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SHORT SALE MARKET EVOLUTION - GMAC SOLUTION TO FALSE BUYERS

KUDOS to GMAC mortgage. Their new criteria for short sale consideration is that all contracts with buyers must have a clause that requires the deposit on buyer default to go to GMAC.

Here is the language GMAC wants if you have a short sale with them as the lender:

2-3% earnest money must be agreeable to buyer. Contingencies must be removed 14 days after we issue approval letter and earnest money becomes non-refundable. If buyer walks, buyer and seller must agree in writing that earnest money will be wired to GMAC.

This development is clearly an attempt to stem the tide of buyers that are in fact "false buyers", and to create real, binding contracts with penalties for walking away.

This is no new concept. In all traditional contracts for purchase and sale there are contingencies and once the contingency is met or waived, the buyer and seller are bound to the contract. This has NOT been the trend in short sale contracts and I have written about the frustrations it creates over a year ago in SHORT SALE BUYER CANCELED CONTRACT EPIDEMIC - DIAGNOSIS AND CURE and MULTIPLE SHORT SALE CONTRACTS AND HOW TO AVOID THEM.

The short sale market has been a remarkable opportunity to see the evolution of business models in the finance and real estate economies that often take a decade or longer to develop - but we are seeing it happen in months instead of years. It reminds me of seeing an entire planet evolutionary development be condensed from billions of years to weeks as in the movie Star Trek II: The Wrath of Kahn, where the Genesis project device creates an entirely new planet before our eyes. (See also the sequel Star Trek III: The Search for Spock).

The short sale market is not as exciting as the movie - but its evolution is, as Spock would say, remarkable.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com.

See our easy to understand articles at:

TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES

Posted by Richard Zaretsky, Florida Real Estate Attorney on 02/11/2010 05:50 PM

Comments (97)

SHORT SALE GMAC in the ActiveRain Channel

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Originally posted at: Z's Legal Short Sale Blog: SHORT SALE MARKET EVOLUTION - GMAC SOLUTION TO FALSE BUYERS

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97 Comments on SHORT SALE MARKET EVOLUTION - GMAC SOLUTION TO FALSE BUYERS

FEB

2010

Richard - So GMAC is forcing the buyer and seller to write an addendum to their purchase and sale agreement stating such? The seller is also harmed, however, should the buyer walk, and probably harmed more than GMAC. Isn't the requirement overbearing?

I'm not comfortable with the bank holding the earnest money because there is no assurance that they will follow the law with respect to earnest money if they, the bank, doesn't approve the contract.

The way I am understanding is the Broker holds the money and if the buyer walks, the bank gets it. I don't think that is fair to the seller, but, since they are more than likely behind, maybe I can see the reasoning????? Now, how do we get the banks to reward us when they don't close or respond on time, lol. You solve that problem and you will be a miracle worker :)

Contingencies must be removed 14 days after we issue approval letter and earnest money becomes non-refundable.

Well that if 14 days AFTER they approve, so that gives enough time to do inspections.

In my mind if a buyer has waited that long, then chances are they really want the house and are not playing games.

I have to agree with Lenn, it would be like pulling teeth to get it back from them.

Contingencies must be removed 14 days after we issue approval letter and earnest money becomes non-refundable.

Does this include the financing contingency? Try to get a bank to move that quickly on the buyer's loan commitment!

just another way for the banks to show everyone who really is making the rules of the game

Does this REALLY help to prevent the 'False' buyers? I re-read your earlier blog and it seems that you were posting about buyers who walk early on in the inspection period right after short-sale approval. This clause really only prevents walk-aways in later stages, right?

Richard,

False Buyers? Short sales are no walk in the park. Issuing approval letter and removing the contingencies in 14 days? Do banks normally move that fast in a shortsale?

So if the bank fails to perform and keep its timelines...it is my buyer's fault? Bank of America is an example of where this could go wrong. How about just approving things FASTER and this would be avoided altogether?

Richard. I had this conversation with GMAC last month., I knew this was coming because GMAC was picking my brain about how escrows work in Florida. I don't like it at all. Once again it's banks meddling in contracts where they do not belong.

My listing contract actually states that I am entitled to 50% of the deposit when the buyer defaults. Is GMAC now wanting to take that away from me? Is GMAC going to pay me and the seller when they end up wasting our time?

I have no clue how they can force sellers to agree to this.

