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FHA Short Sale with BofA denied due to the severity of the Chinese Drywall in the home.

Posted by Nelly Flaque on March 16, 2012 at 4:29am in Short Sale Discussions
Just wanted to give my current story on what's going on and if anyone had any suggestions.  Currently trying to short sale our house which contains Chinese Drywall and this is the response from BofA: The BPO came back with extensive damage regarding the Chinese drywall and deemed the property uninhabitable.  Because it is deemed uninhabitable FHA will not proceed with a short sale until all drywall is removed from the home as the liability is too high. Once the drywall situation has been taken care of BOA will reopen the file and order an updated value and proceed with the short sale.  Not the answer we were looking for I know but he reiterated that FHA will not proceed any further due to the liability and severity of the drywall situation. I guess I am kind of confused here because how is the liability too high for FHA if the buyer has signed all kinds of disclosures indicating he understands the property has Chinese Drywall? Also, the buyer is paying for the hose in cash and intends to completely gut and renovate the house. Suggestions/advise on how to proceed from here?

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Replies

  • Nelly Flaque August 7, 2013 at 3:16am

    So just wanted to update on the situation, we are still dealing with BofA trying to get a short sale. The Short Sale has been approved by the bank and now we are just kind of waiting in limbo to see what is going to happen. In the mean time we have been harassed by the HOA and have been sued by them on bogus violations and they have placed a lien on our property and they are trying to foreclose. This house has been nothing short of a nightmare.

  • Joy Baker April 1, 2012 at 7:45am

    Help me out here.  In a short sale what the Servicer, Investor and Insurer are agreeing to is a short payoff.  They are agreeing to accept less than the total amount owed as payment of the debt.  How does that make them liable for the condition of the property?  They don't own the property. 

    I would think there would be much more liability for the condition of the property if they foreclose, in which case they will OWN the property.

    I have a sneaking suspicion this will end up being a bank "walk away" where they just never foreclose.  Then the poor SOB who owns the property will be left hanging out to dry with a property he can't live in and can't sell (because they won't approve the short sale) but will still technically be responsible for because his name is still in title.

    Absolutely unconscionable on the part of BAC and FHA.

  • Bryant Tutas April 1, 2012 at 12:01am

    x

    • Nelly Flaque > Bryant Tutas August 7, 2013 at 3:15am

      So just wanted to update on the situation, we are still dealing with BofA trying to get a short sale.  The Short Sale has been approved by the bank and now we are just kind of waiting in limbo to see what is going to happen.  In the mean time we have been harassed by the HOA and have been sued by them on bogus violations and they have placed a lien on our property and they are trying to foreclose.  This house has been nothing short of a nightmare.

  • Nelly Flaque March 29, 2012 at 10:57am

    So now that we have had the Short Sale declined we requested to do a Deed in Lieu and BofA is also declining that.  Unreal!  Here is what BofA stated:

    Per FHA/HUD you must attempt a short sale before you can do a DIL therefore if you cannot do a SS you cannot do DIL


    Is my only option now a foreclosure?

  • Jeff Corporon March 25, 2012 at 4:02pm

    That is a tough one

  • Lila Lopez March 25, 2012 at 3:35am

    Hi Nelly,

     

    I did get a short sale approval with Space Coast on a home that had chinese drywall as well. While the loan was not an FHA loan, they had no issue with the existence of the chinese drywall, as the liability does not go with the lender. It took some doing to get them to waive the option for a defiicency judgement, as they had the position that should the home owner get any compensation from being a party to a class action lawsuit, they felt that the funds should go to them to offset their loss. We approached the bank with proof of the condition of the home with a full inspection report, and reiterated the home owner's financial circumstances. We also provided two estimates of the cost to remedy the condition of the home and were able to show that the cost to remedy far exceeded the current value of the home.

    Maybe the buyer can have an attorney draft a Hold Harmless Agreement releasing Bank of America, FHA and all other parties to this transaction. I would also suggest you have the file escalated to a higher level and have them reconsider your case.

  • Bryant Tutas March 25, 2012 at 12:55am

    xx

  • Michael Schneider March 19, 2012 at 4:06am

    I would not be surprised if this house did not foreclose, for lack of desire to acquire and because of potential liability upon ownership.  Also, the FHA does not move quickly, even under normal circumstances.

    Upon agreement by parties unrelated to you, you might be back in the game.

    Regarding "FHA liability", their liability is for a loss sustained by the holder of the note, not from the house itself, so I think the FHA liability as insurer would occur upon accepting a short payoff of the note.  So, I think their liability is probably not mitigated by the buyer agreeing to accept the property "as in".

  • Michael Schneider March 18, 2012 at 7:49am

    Interesting problem, Nelly.

    Isn't the issue here:  Who is liable for the loss of home value because of the drywall? Basically, someone is on the hook to go sue the manufacturer.  Who?  The Note Holder?  The Originator? Or the Insurer of the Note (FHA)? The liability insurer of the Originator?

    I would think that the FHA as the Insurer of the Note is probably not on the hook.  After all, they just insured the Note, based on a representation of value.  Subsequently, information in revealed demonstrating that the value is not what was represented.  So, I would think the FHA's agreement would state that they are not liable for the resulting loss.  Seems reasonable, right?  They issued insurance based on the representation of value of the collateral.

    I would think that the originator of the loan is liable here, or their liability insurer, but not the FHA or note holder.

    Hence, it would seem that perhaps BofA/FHA are being reasonable here.  Until the responsible party indemnifies them for the loss by agreeing to pony up money, they cannot approve the short sale.

    Sounds like that issue must be resolved before the property can sell.  I would say you probably need legal assistance here to protect your interests.  And, I think this is probably not a basic real estate attorney matter.

This reply was deleted.
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