Will a Bankruptcy interfere with a Real Estate Sale?
I had a closing this week!!! One would think I would be very happy. Well actually I am very happy for my sellers as this was a short sale, and it helped her move on with her life on her road to recovering financial health. I am happy for the buyers that waited a long time (much longer than needed) to purchase this house.
That is where my story begins~
”my comment Much Longer Than It Needed to Be!”
I met a seller that had a cute little cape that she bought in 2008. Life’s events had made her feel as though she needed to sell it. We evaluated the market, and decided to try to sell it just slightly below what she paid and avoid a Short Sale. As time passed, and the economy and housing market continued to decline, it became obvious that she would need to do a short sale. In the mean time she ran into other financial difficulties and felt she needed to seek legal advice about bankruptcy. She was assured that filing bankruptcy would not affect the short sale process. All my training told me it would. I called the bankruptcy attorney to confirm, and she was insulted with the question, and assured me that it would not affect the short sale, and to go ahead and list and market the house. It was determined that we had time, no foreclosure date was set, so in November we started my Short Sale marketing campaign to sell the house in 3-6 months. By the beginning of February (3 months into the Short Sale marketing campaign) we received a good offer and started the process of submitting all the paperwork to Bay view (the servicer) for short sale consideration. Approximately 4 weeks later we were notified that we were in the final stages of the short sale, and the file was being submitted to the investor for final review. A day later I received a phone call from the negotiator indicating that they were holding the file because they discovered the borrower had filed bankruptcy and the property could not convey without permission from the bankruptcy count. They were looking for a Release of Stay. They recommended the bankruptcy attorney request one from the court.
When I contacted the attorney she refused to do it because she felt we would have total discharge in 3-4 weeks, and to get a release would take too much of her time. When I reminded her that she said the bankruptcy would not interfere with the sale of the house, her comment was,”I didn’t think you would sell it so fast”. Long story short, the bank filed for the stay, however it came just days before the discharge. This was approximately 6 weeks after the negotiator was ready to approve the file.
In Mid May I was in receipt of the Release of Stay, and immediately forwarded it off to the negotiator, but by this time they had closed the file, and all the documents were old. We had to start again. I collected all the updated paperwork from the seller (new bank statements, paystubs, hardship letter, 2 year tax return, refreshed purchase and sale, 3 sold comps, and a new HUD created by the seller’s bankruptcy attorney). We resubmitted a new file (lucky the buyer was willing to wait), had another BPO and were on to the finish line. At the end of July, we received our final approval for short sale. This approval included the full asked for commission for the 2 agents involved, and an above market value fee for the attorney. The approval letter gave us 45 days to close. Perfect, buyer would have time to get financing.
Buyers financing began, which involved a second appraisal. 1 week into this process both buyers’ jobs were in question as their company was on strike. Financing became complicated, however by the end of August, the company went back to work, and the amazing Mortgage Broker was able to get a clear to close in just days. The closing package went to the buyer’s attorney and she produced a new HUD and submitted it to the seller’s bank for final approval. Later that day, I received a nasty call from the Bankruptcy attorney telling me that the agents had to take $2500 less in commission, and she was cutting her fee by $1000. (Her fee was now only 2 times the going rate of a seller side closing). I asked her how that could be as the seller side cost were already approved, and no changes could be made or it would hold up the short sale. Once again she treated me like I was an idiot and didn’t know what I was talking about. I asked to see the new HUD and it was forwarded to me. Within seconds I could tell the difference was the closing cost credit, which was part of the original agreement, and the Bankruptcy attorney neglected to put it on the first approved HUD. This error meant the whole file needed to be reviewed by the investor and approved again. Again when I questioned the attorney, she was baffled how that happened. I called the negotiator, explained that the buyer only had the closing package until the end of the week and begged for a rush. No one had communicated that to her. She put a rush on it, and got the final approval in 48 hours.
There was great team work between the agents, mortgage broker, buyers attorney, buyer and seller, however the seller's bankruptcy attorney created a lot of need for the rest of the team to be exceptional.
So to recap the point of this blog:
A bankruptcy attorney is not a Real Estate Attorney
If a bankruptcy attorney tells you the bankruptcy will not interfere with the sale, don’t believe them.
Review all HUDs, and learn where closing cost credits go.
If you feel a consumer has been harmed, do something about it. ~ In my case, the errors of this bankruptcy attorney could financially harm the seller. At a minimum I will report her to the Board of bar overseers, so she is more careful when representing other clients.