SHORT SALE MARKET EVOLUTION - GMAC SOLUTION TO FALSE BUYERS

By
Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

KUDOS to GMAC mortgage.  Their new criteria for short sale consideration is that all contracts with buyers must have a clause that requires the deposit on buyer default to go to GMAC.

Here is the language GMAC wants if you have a short sale with them as the lender:

2-3% earnest money must be agreeable to buyer. Contingencies must be removed 14 days after we issue approval letter and earnest money becomes non-refundable. If buyer walks, buyer and seller must agree in writing that earnest money will be wired to GMAC.

      This development is clearly an attempt to stem the tide of buyers that are in fact "false buyers", and to create real, binding contracts with penalties for walking away.

This is no new concept.  In all traditional contracts for purchase and sale there are contingencies and once the contingency is met or waived, the buyer and seller are bound to the contract.  This has NOT been the trend in short sale contracts and I have written about the frustrations it creates over a year ago in SHORT SALE BUYER CANCELED CONTRACT EPIDEMIC - DIAGNOSIS AND CURE and MULTIPLE SHORT SALE CONTRACTS AND HOW TO AVOID THEM.

The short sale market has been a remarkable opportunity to see the evolution of business models in the finance and real estate economies that often take a decade or longer to develop - but we are seeing it happen in months instead of years.  It reminds me of seeing an entire planet evolutionary development be condensed from billions of years to weeks as in the movie Star Trek II: The Wrath of Kahn, where the Genesis project device creates an entirely new planet before our eyes. (See also the sequel Star Trek III: The Search for Spock).

 The short sale market is not as exciting as the movie - but its evolution is, as Spock would say, remarkable.

Copyright 2010 Richard P. Zaretsky, Esq. 

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com

See our easy to understand articles at:

TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES

 

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Re-Blogged 15 times:

Re-Blogged By Re-Blogged At
  1. Lenn Harley 02/11/2010 10:08 AM
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Tags:
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Rainer
2,078
Rob Ishihara
Lakeport, CA

I think it is a good idea because it doesn't obligate the buyers to anything until the bank approves the short sale so they are free to walk up until that point and even during the 14 days for their inspection period which I think is plenty of time in this market where inspectors are deperate for work.  It still doesn't prevent buyers from making offers on multiple short sale properties and they should be allowed to do this because they shouldn't have to wait months to get an answer from a short sale bank only to find out the answer is "No."

To the comments that agents feel it is unfair to the sellers that the bank gets the good faith money and not them, keep in mind that in a short sale the seller is not allowed to walk away with any proceeds so why would they be allowed to keep a buyer's good faith deposit?  They are often not paying their mortgage any way so it may even encourage sellers to sabotage deals by preventing inspectors from performing inspections, delaying closing, or not vacating the property in a timely manner to allow the buyers to close and move in.

I think anything to help more short sales close and streamline the short sale process is good and absolutely necessary in this market.

Apr 01, 2010 05:41 AM #80
Anonymous
Florida seller

Hello Richard,

Will you please give me your opinion on the following scenario. 

  • A buyer decides to walk very early on in the approval process of a short sale because he did not like one of the neighbors, but was going to use the inspection period to get out of the contract (brand new property). 
  • The seller tells his agent that the buyer will need to get the inspector to do their dirty work for them and refuses to sign the release and cancellation of contract. 
  • Seller's agent says that the buyer will wait until the contract expires in 45 days. 
  • Seller contacts BOA 3 days before contract expires only to find out that there was no open short sale on file.  The file had never been initiated through the Equator system and the agent and his paralegal both claim to not know that it needed to go through Equator.
  • Unhappy seller contacts Broker about the situation and the broker has no idea why it would have not gone through Equator as all of his agents and the paralegal (working in his wife's law firm) are fully aware that all Conventional loans are required to do so.
  • Seller's agent had not been registered with Equator at the time.
  • The contract has expired and notice has been served that the buyer has infact walked due to no approval from the bank within the 45 day period.
  • Sellers agent now claims to need a release and cancellation of contract before he can market the property in search of another buyer.

Please don't be kind, I may not like the answere but give it to me straight.

Thank you.

Apr 09, 2010 01:34 PM #81
Rainmaker
281,691
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney

Florida Seller -

Your first bullet point says it all and the rest upsets your stomach, but it is meaningless.  The Buyer using the current FAR forms and most other Short Sale forms can walk from a contract during the (or before the) inspection period for ANY reason.  This can be a neighbor, the angle of the sun on the windows, the nearness of the Publix, or bad karma.  Oh yes, any of the inspection items also.

