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Repairs, a reason why buyers walk away from a short sale

By Hella Mitschke Rothwell

Real Estate Broker/Owner with (831) 626-4000 CA #01772851 HI #RB-21268

March 01, 2013 10:00 AM

Having just gone through one of these lengthy short sales, certain aspects are still fresh in my mind and that's why I have been blogging about them the last few days.

TODAY'S SHORT SALE MUSING IS ABOUT "WALKING AWAY' WHICH WAS AN OPTION A COUPLE OF TIMES

1. When the appraisal comes back and it has mold issues that need to be fixed before funding.

2. For some reason the seller/lender tried to stay with their position: this is an "as is" transaction.

NO IT'S NOT!

When the buyer can't get his loan because of these issues, there is no such thing as "as is."

Do you expect my buyer to hire licensed contractors to fix these items BEFORE THEY OWN THE HOUSE?

NEVER HAPPEN!

"As is", in a normal situation, means that the seller "discloses" the mold, and my buyer agrees to it.

BUT THE BUYER WON'T GET THE LOAN WITH THAT MOLD. WHAT TO DO? CANCEL THE CONTRACT, OF COURSE!

Now we have the sellers/lender's attention, because that mold will not go away even if they find another buyer. Result? The lender and the seller are now willing to fix what needs to be done to get to the closing table.

SO DON'T BE SHY IN A SHORT SALE, CHANCES ARE THE SELLER WON'T DO THE WORK, BUT HIS LENDER WILL.

If you are thinking about buying or selling a short sale, give me a call. I can guide you through the process to a successful conclusion.

This is my March 1, 2013 for the http://activerain.com/blogsview/3638182/a-blog-each-day-in-march-an-ar-challenge

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Debbie Reynolds, C21 Platinum Properties

Platinum Properties- (931)771-9070 - Clarksville, TN

The Dedicated Clarksville TN Realtor-(931)320-6730

Hella, The lenders try to bluff their way along. But in the end they realize something like mold isn't going way and will only get worse. They next buyer won't want it to be there either and will refuse to close.

Mar 01, 2013 10:26 AM

Kwee Huset

Kwee Huset Realty - Venice, FL

Venice Florida Homes For Sale

Hi Hella, sorry for the unsuccessful transaction. Most of the short sale in our area are sold "As Is", otherwise the servicer will advise the seller to do deed-in-lieu foreclosure.

Mar 01, 2013 10:27 AM

Hella Mitschke Rothwell

(831) 626-4000 - Honolulu, HI

Hawaii & California Real Estate Broker

Debbie: Bluffing is right. But that was a no-win situation for both buyer and seller unless the lender allowed for the repairs.

Kwee: Actually, it was a successful short sale. The seller's lender agreed to the repairs, and away we go! I actually haven't seen many (any?) deed-in-lieus. Most sellers work to get the short sale done. And when something goes wrong, the bank has been foreclosing.

Mar 01, 2013 10:47 AM

Joe Petrowsky

Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT

Your Mortgage Consultant for Life

Your post is right on. Unfortunately, you really have to have a good handle on short sales that need lots of improvement. It takes a lot of coaching for the sellers and the buyers. You really need lenders that know what they are doing.

Make it a great weekend!

Mar 01, 2013 06:53 PM

Carla Muss-Jacobs, RETIRED

RETIRED / State License is Inactive - Portland, OR

I have not read the contracts used in your local market. However, AS IS is just that. And there is nothing in our contracts that negate that language and provision. In our contracts the repairs can be negotiated during the inspection contingency. If they can't be negotiated, then the contract has in place certain other provisions . . . like the deal dies and buyer gets their EM refunded. If the property is unable to get financing . . . and it just might be due to the repair issues . . . again, the contract stipulates what can / will happen. But there is no where in our Sales Agreement which states that the sellers will be forced to perform repairs in order for buyers to obtain financing for the property. And it doesn't state that the sellers will be forced to make repairs due to lenders demands. Does it state this is yours? I'd be surprised if it does.

Mar 02, 2013 05:52 AM

Yolanda Cordova-Gilbert

Richmond, TX

Hella,

Great point! On Carla's comment I do not recall reading in your blog that sellers were forced to fix the problem but they apparently were willing to fix the problem so it could be sold was a bit suprised at the comment! You can always ask the answer may be no but you do not know until you ask great blog and good service for your clients!

Mar 02, 2013 06:17 AM

Hella Mitschke Rothwell

(831) 626-4000 - Honolulu, HI

Hawaii & California Real Estate Broker

Carla: As Yolanda pointed out in her comment, "forced" was not in my post. However, I've actually had a lender be upset because on one of my short sale listings, the buyer bowed out when repairs needed to be done and she couldn't get the loan without that. In the contract's counter offer, we had put that the seller was not willing to do any repairs and was selling it "as is". And on that basis, we sent the contract to the sellers lender to ask for Short Sale Approval. However, when the buyer backed out, the seller's lender gave me to understand that THEY would have been willing to pay for the repairs. But this buyer at this point wanted to stay "cancelled". So when this same thing happened to MY BUYER on another deal, I put in for the cancellation, but let the listing agent know we were still interested if the seller's lender would pay for repairs. And they agreed! This lender knew that the same problem would happen with the next buyer unless that buyer had CASH. And, in my opinion, was BLIND.

Mar 02, 2013 06:45 AM

Hella Mitschke Rothwell

(831) 626-4000 - Honolulu, HI

Hawaii & California Real Estate Broker

Joe: It takes the listing agent to understand the short sale process, when you walk in with a buyer who needs to get a loan...and the house needs repairs. It would be unusual IMO, that the buyer will spend money on short sale home before he owns it. So many things can go wrong. One of them, what if, for some reason, the buyer's situation has changed and can't get the loan???

Mar 02, 2013 06:50 AM

Hella Mitschke Rothwell

(831) 626-4000 - Honolulu, HI

Hawaii & California Real Estate Broker

Yolanda: I've found that either lenders want to play ball or not! Some of them would rather have the property go into foreclosure. But those who do, will come through with necessary repairs if that is the only way a buyer can get a loan. But you have to ask! So "as is" is not necessarily "as is".

Mar 02, 2013 06:58 AM

Eve Alexander

Buyers Broker of Florida - Tampa, FL

Exclusively Representing ONLY Tampa Home Buyers

I read your blog with interest because I live in an area where 78% of what is being sold are short sales, and unfortunately I have had contracts on too many of them.

1. Since when is an inspection report given to the buyers lender? I cannot even remember the last time that they even asked for a clear WDO report.

2. A short sale just needs the sellers lenders approval on the short payoff...the seller still owns the property and is supposed to be broke...so how does a bank authorize payment for mold remediation on a property they do not own? Mold remediation is not a cheap fix.

I have had at least a dozen buyers walk from a short sale and in every case it was either too long of a wait (3-10 months) or they withdrew because the bank wanted more money than the property was worth and always more than full list price.

I have yet to see any bank on a short sale really care if they close or not...your experience seems to be the exception, not the rule.

Eve in Orlando

Mar 02, 2013 09:03 AM

Hella Mitschke Rothwell

(831) 626-4000 - Honolulu, HI

Hawaii & California Real Estate Broker

Mike and Eve: This has been my experience regarding repairs, what can I tell you. I am working with a #2 situation right now. As to getting short sale approvals, mine have been fast like a couple of weeks. Only once, when I had a buyer, the listing agent could not get approval from BofA. That has been my only experience with BofA and, frankly, I blame the listing agent for that failure.

Mar 02, 2013 10:06 AM

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