What happens when there is an escrow dispute? I think my escrow company is going to have an issue releasing funds to GMAC if the seller and buyer don't agree.

If we could get timely approvals for short-sales, then this whole "walk-away" problem would "go-away". The real issue as I see it, is that it simply takes too long for the bank to review and accept or reject the short-sale contract. While banks are messing around deciding whether or not to take a short-sale contract, buyers have time to search for a new home.

The short sale market revolution will need to have a 14 day turnaround time for bank approval if GMAC expects to keep earnest money. The long time that buyers have to wait for bank approval is the problem not false buyers. I have an investor who makes low offers, but he's a real buyer! He doesn't mind waiting a long time. However, ost of my buyers need to move before school starts or when job starts etc. and can't wait for the bank approval. Many want to be sure they can get the $8,000 tax credit. Time for approval is what causes buyers to walk--not fake buyers! Will someone ask how to fix that?

It's very typcial for our Purchase and Sales Agreement to have the buyers earnest money on their default go 100% to seller, or 50%/50% to both seller and listing brokerage. And if there's a discrepancy on earnest money, ESCROW HOLDS it and doesn't dispurse anything! Good luck GMAC on DISPUTED earnest money deposits! Escrow ain't gonna wire a thing!!

ive never seen a buyer walk after the banks approval. If they do shame on them and send their deposit wherever you want...of course the listing broker will get their half. But buyers walking after the banks approval is rare. Buyers walk in the weeks and months between the time of their offer and the banks decision. I dont let my buyers put up a deposit untill the the banks approval. I have them submit "proof of funds" with their offer to let everyone know that the money is there, but no money changes hands until the bank approves the deal in writing., By the way, my buyers dont walk...they withdraw their offers when they dont get a timely response.

GMAC is not holding the earnest money, they just want it if the buyer defaults. That sounds like typical REO language to me.

How about this...if the buyer agrees to this than they get an answer from the bank within 14 days of ratified contract between buyer and seller? They can't have their cake and eat it to!

What GMAC is forgetting is their part is and only to accept less than what is owed on the current loan. The contract is between the Seller & Buyer and conditions such as this is most cases violating state contract law. Same as trying to reduce Brokerage fees.

Wrong idea! This will just make it that much harder to get a short sale property listed and sold.

In Texas we execute a contract between a seller and buyer and the Short Sale Addendum sets up a contingency for lien holder approval. The other contingencies are usually financing and HOA documents. Further, if FHA or VA financing is involved this would violate the FHA/VA Amendatory Clause that allows a buyer to terminate and receive their earnest money if the property failed to meet the lenders guidelines or fails to appraise. On a failed escrow, I'm contractually entitled to half the earnest money.

The entire problem could be solved if the lenders would find a way to speed up this process. I have one that I've been working since May 2009. We lost three contracts while the lender failed to get anything done. I'm on my fourth contract now. These were not false buyers and we could have closed this 6 months ago if they could get it together.

Tom

I agree with others who have commented on this post, the real answer is to expedite the process. I've been hoping for that for years. But alas, it hasn't happened.

Richard,

Thanks for the information.

Question, "2-3% earnest money must be agreeable to buyer. Contingencies must be removed 14 days after we issue approval letter and earnest money becomes non-refundable. If buyer walks, buyer and seller must agree in writing that earnest money will be wired to GMAC." Did GMAC write this? Don't they have an attorny on staff or consulting?

It would have been helpful if they provided an acceptable potentially binding clause.

Bill

Richard- Nestor and I were just talking about this when I read Broker Bryant's comment which we are in agreement with. Comment #10. We get 50% of the defaulted deposit according to our listing agreement which now GMAC is going to also govern our listing agreements???

I don't trust any bank to have this much power, control or getting involved in the actual business of real estate. This is what NAR has been fighting, keep banks out of the biz of real estate, now they are controlling the listing agents agreements? What about offers where the buyer is asking for 3% back on FHA loans. Katerina

I would not recommend any buyer of a short sale to agree to such conditions. There are many instances where the property valuation is inflated by a BPO agent. This has caused buyers, who are working with agents who helped determine what their "best offer" should be, to walk.

A solution would be to trust the professionals who are very familiar with the local market and can determine what is "fair" market value of a property, remove the red tape, and approve their (lenders) short sales quickly. If that were done there would be less buyers walking, more new homeowners, and local governments receiving tax revenue........