In last week's webinar by BoA they said that 70% of all submitted contracts they receive fail for the buyer walking.  That is consistent with our experience that I wrote about 2 years ago at 3.8 contracts per short sale.

Your broker was not too swift on its knowledge of the system nor execution of the process with BoA.  Perhaps they have now learned - but other than being upset, based on your bullet points above you have nothing to blame on the broker for the loss of the contract.

Apr 10, 2010 03:24 PM #82
Anonymous
Florida Seller

Thank you Richard, I appreciate your candor.

Apr 10, 2010 05:44 PM #83
Anonymous
Florida seller

Richard,

Can you give me any advice as to how an assignable contract would fair in an Equator short sale with BOA.

Thank you.

Apr 11, 2010 12:49 PM #84
Anonymous
finance

I loved the way you explained things. Much better many here

 

http://www.fintel.us/customers/PrivatelyHeldBusinesses.html
Apr 22, 2010 10:30 PM #85
Rainmaker
132,836
Marty and Laurie Gale
Utah Realty - South Jordan, UT
Utah Realty | 801-205-3500 | UtahRealtyPlace.com

Part of the problem is Agents going out and mass Offering for their buyer. I have talked to several Realtors that say "oh my buyer has 7 offers out on other properties" We will just see which one gets accepted first. Nice theory but does not cut it. Many of the Realtors that do this only find that when the offer is actually accepted the buyer panics and walks anyway. It's all about training and educating the buyer and seller. 

Apr 23, 2010 01:56 AM #86
Rainmaker
25,041
Joseph Alfe
Short Sale Processing Inc. - Chicago, IL

"Earnest becoms non refundable 14 days after approvals are issued"  This is no news.  It takes 45 days on average to get an approval, and that gives the buyers plenty of time to get their other contingencies handled.  For those buyers who wait until the bank approves the short sale to begin their mortgage application...I say, too bad! This is one of the factors that causes short sales to fail: Buyers wait (usually on the advice of an uneducated agent or attorney) to get everything done after benk approval.  NO PEOPLE!  This should be done before! What this will do is kick out contracts from yahoos and non comitted buyers.  These contracts that will never close (70% of contracts on dealsaccording to BOA) are what clogs up the lenders systems and slow the process for everyone.

Apr 23, 2010 05:00 AM #87
Rainer
81,608
Adam Kutchuk Murrieta
Realty Works - Murrieta, CA
Short Sale Specialist Rated 5 Stars

Reading through the comments on this blog and I was wondering if the GMAC policy was still holding strong, since this blog was posted 2 months ago?

Apr 26, 2010 10:17 AM #88
Rainmaker
83,032
Vanessa Calhoun
PalmerHouse Properties & Associates, LLC - Atlanta, GA
Your Greater Atlanta Marketing Guru!!

Interesting...although I can surely understand the logic behind whatever GMAC is asking. It appears that they're trying to circumvent some state collection laws in order to squeeze money from a distressed seller. Does the Security deed contain language to this effect??? It is my understanding that whenever a seller is in default, then the lender has the right to force a sale through foreclosure. Some states recognize redemptions laws....some don't. Again, have they forgotten state laws regarding collections. In the event that the buyer walks after an approval has been submitted (which is absolutely ludicrious to me, by the way), then maybe the lender can amend the ss approval advising that the seller has make a contribution by way of the EM funds at closing. I don't see how they can legally request the EM deposit PRIOR to a foreclosure - especially when they're not a party to the contract. Remember, it's still the Seller's property....that's just my 2 cents. I could be wrong.

By the way, I'm not an attorney....I just play one on television.

May 12, 2010 07:53 AM #89
Rainmaker
83,032
Vanessa Calhoun
PalmerHouse Properties & Associates, LLC - Atlanta, GA
Your Greater Atlanta Marketing Guru!!

Interesting...although I can surely understand the logic behind whatever GMAC is asking. It appears that they're trying to circumvent some state collection laws in order to squeeze money from a distressed seller. Does the Security deed contain language to this effect??? It is my understanding that whenever a seller is in default, then the lender has the right to force a sale through foreclosure. Some states recognize redemptions laws....some don't. Again, have they forgotten state laws regarding collections. In the event that the buyer walks after an approval has been submitted (which is absolutely ludicrious to me, by the way), then maybe the lender can amend the ss approval advising that the seller has make a contribution by way of the EM funds at closing. I don't see how they can legally request the EM deposit PRIOR to a foreclosure - especially when they're not a party to the contract. Remember, it's still the Seller's property....that's just my 2 cents. I could be wrong.

By the way, I'm not an attorney....I just play one on television.

