Credit Union, as a 2nd lien holder demanding non-refundable earnest money forfeited to the CU
This is a HAFA short sale and I'm the buyer agent.
The 2nd lien holder, an AZ credit union sent a form demanding that the buyer and the buyers agent sign "agreeing" to the buyer depositing a non-refundable earnest money deposit to be forfeited to the CU if buyer walks before 90 days.
I refused to sign because I'm the agent, not a party to the transaction, and cannot "agree" to any terms of the contract. The CU accepted that but still wanted the buyer to sign.
I argued that we had no way of knowing what else the CU would demand of the first, nor whether they would agree to the amount the first would agree to pay, and asked for some assurance that would be quid pro quo for the earnest money.
Under the new HAFA guidelines there is an aggregate cap of $6,000 for junior lien holders.
My buyer refused to sign, and again the CU said they would refuse to work the file if he didn't sign.
I argued that that there was nothing in the HAFA guidelines that allowed a junior lien holder (who is agreeing to participate in order to get some of the $6000) to require earnest money defaulted to them, and that the first holder may be quite upset if they found out what the CU was doing.
They argued that it was "policy" which could not be changed"
Originally I was talking to the listing agent, but the LM said to have me contact him directly.
Then I asked the LM to have someone in the office who could be authorized to make an exception to the policy, and he said no one could.
So I said that my buyer is refusing to sign; that we request that the file be worked, and again requested LM to escalate the "policy" exception, plus requested the listing agent to notify the first lien holder that the 2nd was holding up the works by this unreasonable demand; and since the first is required to respond within 30 days, we would await the response from the first lien holder before taking other action.
The LM came back and said he was giving us the exception out of the spirit of cooperation.
Has anyone else had this type of experience from a first or junior lien holder. What recourse is there, other than just taking the hard line like I did and refuse to allow the junior lien holders profit if a buyer has to walk.
Replies to This Discussion
-
Permalink Reply by Steve Early on
-
Bill:
Wow, that is a new one on me. Credit unions and independent regional banks can be tough to deal with because they have no access to taxpayer dollars to make up for their losses - every short sale hits their bottom line. In a state like AZ where there are quite a few short sales going on, they may be trying to come up with "creative" ways to minimize their losses, but I have not seen this yet.
-
-
As an afterthought Bill, I wonder if you could argue that asking for any kind of a payment in advance would be against the new FTC MARS rules??
-
Permalink Reply by Bill Travis on
-
Steve, the LM said that when buyers walk it increases their workload by having to rework the file. He said since introducing the policy they had decreased their workload tremendously.
I replied that if the lenders had systems in place to work the files and communicate more efficiently and respond within 30 days there would be no need for buyers to walk.
Since MARS applies to people taking advance payment from the seller to negotiate a modification, and this is asking for a non-refundable earnest money deposit from the buyer (forfeiting to the credit union), it should fall outside MARS.
-
Permalink Reply by Nate Gerard on
-
I'm thinking about this in terms of the short sale contract being between the seller and buyer. I don't think what the CU is asking for can be called earnest money. A second lien holder can ask for payment as a part of a settlement but it wouldn't seem legal to ask for non-refundable payment just to process the short sale. Of course with this being a HAFA the second lien holder has a limit on what they can ask for anyway and so long as the net amount meets the requirements of the terms of the HAFA short sale the approval process shouldn't take 90 days anyway.
Ultimately the CU is trying to reduce the amount of times they work a short sale and have the buyer walk - a reasonable goal, but their tactic is not reasonable.
-
Permalink Reply by Thom Colby CA Brkr 888-391-5245 on
-
Bill -
This is very interesting and thanks for posting ! I suspect there are many legal issues here which an attorney can certainly answer better than me.
1) You are correct - you are not a party to the contract
2) They (CU) is wrong - they are NOT a party to the contract - they are simply providing an approval of how much LOSS they are willing to accept. {{This is actually similar to an HSBC tactic where they have the seller or buyer wire funds into the borrower (seller's) mortgage loan account prior to issuance of an approval - which almost never is issued}}
3) I'm shocked they spoke directly with you or anyone other than the borrower (Seller) or the Listing Agent / Broker. Did they have the borrower's permission to speak with you?
If this were my client, I would suggest mobing onto another property - I suspect this road will get much more "bumpy" before it ever gets better.
I think the next chapter of Foreclosure "Issues" will have to do with what the banks and CUs are requesting parties to the transaction to do - this should be very interesting...........