Ben

I don't get it. How does this prevent false buyers? If the buyer is going to walk, they do it before they either deposit the Earnest money, (once approval comes in) or they walk on the inspection before they release contingencies. When would the bank ever get the money from a "false" buyer.

Maybe someone can explain what I'm missing.

I like Broker Bryant's listing contract that he is entitled to be paid upon default.

I agree with the above posts wondering where GMAC actually qualifies for any of this earnest money. They are not a party to the contract, they are only approving the short sale amount. The contract is between the buyer and seller. This is just like a broker adding an addendum stating that they are entitled to 100% of the EM if a buyer is in default, but never putting it in the original listing agreement with the seller. It sounds like banks are just making it a little more difficult to close on short sales.

and to think there are people out there who are actively seeking short sales. I am so happy that my living is not based on short sales.

Side note, I have had a BOA short sale working since September that they foreclosed on today. Luckily I am working the buyer, I will get paid because they will buy something else but the LA won't get squat

Wow - lots of comments so its going to be a long night.

First off - this is Quote - exactly what the GMAC language is - I did not change a word.

Second - most brokerage listing agreements have a portion of the deposit going to the broker.

Third - the financing issue - apparently GMAC wants the buyer to be all cash or to have the financing contingency satisfied beforehand -- which can only be done if GMAC guarantees a specific turnaround time on their decision on the short sale.

And regarding the comments that the buyers walk before there is a deposit made (before there is a lender approval) - I have always advised my sellers to reject such contracts - because they are, from my experience, false buyers that more often than not bolt when the approval is received and never make the deposit.

This is the most blatant, arrogant disregard for the customers that I have seen to date. The banks think THEY deserve the deposit if the sale falls through? If anything, the seller should get if, if the buyer wastes their time. At the MOST, there may be a split. If I saw this verbiage, I'd take my buyer elsewhere, immediately!

And how does GMAC figure that they will cancel out the listing agreement that states in many cases that the forfeited deposits will be split equally between the seller and the broker. Again, the innocent party in the situation gets to pay the bill. Boy, aren't the banks just winning over friends in all sectors. At least their CEO's are getting some nice bonuses. Merry Christmas to them.

I think that this is not so bad as long as it's done after an approval. Most of the buyers that walk, walk before an approval. A regular buyer would forfit his/her earnest money afte contigniencies have been removed. I doubt however, that any buyer would want to sign it. We'll see how far this flies.

Here's an idea. What if you required the buyer of a short sale to put 3% in escrow? If they walk, 1% goes to the seller, 1% goes to the bank, and 1% goes to listing agent. Just throwing it out there. It's a pain in the ass butt fro all involved haveing to wait. Why not make it more worthwhile for the buyer to stick around? It was just a thought.

How about just get the listing agent and/ or escrow to stay on schedule and get updates daily on the file and not make it mysterious to get answers. Let us buyer's agents bind the seller and agent that we will charge an inconvience fee because we are letting other great , easier to negotiate property pass us up because we are stuck for 3 months going nowhere fast. HMMM....

If my client really wants the house, he will sign the addendum and perform as needed. If the house is o.k. but there are other acceptable alternative houses available, he will say "no" to GMAC's addendum and write a counter offer that is more acceptable. If GMAC refuses to sign, then we have no contract and my client will move on.

FEB

2010

14 days sounds fine. 2-3% sounds like a good idea, particularly since it's held in the broker's escrow and only sent to GMAC if buyer defaults. I also like the idea of listing broker keeping half in event of default. The point of VA/FHA failing to make appraisal is valid as that has been grounds for buyer to cancel without penalty (if it comes in one penny low, regardless of what seller may be willing to do to the price). Sounds like short sales will soon have a set of bank addendums similar to REO's where the buyer understands they are giving up all rights in order to play this game. Buyers who want more rights must stick to the new construction and traditional resale markets.

We're seeing an increase in "contract buyers" who submit a lowball offer to start the short sale process of negotiating with the bank, meanwhile the "buyer" goes out and sells their position for a modest profit. If I'm understanding this change correctly, those contract buyers would actually be putting 2-3% at risk, which seems fair and equitable. Maybe it will take some of the profiteering out of the short sale product.

It IS a new concept for a party (?) to a sale agreement to be the holder of the earnest money.

The national banks are headed-up by criminal minds. Why would anyone trust them to hold earnest money?

Or any money for that matter.

