The other day, I stumbled upon Why Won't the Second Play Ball, They'll Get Nothing in a Foreclosure! by Linda Humphrey. It got me to thinking about this disturbing new trend of second lienholders not "playing ball" and in some cases, getting down right despicable (i.e. demanding that everyone in the transaction break the law and jeopardize their professional licenses) with the way they conduct themselves in a short sale transaction.
The market here in Los Angeles & Ventura counties is absolutely saturated with short sales and quite often, the sellers have more than one loan being held against the property.
As a Mortgage Loan Originator (MLO) who works mostly with buyers, I like to think that I have been pretty lucky that most of my buyers have not been interested in purchasing a short sale. For most of my buyers, they have heard the horror stories and they tell their Realtors/agents right up front that they are not interested in buying a short sale so don't even bother showing them any.
While quite a few of my borrowers have made attempts to try and purchase a short sale, most of those eventually canceled their offer after waiting for many months to find out if the lenders would even accept their offers.
However, there have been quite a few who have actually held in there (average timeframe is around six months) and have actually received short sale approval(s) for their offers. Of those though, there were a few that ended right there.
As Linda Humphrey outlines in her post (and many of her commenters share with her), there are a lot of short sales that will never, ever close because the second lienholder refuses to cooperate and demands to be paid more than what the first lienholder is willing to pay them. One of the worst examples that I have seen of this is a particular Wells Fargo short sale that a borrower of mine wanted to buy.
One of my clients made an offer on a short sale where Wells Fargo held both the first and second liens. The seller accepted the full price offer and the offer was then sent onto both divisions of Wells Fargo. Nearly six months later, Wells Fargo accepted the offer and agreed to pay a small percentage to Well Fargo Home Equity towards the second. One would think this would be a slam dunk from here on out - right. NOOO!!!
Not only did the Home Equity division start pissing and moaning about what they were getting, they then started demanding that the seller kick in some additional funds to them. When that didn't work, they demanded the Realtors/agents kick in some additional funds to them. At this point, Wells Fargo (the first) found out what the Home Equity division was doing and stipulated that Home Equity was not allowed to receive more than what they (the first) was paying them.
It was then that the Home Equity division started demanding that not only was the buyer to kick in some additional funds to them but those funds were to be paid to the Home Equity division off the HUD1 statement (i.e. outside of escrow). At this point both I and my borrower's Realtor told our clients to not walk but RUN as fast as they could from this transaction.
FOR THE RECORD: demands for buyer(s) to pay for settlement fees/costs outside of the HUD1 statement are what we call RESPA violations. RESPA violations are serious matters and something that no honest, respectable, ethical and law abiding Realtor, MLO or any other settlement agent will engage in.
As I mentioned earlier, demands for the buyer to pay the second additional funds off the HUD1 statement have become a rather disturbing trend with short sales. As Linda points out in her post, there are a few reasons (and probably even more than those she listed) why these short sales don't close and why some of them will never close.
As a prospective home buyer here in Los Angeles & Ventura counties, you need to be aware of this when you begin your search for home. Short sales are very difficult transactions; just the very nature of them are challenging for everyone in the transaction. Sellers selling for less than what they owe, buyers waiting for months on end just to hear something and everyone else in the transaction just waiting around for the banks to respond.
Today's real estate market can be really scary, which is why it's important to get as much information as possible before starting your search. Buying a home is not a simple process and it's because it can get really complicated and convoluted, that buyers today need to work with professionals that will work with them in helping them to decide what property is best suited for their needs.
If you have any questions and/or concerns, please feel free to contact me, Donne Knudsen at 805.2069123 or donne4loans@earthlink.net. That's what I'm here for and I would love to be able to assist you in any way I can.
Photos courtesy of flickr: vincentjbrown realtyworks cadre giacomo-macis
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