May 12, 2010 07:53 AM #90
Anonymous
cdloanmod

Great information.Thanks for sharing such a valuable information with us.

Jun 15, 2010 10:49 PM #92
Rainer
142,933
Ben Benita
Ben Benita - Gainesville, VA
Speaker, Author, Game Changer, Coach

it is total BS and merely another negotiating point....ANYTHING, and I mean ANYTHING AND EVERYTHING on a short sale is negotiable.....if your buyer or seller takes issue with ANYTHING on a short sale, escalate your file, or contact the Servicers legal department.

BEST MOVE -- Contact the Investor on the note directly...this works 99% of the time for ANY AND ALL ISSUES...circumvent the Servicers (who your client writes his or her check to each month), and short sales GET DONE!!!

We have been successfully negotiatng short sales for agents for almost 5 years now.  If you know the tricks of the trade your short sale goes to closing, if you do NOT know the tricks of the trade, your client loses his home, blames you, and, worst of all, you make no money for dealing with all the "fun"....

All my best to everyone on the short sale battlefield.

Sincerely, Ben Benita Short Sale Negotiations Expert, Speaker, Radio Guest

Author - "Are You More Likely To See Bigfoot Or A Short Sale APproval Leter?"

get it NOW on Amazon under "books" and "short sale Bigfoot" to get your short sales CLOSED!!!!

BBenita@Comcast.net

Aug 10, 2010 08:15 AM #93
Rainer
45,230
Sample Sample
Gila, NM

The false buyer isn't so much a problem as home buyers that offers on mulitple properties, and will take the one that comes through first with the most favorable terms.  they should also take into consideration that the biggest reason people walk is that it is taking too long, and many times their financing will expire.

Aug 11, 2010 07:50 AM #94
Rainmaker
3,054,631
Tony and Suzanne Marriott, Associate Brokers
Haven Express @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

Contrary to popular opinion, Buyer Inspection Period is not an opportunity for a "free look".  The Buyer must act in "Good Faith" when making a decision to cancel during the inspection period.  Deciding they no longer like the floor plan doesn't count.....

Aug 17, 2010 02:51 AM #95
Rainer
2,524
Todd Dockswell
Premier Properties of the Palm Beaches Inc. - Jupiter, FL

It's a shame that the rules just keep changing. After working with Short Sales for the past few years, there isn't anything that suprises me. I just hope that when the dust settles they can't come back to us for their chnaged policies. I know how much patience these take, Hang in there.

Aug 21, 2010 08:36 AM #96
Rainmaker
156,820
John Cunningham
eXp Realty - Phoenix, AZ
Helping Phoenix Sellers and Buyers find each other

So many discoveries can occur during an inspection period: structural or repair issues, crime statistic discoveries, traffic noise concerns, school district problems, etc, etc

Sep 26, 2010 01:43 PM #97
Rainmaker
589,883
Phil Leng
Retired - Kirkland, WA
Phil Leng - Retired

Hi Richard

You sound like an attorney.

Short sales are complicated, with lots of ramifications from different places (IRS, lawsuits, defficiency judgements) well into the future.

An attorney's "bent" (looking for serious problems and heading them off or avoiding them) is needed here more than ever

Phil

Nov 16, 2010 09:27 PM #98
Rainer
2,590
Mike Personius
Keller Williams Realty - Denton, TX

One of the solutions to this kind of behavior by a servicer is to look up and notify the actual investor on the loan. The investors have no idea what the servicers are doing and how it's costing them money.

Additionally, the servicers like GMAC are rated by Moody's specifically for their loan servicing departments. If you do a lot of short sales, take the time to look up the Moody's rater specifically (it's one person) and contact him directly about it. Explain to him how more and more Realtors are skipping GMAC serviced short sales, costing the investors big money. If ratings drop, loan investors shift the servicing to another company.

Then again, you could just explain to your buyer that GMAC is impossible to deal with, there are too many other good buys out there, and go find something else.

The fact is, the banks will say and "demand" all kinds of things. With short sales, one of the keys is to just not take "NO" for an answer. I've written about this on my blog at http://www.dentonshortsaleblog.com/?p=130  Hope this is helpful to someone.

Mike Personius, Broker

Nov 18, 2010 04:36 AM #99
Rainer
334,224
Paul Gapski
Berkshire Hathaway / Prudential Ca Realty - El Cajon, CA
619-504-8999,#1 Resource SD Relo
 

Well sometimes i dont know what to think of short sales. They are getting better and then they are not!

Aug 16, 2011 03:41 AM #100
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Rainmaker
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Richard Zaretsky

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