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.

 

 

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Sherry SiegelPermalink Reply by Sherry Siegel on March 6, 2011 at 7:19am
Would very much like to hear what the 1st lien holder's reply will be to the 2nd who was demanding.
Permalink Reply by Bill Travis on March 6, 2011 at 7:31am
Sherry, the 2nd agreed to drop the requirement after I requested the listing agent to inform the 1st. So we won't get that answer, but I can imagine what it would be.
Permalink Reply by Jeff Bradshaw on March 6, 2011 at 11:37am
The second is not a party to the contract so how can they ask for the deposit. The contract is between the seller and buyer. A short sale is a standard sale with the contingency that the lenders release the lien for a lower amount. I would check with a local state attorney on this.
Permalink Reply by The Negotiator on March 7, 2011 at 4:56am

If your buyer wanted to purchase a short sale property and didn't want to wait 90 days then what business does your buyer have making an offer on a short sale in the first place? Short sales take 10 days - 2 years.

I absolutely love the fact of a non-refundable deposit. I always get my buyers to sign a hard deposit for 60-90 days. This is just good business because if the buyer isn't serious about buying then why should we be serious about selling? There are to many buyer agents out there instructing their client make multiple offers on short sales AND there are to many buyers walking because they have no skin in the game and they don't want to wait a few months. Shame on the BUYERS agents for the lack of direction and expectations to their client.

 

The CU is not a party to the contract, but, if they require the signature of the president of the united states, then you must comply. All mortgage holder(s) dictate the terms of the short sale. It's their right because they are owed the money. A short sale is a COURTESY NOT A RIGHT! Being in a mind-set that the lender must do this and must do that is just wrong. Think about it.. how would you like being owned 100k and then agreeing to take 50k. Would you accept the terms given to you? Or, would you want your terms? The lenders are doing nothing any of us wouldn't do.

 

In regards to you being authorized. You were not talking specifics about the loan itself. You were given instructions about how to proceed. An authorization was not necessary for that.

Permalink Reply by The Negotiator on March 7, 2011 at 4:59am
There is nothing in law that says the second lien holder cannot ask for a HARD deposit for 90 days. It is their time being used to process a short sale and they don't want buyers walking that easy. Would you?

Jeff Bradshaw said:
The second is not a party to the contract so how can they ask for the deposit. The contract is between the seller and buyer. A short sale is a standard sale with the contingency that the lenders release the lien for a lower amount. I would check with a local state attorney on this.
Permalink Reply by The Negotiator on March 7, 2011 at 5:02am

The first cannot do anything about it. It is none of their business. We need to understand that these lenders can request anything they want inside the law. Requesting a hard deposit is GOOD BUSINESS!

BOA says the buyer cannot resell inside 30 days .. anyone complaining about that? This is a major violation of our constitutional right. Anyone complain? No, because it is forced by BOA. It's there terms or no short sale.


Sherry Siegel said:

Would very much like to hear what the 1st lien holder's reply will be to the 2nd who was demanding.
Permalink Reply by Bill Travis on March 7, 2011 at 5:13am

The Negotiator, I can understand from the listing agent and lender point of view; keep the buyer tied up.

However, from a buyer point of view, I cannot advise my clients to sign a non-refundable 90 deposit, not knowing how proficient the listing agent is; (are they using a good negotiator or a paper facilitator) not knowing if the hardship is something the lender will accept; not knowing if the seller will back out at the last minute (they have that right); not knowing if the lender will be reasonable and agree to sell the house at the current market value in the current condition.

And, I will not sign a lenders "policy agreement" that has me agreeing to terms that only my buyer can agree to.

I'm working for my buyer, and will do my best for them. If, after my advising them, they want to gamble tying their money up for 90 days with no guarantee that the lenders will proceed in a timely manner in good faith, then I will stick in there with them. If they want to walk and make other offers, I'll do that. For me, my buyer comes first, above all else; above my commission.

However, in AZ, we now have a Multiple Offer/Counter Offer that advises the seller that the buyer is making multiple offers, and I would have the buyer execute and submit that.

Permalink Reply by Jeff Bradshaw on March 7, 2011 at 5:19am
Of course you would not want a buyer to walk, the agents don't, the lenders don't and the sellers don't. But think about it this way, if the the lender did not make it so difficult to complete a short sale people would be more apt to buy them and would not be so negative towards them. I completed over 200+ shorts in the 90's in California when the Aero Space industry left and shorts were must different and easier then(even with no computers and just fax machines). Buyers did not have to wait months to complete them and sign away their first born. Today the lenders are absolutely rediculous. You are right it is a courtesy not a right to do a short sale. If that is the case then why do them at all. Just take the homes, flush out this market and be done with it. I said to a negotiator with an attutude the other day "One great thing about this market is, I will still have a job in 5 years but you won't, now while you still have your job why don't we try and work together, don't we have the same goal? Get this home sold for a reasonable market value so the investor can be paid sooner rather then later?" She actually said "yes" and from that point we have gotten along fine and the settlement notice is on its way. These negotiators get a "God" complex while performing thier jobs. They forget the goal is to just get the home sold with the least amount of loss vs. foreclosure. I will tell you the if the lenders would learn from the 90's in Califonia they could complete shorts much easier today. Again If they want to have such attitudes that this is a privilege and not a right, then stop doing them. But oh it is an avantage for them to complete them Hmm, when will they figure that out and change the attitude.

