Are San Jose Short Sale Lenders Playing God?

By
Real Estate Broker/Owner with KD Realty - 408.972.1822 CA BRE#01366594

Are San Jose Short Sale Lenders Playing God?

Or do San Jose Short Sale Lenders Require Buyers, Sellers and Agents to Sign a Deal with the Devil?

Many short sale lenders require mandate that buyers, sellers, and agents sign Lenders Terms and Conditions for Short Sale Approval Consideration. Among other things, the Terms and Conditions of a San Jose short sale approval state:

"There are no agreements or understandings between the Seller and the Buyer that the Seller will remain in the property as a tenant or later obtain title or ownership to the property."

It's not bad enough that the homeowner loses their home, destroy their credit, and go through mental and emotional torture dealing with the lenders short sale process, BUT the lender is also going to mandate, as a condition of their approval, that the sellers must also move!

As a San Jose Short Sale agent I find this requirement outrageous! What difference does it make to the lenders/servicers if an investor purchases the short sale property and chooses to rent it to the former owner? It does not make a hill of beans difference other than the lender wants to play God and dictate where their former customer (borrower) lives, or does not live. That just feels wrong on so many levels I can't count them. 

3D character devil with a briefcase and contract

How on God's Green Earth do these lenders get away with this? Am I the only one who finds this condition outrageous? Why do lenders feel it is necessary to force San Jose short sale homeowners to move when they, and the investor buyer, want them to stay? The transaction is already "arms length" which means the parties (buyers, sellers and agents) do not have a close personal or business relationship, as defined in one Wells Fargo approval letter. It feels more like an agreement with the Devil to me!

What is one to do when they have approval from the short sale lender, are ready to close escrow, but the seller needs more time because the place they secured to rent is not available for 2 weeks? The logical answer may be to get an extension from the short sale lender(s) or get the short sale lender to approve a Interim Occupancy Agreement.

We know how long it takes short sale lenders to get anything done. The seller could be moved before the short sale lender grants an extension of time to close and/or authorizes an Interim Occupancy. The risks of taking this route are high, in my professional San Jose short sale agent opinion.

What are the possible consequences with the short sale lenders if the seller holds over (stays in the property) for a short period of time after the close (with the buyers permission of course)?

We know any violation of the arm's length transaction requirement may cause the short sale lender to void the short sale approval and the short sale lender may pursue available remedies at law, as outlined in one Wells Fargo approval letter.

What else might you do under these circumstances when the San Jose short sale transaction is ready to close and the sellers need 2 weeks to get moved?

Related Post: Whose Sleeping in my Closed San Jose Short Sale

Are San Jose Short Sale Lenders Playing God? by Kathleen Daniels, San Jose Short Sale Agent - San Jose Homes for Sale - 1-800-972-1822

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Pamela Seley 12/27/2012 06:37 AM
  2. Keith Ritter 12/27/2012 08:34 AM
  3. Joe Jackson 12/27/2012 09:39 PM
Topic:
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Rainmaker
2,850,095
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

Bart, I guess my view on this is one-sided simply because it's not my focus or how I run my business. I guess I am naieve when it comes to the shenanigans of others.  I feel the arm's length takes care of the issue.  Apparently I am missing something.  Investors would not need to sell the property back to the prior owner when they have options to sell on the open market.  Investors are going to get rent, make profit, take advantage of tax benefits, etc. regardless of who rents the property.  A deed restriction may resolve the issue ... thanks for your comment.

Lenn, I've turned away several folks who I knew were looking to use leverage me to stay in their home as long as possible before the lender forecloses on the property.  I am risk adverse and yet look to find creative solutions to issues that arise due to lenders rigid T&C's. 

Dec 27, 2012 05:40 AM #7
Rainmaker
3,984,330
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

I di believe that many times Lenders play God.  But, knowing some of the things that people pull, I can also understand why.

Lenn's Remarks about the lenders losing money or not makes sense in their decision also.

Dec 27, 2012 05:51 AM #8
Rainmaker
755,281
Pete Xavier
Investments to Luxury - Pacific Palisades, CA
Outstanding Agent Referrals-Nationwide

Kathleen,

Did not know about this, wow.

Learning something new everyday.

Dec 27, 2012 05:55 AM #9
Ambassador
3,984,458
Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent

Kathleen, There is funny stuff going on all the time. i didin't know about this twist.

Dec 27, 2012 06:10 AM #10
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Kathleen, I know it seems harsh and I feel as you do that it's outrageous, why should the lender care what happens after the short sale, but I have to agree with Lenn as I have had a few homeowners want to pull a scheme like that where they have a family member come in to buy their home in the short sale. Sometimes a third-party investor will want to cut a deal with the homeowner that they can leaseback after purchase and maybe even lease option purchase the property. Easy tenant for an investor who gets to reap the rewards and a profit to boot, not only at the loss and misery of the homeowner but at the expense of the short sale lender. This is another reason why I won't do short sales in the future. People get angry with me when I tell them they can't do that, at least not with me. Best to you in the next year!

Dec 27, 2012 06:12 AM #11
Rainmaker
2,706,951
Lisa Von Domek
Lisa Von Domek Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Hello Kathleen,

Unfortunately, as with everything, a few bad eggs force rules to be put in place that affect the innocent.