Local and regional banks! They are not to big to fail - to remember their customers.

Short Sales are like being on another planet.... Great Metaphor... and I am not real sure what to think about GMAC's new stipulations... But I guess if they are actually at the table making guidelines then they are really preparing for a further rise in short sales?

Richard - this is absolutely ridiculous to include such a verbiage. Now, how long will it take for other banks to include such verbiage?

Richard I see where GMAC is trying to go with this, but far more people than the "false buyer" will be unjustly affected. The problem is not actually with the buyer, it is with the process. If GMAC could figure out how to resolve the REAL problem of reducing the process time, then that would be someting to boast about.

Oh the BANK has a solution. Yeah let's rely on the BANKS to help us out. Yeah. The banks. While we're at it, let's appoint some bank robbers to design the new security system at some branches and some screaming bigots to to an equal housing commission.

I think if GMAC does this, then they need to give buyers an answer on their short sale offer within 14 days. Sorry, but beaurocratic rules won't fix the problem. Beaurocracy isn't going to solve anything. Show me a beaurocrat who can sell. They can't. If GMAC was concerned about false buyers, then they should treat their short sales like an REO and leave the dumb rules out. Order 3 BPOs when the house is listed, reduce the price by 5% a month, and give buyers an answer on their offer within 3 business days. That will solve the false buyer problem. The reason they need to make stupid rules like this is because they do a lousy job on short sales and buyer's have to wait 90-120 days for an answer.

This will be interesting. I don't know if I agree, especially since we have certain broker rights in the listing contracts also. But, worth watching.

Ok so does this means that GMAC has streamlined for short sale process? Buyers don't usually walk on approved short sales, if so shame on them. How dare they expect buyers just to be tied up indefinitely while they play games with Purchase agreements?

Unbelievable!!! How can they expect to retain the buyers funds, buyers walk because banks take to long to get the short sale done. By the time they respond the buyer has lost his nerve and is walking away. In addition ,now is critical, as buyers are looking to cash in on the tax credit, and are afraid due to the bank's response time they will not make the deadline, or if the bank doesnot approve the after many,many days of waiting to hear from the bank, they are now pressureed into fchoosing another home.

I think the point that is being missed in this discussion is most short sale banks will not let the seller profit in any way, shape or form from the short sale. That means the seller is not entitled to the deposit if the buyer cancels after the contingencies are removed. Deposits aren't automatically released in California, even if the buyer blatantly breaches the contract. It still takes the signatures of both parties to release the earnest money.

I can understand the clause as there are tons of dreamers just throwing contracts/offers all over the place! If an offer is approved and the buyer walks there should be some penalty. I think I am in the minority on this though.

GMAC must be delusional. When banks systematize to a 30 day Short Sale Approval for distressed homeowners, then we can all revisit GMAC's desire to retain the deposit. GMAC ( or any other Servicer for that matter) cannot expect to retain the earnest money deposit for defaulting short sale buyers when the process of buying a short sale home takes 3,6 even 9 months. "Real Estate has always been a Time Is Of The Essence industry". Banks have eroded that foundation and now they want to be rewarded for substandard performance, when a frustrated buyer walks away. Give me a break!! In my opinion,what GMAC is stating with this letter is they have no clue. They are asking a short sale buyer to cough up 2-3% earnest money deposit with no guarantee of approval of a successful settlement,they are asking Buyers Agents, Listing Agents, Loan Officers, and Title Companies to work for FREE! This move will backfire on them, Home Buyers will just move on to other homes. But maybe that's the goal of GMAC, just to make the process so difficult that more GMAC loans go to foreclosure therefore benefiting the bottom line with buyer deposits and insurance money. Hummm...sounds greedy to me.

While it may be an effort to solve "walk aways"...what it really does is further complicate the short sale process and scare off legitimate buyers.

Good information - thanks for the post!

This change is CLEARLY AN ATTEMPTED MONEY GRAB BY GMAC. Most short sales fail because of the complete idiocy of the banks, NOW THEY WILL BE COMPENSATED FOR IT!

Who came up with this nifty little idea? Congress?

What are they going to do with the money? Pay executive bonuses?

GREAT!

If the banks were just getting the job done we wouldn't be having this conversation!

I just had another thought.........They want to keep increased binders but want to still reduce agents commision?

Classic Big Bank Move!