Come back and tell us what happens !
Thanks again,
Thom ColbyBroker
Newport Beach CA
-
Permalink Reply by James Mulhern on
-
Very Interesting - a few thoughts from someone not too experienced in the HAFA program:
The 2nd already knows what they are going to be getting if they are participants in HAFA, so the issue is not necessarily the terms that they may require of the seller that can make the deal unacceptable. So in their eyes, this is an approved transaction that simply needs to be processed. To avoid any concerns, why don't you have all the inspection items taken care of prior to signing? Which leads me to my next point...
In Virginia, the buyer has a right to walk away from any contract no matter what the reasoning during a three day period to review the Property Association Documents if it is in a planned unit community. Arizona may not have this, but I am sure that there are other provisions in the contract that allow the buyer to legally terminate the contract without forfiture of their EMD - how can the bank legally not refund the money if the buyer is using an enforceable contingency in the contract?
I thought the whole idea behind HAFA is to make it easier for the buyer and streamline the expenses for the seller making any home accepted into the program as a guaranteed sale? We are only listing homes through HAFA that are approved prior to going on the market so that may skew my interpretations...I do not see how you can advise your buyer to sign that form at all.
Jimmy
Northern Virginia
-
Permalink Reply by Michael Schneider on
-
The credit union request seems absurd to me. And, frankly, IMHO not worth the trouble to them, even if this did make sense.
Some lenders are angry because they made bad loans. (I'm angry because I choose to go to a bad restaurant last night, so, Bill, you should pay my bill.)
I know of no law or guideline, however, that would prevent the credit union from making this request of a buyer.
Seems unrelated to any of the HAFA programs.
-
-
Jimmy -
What I've seen some banks require is "an amount of money" paid against the outstanding loan before they will work on the file as is the case with HSBC (example). So if anyone think the bank will release an "EMD" after they have already applied it ot the account - it won't happen !
Cheers,
Thom ColbyBroker / Negotiator
Newport Beach CA
James Mulhern said:Very Interesting - a few thoughts from someone not too experienced in the HAFA program:
The 2nd already knows what they are going to be getting if they are participants in HAFA, so the issue is not necessarily the terms that they may require of the seller that can make the deal unacceptable. So in their eyes, this is an approved transaction that simply needs to be processed. To avoid any concerns, why don't you have all the inspection items taken care of prior to signing? Which leads me to my next point...
In Virginia, the buyer has a right to walk away from any contract no matter what the reasoning during a three day period to review the Property Association Documents if it is in a planned unit community. Arizona may not have this, but I am sure that there are other provisions in the contract that allow the buyer to legally terminate the contract without forfiture of their EMD - how can the bank legally not refund the money if the buyer is using an enforceable contingency in the contract?
I thought the whole idea behind HAFA is to make it easier for the buyer and streamline the expenses for the seller making any home accepted into the program as a guaranteed sale? We are only listing homes through HAFA that are approved prior to going on the market so that may skew my interpretations...I do not see how you can advise your buyer to sign that form at all.
Jimmy
Northern Virginia
-
-
The Credit Union (or any servicer/lender) is NOT a party to the transaction. They are the lender who will either approve or deny the amount of LOSS they are willing to accept - that's all !
Michael Schneider said:The credit union request seems absurd to me. And, frankly, IMHO not worth the trouble to them, even if this did make sense.
Some lenders are angry because they made bad loans. (I'm angry because I choose to go to a bad restaurant last night, so, Bill, you should pay my bill.)
I know of no law or guideline, however, that would prevent the credit union from making this request of a buyer.
Seems unrelated to any of the HAFA programs.
-
-
The fact that the CU was talking to me (the buyers agent) without the seller giving them authorization to speak to me didn't dawn on me until you mentioned it.
Just to work through this situation to see how it plays out in the purchase contract:
- A contract to sell a property is between two parties.
- The earnest money is to show the willingness of the buyer to diligently work on removing all contingencies to complete the transaction.
- The AZ contract specifies that retaining the earnest money in the event of buyer breach is the sole remedy of the seller. So according to the contract, any forfeited EM must go to the seller.
- In order for EM to be forfeited to the CU, there would have to be an amendment to the contract.
- The CU "policy agreement" is in fact not an amendment to the contract. It is titled Pre-Foreclosure Sales Policy Agreement.