Dec 27, 2012 06:21 AM #12
Ambassador
2,081,419
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

There are indeed some strange things going on right now in the land of home loans........haven't we been here before with all of these strange happenings?

Dec 27, 2012 06:33 AM #13
Rainmaker
423,881
Jean Hanley
Coldwell Banker Kivett Teeters - Hemet, CA
Specializing in Folks Who Want To Buy/Sell Homes

Quite frankly, I am sick to death of the whole short sale process.  What happened to the government mandated time frames for freddie and fannie loans?  I think that some of the lenders ARE trying to walk on water, and it ain't working for me!  Happy New Year

Dec 27, 2012 07:11 AM #14
Rainmaker
671,028
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

But Kathleen, don't you know that lenders think they are Gods?

Dec 27, 2012 08:24 AM #15
Ambassador
2,010,922
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Kathleen - LOL at Patty #15.  It's true that the arms length can be frustrating when the two parties want to legitimately rent to each other.  It's unfortunate.

Dec 27, 2012 09:31 AM #16
Rainmaker
2,650,814
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

I suspect the reason for the lender requiring what you state about tenancy, is hinged on what Lenn has said in her comment #1.  The lender is agreeing the short-sale, but they are trying to assure their isn't fraud involved, by having the buyer working in cahoots with the seller, to regain ownership at a later date!

Dec 27, 2012 10:24 AM #17
Rainmaker
161,942
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

This is an added measure to make it an Arms Length transaction. This is a result of a few things we were doing in the old days, such as buying the short sale and then doing a lease purchase/trust conveyance to the borrower at an inflated price or just leasing it back to them at a lower than market value in exchange of a lower purchase price. There are other things we were doing, but the main goal is to tighten the Arms Length requirement.

Anyway, the reason why I responded to this blog is to say that the two week layover is not an issue. Tenancy is for any period over 30 days. You can also get by this requirement via the purchase contract by disclosing on section 5 of the purchase contract the occupancy timeframe.

Finally, if the borrowers get a PO Box and transfer their mail to the PO Box after the short sale, then there is no way to determine if the borrower remained in the property after the short sale as a tenant.

Dec 27, 2012 01:45 PM #18
Rainmaker
161,583
Wika Hutchinson
Eugene, OR
Broker, CRIS, SFR, CDPE

I agree with Lenn on this: the banks are circumventing owners who seek to lower their loan balance through a short sale to an insider or family members.  I think this is also why big institutions such as Bank of America (BoA) prohibit their employees (and family) to purchase BoA shortsale or foreclose homes.

Dec 27, 2012 02:29 PM #19
Rainmaker
737,310
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Hi, Kathleen,

 

In Dantes’ Inferno different levels of Hell are reserved for different types of offenders. I am sure there is a special level reserved for…(you know who).

Dec 28, 2012 03:03 AM #20
Rainer
159,533
Glenn Freezman
Family Abstract, Inc. - Horsham, PA

Kathleen, The Golden Rule has been around for centuries.  He who has the gold makes the rules.  Since there is only 2% of all Americans that have enough money, I'd presume that banks feel Godlike.  However, to put the decision making power into the hands of banks that in many times have already been paid in full for their loan due to mortgage insurance, there is no real incentive for them to move the property in the first place.

 

Be well.

Dec 28, 2012 04:20 AM #21
Rainmaker
4,229,864
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Kathleen, have to say I would have to agree - if the new owner wants to rent to the former owner - who cares, as long as the bank gets their money, it should be none of their business!

Dec 28, 2012 07:37 AM #22
Rainmaker
1,691,273
Bob "RealMan" Timm
Ward County Notary Services - Minot, ND
Owner of Ward Co. Notary Services, retired Realtor

The lenders sure are NOT showing any appreciation that the owner did,nt just walk away and trash the place. Their attitude just may cause more owners to do so.

Dec 30, 2012 04:49 AM #23
Rainmaker
415,162
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

It is...unfortunate for sure. 

I've been running into this issue as well as short sale sellers are having a harder time finding rentals. 

The banks have no confidence in their own ability to value property (for good reason!) so they believe that this and other rules will protect them from fraud.  (How about paying more than $20 for BPOs and not requiring a 10 page penalty addendum to explain the need for repairs?  Or is that just crazy talk?  LOL)    

They can of course waive the requirements when they choose (as long as it isn't restricted by the type of short sale program being applied for).  And of course, if this were a luxury property, they might be willing to waive it.  Isn't that nice? 

Dec 31, 2012 06:05 AM #24
Rainmaker
551,526
The Villages Realty
The Villages Realty - San Jose, CA
"Our Performance Will Move You!"

Great post with some very valuable information.  Always like what you have to say.   

Dec 26, 2016 08:00 PM #25
Rainmaker
701,792
Eagle Ridge Realty
Eagle Ridge Realty - Gilroy, CA
"Our Performance Will Move You!"

Great post with some very valuable information.  Always like what you have to say.

Dec 27, 2016 05:16 PM #26
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Rainmaker
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Kathleen Daniels

San Jose Homes for Sale-Probate & Trust Specialist
An Independent San Jose Real Estate Brokerage
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