Only a bank woulc come up with something like this. People walk away because of the long approval process not after the approval as has been stated by most commenters. Allowing the banks to set more rules will give them more power than they already have.

If the servicers were following the rules, training their employees and streamling the process we would be able to get short sales through faster. Instead because the servicer gets paid more if the home goes into foreclosure they make the process more difficult, deny loan modifications which force people to do short sales and then make the short sale process long and difficult.

Investors who own the loans must start getting involved by either taking over the short sale process or holding the servicers responsible for the results of losing money when the home is forced into foreclosure when a short sale would have given them more money without the additional costs of foreclosure.

From my experience in short sale listings this is not an advantage. If these lenders will hire enopugh people so they are not working up to a thousand files at a time, the buyer and seller will be better served.

You must like science fiction movies. I'm not really into the science fiction genre BUT I will say that I agree that short sales are sometimes like something out of a crazy sci fi movie. GMAC . . . what can I say?

I think a great way to resolve this issue is to use a lender who tries to facilitate the transaction, rather than throw in one more complication in an already difficult situation.

I agree with some of the others it will slow down walk a ways but make the process harder to keep track of.

This is going to put a huge damper on the SS flippers out there.

We see it here all the time. We tell buyers it won't be an easy deal, they must be patient. Soon as it gets rough, they walk. This is good.

Hi Richard -- Does this mean the the inspections can be done after SS approval and then back out if the inspections are deemed unacceptable by the buyer and as a result, the buyer gets their EM back?

GMAC is treating the symptom not the cause. I actually like the idea but this doesn't pass the smell test. GMAC is not a party to the contract therefore I would think state and federal statute will prohibit this. Irregardless it could be construed as interfereing with the contract if push came to shove. I would check with your board or company attorney and don't let the mitigator push you around. Act prudently, tactfully and shrewdly GMAC will play fair when you negotiate well -- be informed.

Happy Short Selling!

Darrell Catmull

Destiny Real Estate

http://www.utahhousevalues.com/foreclosure.aspx

I can see why the banks would start looking to do this especially with the way the market is going.

Though I think they should be working on speeding their processes so buyers don't walk from frustration.

FEB

2010

Is GMAC the only institution that is using this langauage. I have not worked a short sale with them as of yet. I just pray the market for short sales improve and make it easier to get an approval.

WELL THE HAMMER HAS COME DOWN!!! GMAC...YOU ARE GUILTY!

this is a reprint from a newsletter I got today from the California Association of Realtors. The banks cannot make their own policies. Now if we could only get them to do that on REO's as well! IE stop inventing your own paperwork.

NONREFUNDABLE DEPOSIT DEEMED INVALID

An agreement for a "nonrefundable" escrow deposit is invalid and unenforceable, according to the recent California case of Kuish v. Smith (2010 WL 373225). This case serves as a good reminder for REALTORS® that inserting a "nonrefundable deposit" provision into a real property purchase contract may be legally ineffective.

The Kuish case involved a $620,000 escrow deposit for the purchase of a $14 million oceanfront home in Laguna Beach. Instead of using a liquidated damages provision, the buyer and sellers merely agreed in the purchase contract that the deposit would be "nonrefundable." According to the trial court, both parties were "big boys," meaning that they were "sophisticated business people [who] understood all the ramifications of their actions in freely negotiating to make the [deposit] non-refundable."

The buyer eventually cancelled the agreement. The sellers refused to return the deposit to the buyer, even though they sold the property to someone else for $1 million more.

The buyer sued to recover the $620,000 deposit, and won on appeal. The court stated that "any provision by which money or property would be forfeited without regard to actual damage suffered would be an unenforceable penalty. To construe the term 'nonrefundable' to establish [the sellers'] entitlement to the full deposit without regard to actual damages would essentially create a liquidated damages provision." Yet, the parties in this case did not separately sign or initial a liquidated damages provision.

Under C.A.R.'s Residential Purchase Agreement, the sellers would have been entitled to the escrow deposit (not to exceed three percent of the purchase price), if the parties initialed the liquidated damages provision, and the buyer had no contingencies or had removed all his contingencies. For more information about liquidated damages, C.A.R. has a legal article entitled Liquidated Damages and Deposit Forfeitures, which is available in English, Chinese, Korean, Spanish, and Vietnamese.

For years relo companies have made it a practice to NOT keep earnest money on corporate owned homes because it can hold property up in litigation.