- It names the sellers and buyers, and the property address, but does not reference the contract, nor does it identify the contract by date of execution, nor does it state that this policy is an amendment to the contract.
- Therefore, if an escrow company did release the forfeited EM to the CU they would be violating the instructions in the Arizona purchase contract (in my lay person opinion)
Here is the text of the policy.
Pre-foreclosure Sale Policy Agreement
In the event that this pre-foreclosure sale is canceled for any reason other than beyond the buyers control, the earnest money deposit will be forfeited to the lender and applies to the sellers outstanding balance and/or arearage.
If such cancellation is beyond the buyers control, for example, the buyer is unable to secure financing; the earnest money deposit will be refunded. If (CU) or other lien holders involved in the subject transaction do not issue final approvals for the sale within 90 days of the date of this document, we will consider cancellation by the buyer to be beyond his and/or her control. This by no means waives the 10 day buyer’s inspection process.
Seller, Seller’s Agent, Buyer, Buyer’s agent, and Escrow Officer all agree to this policy by their signature and date on the signature/date lines provide below. If this form, and all required documents are not received, (CU) will not evaluate the offer to purchase the subject propertyThe escrow officer had already signed the "policy agreement"
I believe the escrow officer was in violation of his duty as a neutral third party by "agreeing" to this CU policy.
-
-
Bill -
WOW ! The Escrow Officer signed this "Policy Statement" - they are not a party to the transaction either - except as you say - a neutral 3rd party / Escrow is basically a "checkbook and a file cabinet". Quite frankly, because of their inept actions, I'd take the business away from this Escrow Company and move it elsewhere!
This transaction is really not complicated. People seem to be forgetting who the parties of the contract are.
Again, the lenders / lienholders / servicers (whatever you want to call them) are simply providing an approval of the LOSS they are willing to accept and nothing more. They are NOT a party to the Purchase Agreement - and never should be made to be. Consult with an Attorney.
Thom Colby
Broker / Negotiator
Newport Beach CA
Bill Travis said:The fact that the CU was talking to me (the buyers agent) without the seller giving them authorization to speak to me didn't dawn on me until you mentioned it.
Just to work through this situation to see how it plays out in the purchase contract:
- A contract to sell a property is between two parties.
- The earnest money is to show the willingness of the buyer to diligently work on removing all contingencies to complete the transaction.
- The AZ contract specifies that retaining the earnest money in the event of buyer breach is the sole remedy of the seller. So according to the contract, any forfeited EM must go to the seller.
- In order for EM to be forfeited to the CU, there would have to be an amendment to the contract.
- The CU "policy agreement" is in fact not an amendment to the contract. It is titled Pre-Foreclosure Sales Policy Agreement.
- It names the sellers and buyers, and the property address, but does not reference the contract, nor does it identify the contract by date of execution, nor does it state that this policy is an amendment to the contract.
- Therefore, if an escrow company did release the forfeited EM to the CU they would be violating the instructions in the Arizona purchase contract (in my lay person opinion)
Here is the text of the policy.
Pre-foreclosure Sale Policy Agreement
In the event that this pre-foreclosure sale is canceled for any reason other than beyond the buyers control, the earnest money deposit will be forfeited to the lender and applies to the sellers outstanding balance and/or arearage.
If such cancellation is beyond the buyers control, for example, the buyer is unable to secure financing; the earnest money deposit will be refunded. If (CU) or other lien holders involved in the subject transaction do not issue final approvals for the sale within 90 days of the date of this document, we will consider cancellation by the buyer to be beyond his and/or her control. This by no means waives the 10 day buyer’s inspection process.
Seller, Seller’s Agent, Buyer, Buyer’s agent, and Escrow Officer all agree to this policy by their signature and date on the signature/date lines provide below. If this form, and all required documents are not received, (CU) will not evaluate the offer to purchase the subject propertyThe escrow officer had already signed the "policy agreement"
I believe the escrow officer was in violation of his duty as a neutral third party by "agreeing" to this CU policy.
-
-
I got around it.
I refused to sign because I'm not a party to the contract.
My buyer refused to sign because the CU would not give us anything that would give us assurance that they would be cooperative with the first.
I requested the LM to ask someone in their office who had the authority to make an exception to the policy. Also, I requested the listing agent to inform the 1st lien holder what the 2nd was demanding.
© 2024 Created by Short Sale Superstars LLC.
Powered by
**********************************
like buttons