were either their client or customer (the other party). I'm referring specifically to the position of disclosing to the lienholder that the deal is dead due to them dragging their feet. In Washington we have fiduciary responsibilities to our client and to the customer. Those duties however are not required by law to be given to third parties such as the lienholder. Therefore, when one mentions "material fact disclosure" as an argument for needing to disclose to them, I find no common sense or legal reason to do so.

I do not agree at all with forging fake contracts - that is ethically wrong.

Maybe if we fax in that the deal is dead it would solve the problem... they inherently lose paperwork so while an agent could feel in compliance with" disclosure", even if it is not due, it would inevitably get lost by the loss mitigation depts so they would continue to work on them. Or imagine that... they might all the sudden start paying attention to their fax machines more.

My client is the seller, not the bank. I have a fiduciary contract with my seller; I have never signed anything with a bank. If a buyer walks and there is no fish on the line, a foreclosure will not be postponed. How can I look my seller in the eye and tell them they lost their house, because I opened my big fat trap? THAT is not working in our client's best interest.

In this market, in Southern California, obtaining another buyer is as simple as clicking "Active" in the MLS and watching my fax machine blow up over the next 48 hours. Until I have a replacement buyer, the bank does find out the buyer walked. Period.

Yes, I think it would be in the best interests of professionalism to notify the lender when a buyer walks on a shortsale. However, the reality is we represent the seller as a client, who may be just weeks away from a foreclosure that the previous offer had suspended and has now opened a window of opportunity to get another offer ASAP. The lender is not a client or a customer in the terms of the real estate transaction; I think it is extremely interesting to see how this has been interpreted here.

Thankfully, we generally have had the luck of having multiple parties interested in our properties and have been lucky so far that a back offer was usually waiting in the wings.

Wendy, very good post and we enjoyed reading the comments. When all is said and done, we represent the wishes of our sellers and as many have mentioned, the banks created this system that causes this behavior. The current system does not seem to reward telling banks that the buyer walked, but there are certainly ways to structure the transaction so this problem doesn't occur in the first place.

I plan on notifying the seller's lender by whatever means necessary that my buyer s walking. After months of wasted time and incompetent parties involved its time to move on the a real seller that's motivated.

I'm so sorry Wendy...

I did read this. I just got sidetracked and forgot to comment.

It's too late now. Everyone else has stolen all my words :)

TLW...ROAR!

TELL THEM THE TRUTH!

I can't imagine having to fabricate a lie down the road to cover my deceitfulness of non-disclosure! Lenders do not have a "don't ask - don't tell policy". As Realtors, we take the Realtor Pledge. It appears several of the people have forgotten it, so I have included the link: http://www.realtor.org/realtororg.nsf/files/R_COE-Pledge-of-Performance.pdf/$FILE/R_COE-Pledge-of-Performance.pdf

If you don't disclose, you are guilty of violating Article 1 and 2!

Duties to Clients and Customers

Article 1 = REALTORS® protect and promote their clients’ interests while treating all parties honestly.

Article 2 = REALTORS® refrain from exaggeration, mis-representation, or concealment of pertinent facts related to property or transactions

I wonder how many of the previous 71 responses will realize after reading my post #71 that they have put in writing their willingness and their documentation of their infractions?

Be careful what you blog my friends!

Jim,

And if we can ever get them to take our calls we will be glad to fulfill the COE. Do bankers have one?

Depends where we are in the process. It is different with every bank, if you have a negotiator or if it was just submitted.

Some banks shred the files and start totally over...and others will keep it open.

OCT

2009

I never have told them a buyer has walked or would I. They will have to start all over if I do from what I've seen from other agents mistakes. Let them continue to do their work and you do yours to find a new buyer.

Todd Clark - www.LivingBeaverton.com

Wendy - I would not tell the lender simply for the #1 reason that I represent the seller.

OCT

2009

Jim - the bank is neither my client or my customer in a short sale. I represent the seller.

I also would never tell them my buyer walked until I had a new buyer in place.

NOV

2009

Not sure how it would help the seller or the lender to tell them.

MAR

2010

There have been many times when I wanted to...haven't done it yet.

MAY

2010

Yes, I would. When in doubt, disclose. Saves on a lot of confusion.

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Wendy Rulnick "Its Wendy!" Destin Florida Short Sales

Destin, FL

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