FEB

2010

Interesting discussion. In a short sale, the seller is not allowed to receive any funds since it is GMAC that is taking the loss. So if there is any funds surrendered by the buyer due to their inability to perform, then logic dictates that the money should be turned over to GMAC.

If you have a listing agreement with the seller to collect money, then that responsibility has to rest on the seller, not GMAC. So if you have a 50% listing agreement on the deposit and the deposit you received is $3000, then the seller (not GMAC) owes you $1500 and the $3000 must go to GMAC.

Banks should keep their nose out of it. If they are tired of having the buyers walk, why not speed up the process? They are the ones who are at fault, they don't think that waiting for a response for 2 weeks is inappropriate?

The false buyer problem comes up before the months of waiting for the short sale approval, not after it is approved. Typically we wait 3 months and then find out after the deal is approved that the buyer had walked away. It seldom if ever happens after the short sale is approved.

I agree with Bryant though. I can't see sending the money to GMAC until after the deal closes. Otherwise these Wall Street bankers will just take the money and then turn down the short sale at the last minute.

FEB

2010

Richard,

Your blog about GMAC's claim to forfeited earnest deposits has caused a lot of emotionalism and very little serious consideration. I have a question that requires an attorney.

If a lender in FL takes money on a mortgage loan after starting foreclosure do they then have to restate the process?

I think I the answer is yes in NV, MI, CA, and maybe in TX, but its been along time since I knew for sure.

Assuming the positive, since GMAC's only claim is based on the seller's note and mortgage, won't they have to start the process over with all the built in delays?

Bill

Wow, lots of interesting comments. Geez, I hope GMAC's draconian language doesn't become standard in the industry. I agree with Broker Bryant, it seems like an anti-trust violation to me. I also agree with everyone here who pointed out that it's the banks ridiculously lengthy approval process that is causing all the problems, not false buyers. (I really don't know what a false buyer is!)

FEB

2010

Great post. I am not looking to working with short sales, but they say by next year it will be the majority of sales in my area.

FEB

2010

I think this is fantastic. The earnest money will still be held at title but if the buyer decides to walk after the short sale approval letter is issued and after the inspection contingency has lapsed, then I think it's only right. It's like every other contract. At that point the seller (and the bank) have been damaged by being off the market for X number of months. The flip side is GMAC needs to approve short sales in 2 weeks. Wouldn't that be nice?

FEB

2010

The most compelling argument against it seems to be the California case stated in #65, but if I was on the inside at GMAC it would seem like sheer genius. I've heard that something like 20% of all approvals don't end up closing. I think the banks are sick of workig short sale packages, ordering BPO's, paying loss mit staff, only to find out it wasn't a serious buyer. I don't think they can get away with it, but I don't blame them for trying. They're a business just like all of us. You don't like throwing your money away, do you?

FEB

2010

Richard,

Having this within 14 days of the approval by the Lender would not really curtail the "false buyer" activity, as it happens too late in the process. If this were required at submittal...

FEB

2010

I have tested the non-refundable deposit theory in the courts. There must be damages or losses for it to sustain the claim. Just taking someones money doesn't cut it. As far as banks go, they were in the business of loaning money out. Now, they want to sell Real Estate, draw contracts and tell licensed individuals what to do? What nerve. We know that he who has the gold rules. However, that gold changes hands from time to time. Lenders, your comeuppance is around the corner. As far as who keeps the money, I am a supporter of the seller and or agents splitting the deposit. Agents, we work from escrow to escrow feast or famine and we need to take care of our clients first and then ourselves. No one else should be entitled to anything without a just claim. Agents, there is hope. It is because of sites like ActiveRain that we can come together and bring about the change necessary that needs to take place. This is what we do for a living and we have the power to make those changes by using one voice. Thank you.

FEB

2010

The seller should be able to keep 50% of the money since that short sale is not going through. I write it into the listing agreement that the broker keeps 50% and the seller keeps 50% of retained deposits.

If the seller can not accept the funds because they are not supposed to profit from the short sale then the listing broker should get 100% since they are doing all of the work and have to start all over and do it all again if the buyer walks.

GMAC should have to follow normal Escrow Dispute rules and since they are a third party they should not be entitled to deposits.

MAR

2010

Of course find myself in agreement with the sentiment that the banks cannot have their cake and eat it to. Let's remember exactly where an incredibly large part of this problem began. I'd like to see the banks pre-approve a credible short sale price, prior to the seller listing the property!

