Should Short-Sellers Be Required to Post Good Faith Money?

Strange Days Indeed.

There is an ancient Chinese proverb that goes something like this, "May you live in interesting times". Well we certainly are living in "Interesting times" and this true story is proof;

Last year a client of mine without the use of a Realtor entered into a Rent-to-Own agreement with a Sell-Lord. A  Sell-Lord for those of you who don't know is someone who has purchased another home or otherwise moved on and now because of both lending and real estate markets can not sell traditionally and so they are now unwilling landlords. Because they couldn't sell and weren't willing to wait to sell, they have decided to rent, rent to own, or any other scheme to generate income from the property.

In my clients case, the seller agreed in a very poorly written agreement which was created by my client to sell for either the then agreed upon price or what the bank appraises the property for at the time of closing. Or at least this was my client's understanding, frankly the document was so poorly written that it is doubtful that it would pass legal muster. The seller additionally agreed to (belive it or not) apply 100% of the rents collected during the rental period towards the buyers/renters down payment. In this case we are talking about nearly $13,000. Making matters worse, the property went into early stages of foreclosure and the bank began making property inspections and even attempted to secure the property prior to legal foreclosure.

Finally, due to many foreclosures in the immediate vicinity the house did not appraise for the agreed upon dollar amount, the deal fell apart and of the course the house subsequently went back to the bank. Ironically, the amount to pay off the loan would have been sufficient to do so with the net proceeds from the sale at the appraised value. According to the agreement the purchaser lost several thousands dollars in un-recouped rent, deposits and the cost to appraise the home.

This same customer went on to purchase another home, this time a short-sale. This house did not appraise for what they agreed upon and so the buyer lost another $900 of inspection fees. In this case the seller did no wrongdoings, the market simply was unstable and the appraiser injected his politics into the report when he described the market as "a victim of the current lending crisis" whatever that is supposed to mean and called it a "declining market" even though technically there are no "declining markets" in Raleigh.

Fast forward to our most recent attempt; the buyer is now living in a motel because the bank evicted her from property number 1 and her possessions are in a truck outside. She has entered into another short-sell agreement (because she is obviously a glutton for punishment), paid for inspections and the attorney has discovered in the title search unpaid judgements against the seller which the seller claims the can not pay. Because of this, he can not legally transfer a Warranty Deed to the buyer and is now asking his lender to negotiate settlements with his creditors who have sued him to pay off those debts with the proceeds from the short-sale. Did you get that? He is actually asking his mortgagee who is Wells Fargo who have already agreed to accept less than what is due to pay off the mortgage in the first place to accept even less by paying off his credit cards companies who have sued him and obtained a judgment against him! Can you belive the marbles on this guy?

My reccomendation; if you are a buyer and are planning to  purchase a home in short-sale or pre-foreclosure; protect yourself by asking the seller to deposit into escrow an equal amount of Good Faith Money to yours in order to cover your expenses if the seller can't perform due to undisclosed liens and or judgements that could prevent him or her from legally selling you the home! Expect resistance from the seller and or his agent and even from your own agent, but if the seller isn't willing to risk his money then why would you risk yours? Move on and buy the home from the bank in foreclosure if you must have the home.