Having closed several hundred transactions over the past five years, I thought I had experienced just about every obstacle Murphy's law could throw in the path of a successful closing. From intransigent sellers to inflexible buyers, we have worked our way through negotiations and dealt with whatever was thrown in the path towards settlement.
The latest wrinkle of course is the emergence of short sale and foreclosure (also known as "REO" or bank owned) properties, which add to the mix of potential bottlenecks in a transaction. That said, here are some of my own experiences with Murphy's law as it pertains to selling distressed homes:
Time Lines
Whatever deadlines you put on your offer will not be met. Even if a "short" seller accepts in a timely fashion, his lender may take weeks to respond. We include a separate addendum to cover this with an automatic 30 day extension but that is often wishful thinking. Foreclosures are quicker but the acceptance deadline will typically come and go before you get an answer.
Inspections
So your offer is accepted for that bargain foreclosure in the upscale gated community. The inspection report contains few surprises since you know it needs all kinds of work and are lining up your contractors and making plans. But the FHA loan you took has their own inspector show up and they demand you fix the roof, replace the water heater and repair the A/C unit before they will give you a loan commitment. The REO bank says fix it on your dollar, which you do, not knowing if we will even make it to closing.
The Title Work
We are ready to close but the seller's title company says no, you are closing on the 15th per the contract. We remind them it says "on or before the 15th" and spend several days arguing about it until they relent. But the closing gets pushed back anyway because the lender keeps Emailing the loan package to the wrong address and the title company refuses to talk to them. It seems they do not like each other. This leads to a series of missteps and arguments with the title company. In my experience the title company has almost always been the one that helps keep the deal together and everything flowing. But in the wild west environment of foreclosures, the bank chosen title company answers to no one - they are there to serve the bank.
Closing Day
Finally we are closed but the buyer can't move in because the loan is not yet funded, so they wait the required 24 hours only to discover the cash to close wire transfer never showed up. Several days pass before we discover the buyer's bank never sent it. The funds are sent and the buyer has his house!
Parting Shot
All is right with the world and our commission check shows up. But wait - there's more! It is $2,500 short because the title company claims we never wired them the buyer's earnest money. We actually wired it three weeks prior but they chastise me and demand proof it was sent (I guess the final HUD statement was not proof enough and they neglected to check their trust account for the funds).
These are just a few examples of what it takes to get to a successful closing. Under the best circumstances there will be hurdles but if you are looking to buy a distressed property, you need to consider what can and will go wrong in the transaction. If you need to be in a new home quickly, you may want to rethink your strategy.
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