APR

2010

I think it is a good idea because it doesn't obligate the buyers to anything until the bank approves the short sale so they are free to walk up until that point and even during the 14 days for their inspection period which I think is plenty of time in this market where inspectors are deperate for work. It still doesn't prevent buyers from making offers on multiple short sale properties and they should be allowed to do this because they shouldn't have to wait months to get an answer from a short sale bank only to find out the answer is "No."

To the comments that agents feel it is unfair to the sellers that the bank gets the good faith money and not them, keep in mind that in a short sale the seller is not allowed to walk away with any proceeds so why would they be allowed to keep a buyer's good faith deposit? They are often not paying their mortgage any way so it may even encourage sellers to sabotage deals by preventing inspectors from performing inspections, delaying closing, or not vacating the property in a timely manner to allow the buyers to close and move in.

I think anything to help more short sales close and streamline the short sale process is good and absolutely necessary in this market.

APR

2010

Hello Richard,

Will you please give me your opinion on the following scenario.

A buyer decides to walk very early on in the approval process of a short sale because he did not like one of the neighbors, but was going to use the inspection period to get out of the contract (brand new property).
The seller tells his agent that the buyer will need to get the inspector to do their dirty work for them and refuses to sign the release and cancellation of contract.
Seller's agent says that the buyer will wait until the contract expires in 45 days.
Seller contacts BOA 3 days before contract expires only to find out that there was no open short sale on file. The file had never been initiated through the Equator system and the agent and his paralegal both claim to not know that it needed to go through Equator.
Unhappy seller contacts Broker about the situation and the broker has no idea why it would have not gone through Equator as all of his agents and the paralegal (working in his wife's law firm) are fully aware that all Conventional loans are required to do so.
Seller's agent had not been registered with Equator at the time.
The contract has expired and notice has been served that the buyer has infact walked due to no approval from the bank within the 45 day period.
Sellers agent now claims to need a release and cancellation of contract before he can market the property in search of another buyer.

Please don't be kind, I may not like the answere but give it to me straight.

Thank you.

APR

2010

Florida Seller -

Your first bullet point says it all and the rest upsets your stomach, but it is meaningless. The Buyer using the current FAR forms and most other Short Sale forms can walk from a contract during the (or before the) inspection period for ANY reason. This can be a neighbor, the angle of the sun on the windows, the nearness of the Publix, or bad karma. Oh yes, any of the inspection items also.

In last week's webinar by BoA they said that 70% of all submitted contracts they receive fail for the buyer walking. That is consistent with our experience that I wrote about 2 years ago at 3.8 contracts per short sale.

Your broker was not too swift on its knowledge of the system nor execution of the process with BoA. Perhaps they have now learned - but other than being upset, based on your bullet points above you have nothing to blame on the broker for the loss of the contract.

APR

2010

Thank you Richard, I appreciate your candor.

Richard,

Can you give me any advice as to how an assignable contract would fair in an Equator short sale with BOA.

Thank you.

APR

2010

I loved the way you explained things. Much better many here

http://www.fintel.us/customers/PrivatelyHeldBusinesses.html

Part of the problem is Agents going out and mass Offering for their buyer. I have talked to several Realtors that say "oh my buyer has 7 offers out on other properties" We will just see which one gets accepted first. Nice theory but does not cut it. Many of the Realtors that do this only find that when the offer is actually accepted the buyer panics and walks anyway. It's all about training and educating the buyer and seller.

"Earnest becoms non refundable 14 days after approvals are issued" This is no news. It takes 45 days on average to get an approval, and that gives the buyers plenty of time to get their other contingencies handled. For those buyers who wait until the bank approves the short sale to begin their mortgage application...I say, too bad! This is one of the factors that causes short sales to fail: Buyers wait (usually on the advice of an uneducated agent or attorney) to get everything done after benk approval. NO PEOPLE! This should be done before! What this will do is kick out contracts from yahoos and non comitted buyers. These contracts that will never close (70% of contracts on dealsaccording to BOA) are what clogs up the lenders systems and slow the process for everyone.

APR

2010

Reading through the comments on this blog and I was wondering if the GMAC policy was still holding strong, since this blog was posted 2 months ago?

