One of the longest short sales I have ever worked on involved a horse property in Sacramento. The poor sellers were originally pushed into the transaction by an agent who promised them prices would never fall. I wish they had obtained legal advice before ever buying that rental property. They paid about $650,000 two years ago for a 3 bedroom home on 3 acres, using 100% financing, an 80/20 combo loan. All this time they had been making interest only payments and paying a negative cash flow to stay afloat, until push came to shove and they could no longer afford to borrow from VISA or MasterCard to make ends meet. By the time I met these sellers, they were on the brink of insolvency.
Enter the short sale. We sold the home for around $350,000 to a buyer who owned horses. What happens in a short sale when you have two loans? We negotiated the payoffs with both lenders. The second lender finally agreed to take $1,000 from the first mortgage holder and release the loan. However, the buyer's mortgage broker messed up and was unable to fund on time. That meant both short sale demand letters had expired, and we had to go back to the bank to obtain new letters.
The second time around, the second lender's investors decided $1,000 wasn't enough to satisfy them. They demanded $5,000. The first lender refused to give it them. We were 4 days away from closing on a transaction that had been in escrow for 9 months!
My associate at Lyon, a fabulous agent who had graduated from law school and handles the negotiations for me, was obviously distressed. It wasn't our fault the escrow didn't close on time. It wasn't the buyer's agent fault, either. So, guess who paid the additional $4,000?
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