MAY

2010

Interesting...although I can surely understand the logic behind whatever GMAC is asking. It appears that they're trying to circumvent some state collection laws in order to squeeze money from a distressed seller. Does the Security deed contain language to this effect??? It is my understanding that whenever a seller is in default, then the lender has the right to force a sale through foreclosure. Some states recognize redemptions laws....some don't. Again, have they forgotten state laws regarding collections. In the event that the buyer walks after an approval has been submitted (which is absolutely ludicrious to me, by the way), then maybe the lender can amend the ss approval advising that the seller has make a contribution by way of the EM funds at closing. I don't see how they can legally request the EM deposit PRIOR to a foreclosure - especially when they're not a party to the contract. Remember, it's still the Seller's property....that's just my 2 cents. I could be wrong.

By the way, I'm not an attorney....I just play one on television.

JUN

2010

Great information.Thanks for sharing such a valuable information with us.

AUG

2010

it is total BS and merely another negotiating point....ANYTHING, and I mean ANYTHING AND EVERYTHING on a short sale is negotiable.....if your buyer or seller takes issue with ANYTHING on a short sale, escalate your file, or contact the Servicers legal department.

BEST MOVE -- Contact the Investor on the note directly...this works 99% of the time for ANY AND ALL ISSUES...circumvent the Servicers (who your client writes his or her check to each month), and short sales GET DONE!!!

We have been successfully negotiatng short sales for agents for almost 5 years now. If you know the tricks of the trade your short sale goes to closing, if you do NOT know the tricks of the trade, your client loses his home, blames you, and, worst of all, you make no money for dealing with all the "fun"....

All my best to everyone on the short sale battlefield.

Sincerely, Ben Benita Short Sale Negotiations Expert, Speaker, Radio Guest

Author - "Are You More Likely To See Bigfoot Or A Short Sale APproval Leter?"

get it NOW on Amazon under "books" and "short sale Bigfoot" to get your short sales CLOSED!!!!

BBenita@Comcast.net

AUG

2010

The false buyer isn't so much a problem as home buyers that offers on mulitple properties, and will take the one that comes through first with the most favorable terms. they should also take into consideration that the biggest reason people walk is that it is taking too long, and many times their financing will expire.

AUG

2010

Contrary to popular opinion, Buyer Inspection Period is not an opportunity for a "free look". The Buyer must act in "Good Faith" when making a decision to cancel during the inspection period. Deciding they no longer like the floor plan doesn't count.....

AUG

2010

It's a shame that the rules just keep changing. After working with Short Sales for the past few years, there isn't anything that suprises me. I just hope that when the dust settles they can't come back to us for their chnaged policies. I know how much patience these take, Hang in there.

SEP

2010

So many discoveries can occur during an inspection period: structural or repair issues, crime statistic discoveries, traffic noise concerns, school district problems, etc, etc

NOV

2010

Hi Richard

You sound like an attorney.

Short sales are complicated, with lots of ramifications from different places (IRS, lawsuits, defficiency judgements) well into the future.

An attorney's "bent" (looking for serious problems and heading them off or avoiding them) is needed here more than ever

Phil

NOV

2010

One of the solutions to this kind of behavior by a servicer is to look up and notify the actual investor on the loan. The investors have no idea what the servicers are doing and how it's costing them money.

Additionally, the servicers like GMAC are rated by Moody's specifically for their loan servicing departments. If you do a lot of short sales, take the time to look up the Moody's rater specifically (it's one person) and contact him directly about it. Explain to him how more and more Realtors are skipping GMAC serviced short sales, costing the investors big money. If ratings drop, loan investors shift the servicing to another company.

Then again, you could just explain to your buyer that GMAC is impossible to deal with, there are too many other good buys out there, and go find something else.

The fact is, the banks will say and "demand" all kinds of things. With short sales, one of the keys is to just not take "NO" for an answer. I've written about this on my blog at http://www.dentonshortsaleblog.com/?p=130 Hope this is helpful to someone.

Mike Personius, Broker

AUG

Well sometimes i dont know what to think of short sales. They are getting better and then they are not!

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Richard Zaretsky, Florida Real Estate Attorney

West Palm Beach, FL

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Richard P. Zaretsky P.A. - Board Certified Real Estate Atty

Address: 1655 Palm Beach Lakes Blvd, Suite 900, West Palm Beach, Fl, 33401

Office Phone: (561) 689-6660 x 107

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Legal true life experiences, general observations and commentaries for Realtors, Lawyers and Mortgage Brokers - also see our Palm Beach County Short Sales group blog.

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