The Negotiator said:
There is nothing in law that says the second lien holder cannot ask for a HARD deposit for 90 days. It is their time being used to process a short sale and they don't want buyers walking that easy. Would you?

Jeff Bradshaw said:
The second is not a party to the contract so how can they ask for the deposit. The contract is between the seller and buyer. A short sale is a standard sale with the contingency that the lenders release the lien for a lower amount. I would check with a local state attorney on this.
Permalink Reply by The Negotiator on March 7, 2011 at 5:23am

You can advise all day to your client. The fact still remains the same. If your client wanted to buy a short sale, then why are they not willing to put up a hard deposit? After 90 days if the short sale is not complete, they get their deposit and walk away. Now, if your client needed to buy a house in 30 days then that's different (and I hope you wouldn't show them short sales). Since you are showing your client short sales they must know that 90 days waiting time is normal, right? Everyone knows how long short sales take. You must have explained that to the buyer. After than then you need to have a conversation with the listing agent about the short sale negotiator and short sale qualifications. Then the decision is whether to agree or not agree to the terms imposed by the lender.

I am disappointed in the listing agent for not having this information up front for potential buyers. They should have contacted each lender and got all the relevant info/requirements for the short sale. This would have saved a lot of time and hassle.

Bill Travis said:

The Negotiator, I can understand from the listing agent and lender point of view; keep the buyer tied up.

However, from a buyer point of view, I cannot advise my clients to sign a non-refundable 90 deposit, not knowing how proficient the listing agent is; (are they using a good negotiator or a paper facilitator) not knowing if the hardship is something the lender will accept; not knowing if the seller will back out at the last minute (they have that right); not knowing if the lender will be reasonable and agree to sell the house at the current market value in the current condition.

And, I will not sign a lenders "policy agreement" that has me agreeing to terms that only my buyer can agree to.

I'm working for my buyer, and will do my best for them. If, after my advising them, they want to gamble tying their money up for 90 days with no guarantee that the lenders will proceed in a timely manner in good faith, then I will stick in there with them. If they want to walk and make other offers, I'll do that. For me, my buyer comes first, above all else; above my commission.

However, in AZ, we now have a Multiple Offer/Counter Offer that advises the seller that the buyer is making multiple offers, and I would have the buyer execute and submit that.

Permalink Reply by The Negotiator on March 7, 2011 at 5:29am

Easier short sales would be nice. However, understand that this short sale market cannot nor ever could be compared to your dilemma in California because of sheer volume. The proof is on the size of the lender. I can get a short sale approved inside 30 days with a small lender.


It's easy to say that short sales should be easier. Another way to put it is that taking money away from the banks should be easier. Same thing right? I ask again, what would your rules be if you were the one losing thousands and what would your process be?

 

I wish these were easier...


Jeff Bradshaw said:

Of course you would not want a buyer to walk, the agents don't, the lenders don't and the sellers don't. But think about it this way, if the the lender did not make it so difficult to complete a short sale people would be more apt to buy them and would not be so negative towards them. I completed over 200+ shorts in the 90's in California when the Aero Space industry left and shorts were must different and easier then(even with no computers and just fax machines). Buyers did not have to wait months to complete them and sign away their first born. Today the lenders are absolutely rediculous. You are right it is a courtesy not a right to do a short sale. If that is the case then why do them at all. Just take the homes, flush out this market and be done with it. I said to a negotiator with an attutude the other day "One great thing about this market is, I will still have a job in 5 years but you won't, now while you still have your job why don't we try and work together, don't we have the same goal? Get this home sold for a reasonable market value so the investor can be paid sooner rather then later?" She actually said "yes" and from that point we have gotten along fine and the settlement notice is on its way. These negotiators get a "God" complex while performing thier jobs. They forget the goal is to just get the home sold with the least amount of loss vs. foreclosure. I will tell you the if the lenders would learn from the 90's in Califonia they could complete shorts much easier today. Again If they want to have such attitudes that this is a privilege and not a right, then stop doing them. But oh it is an avantage for them to complete them Hmm, when will they figure that out and change the attitude.

The Negotiator said:
There is nothing in law that says the second lien holder cannot ask for a HARD deposit for 90 days. It is their time being used to process a short sale and they don't want buyers walking that easy. Would you?

Jeff Bradshaw said:
The second is not a party to the contract so how can they ask for the deposit. The contract is between the seller and buyer. A short sale is a standard sale with the contingency that the lenders release the lien for a lower amount. I would check with a local state attorney on this.
Permalink Reply by Thom Colby CA Brkr 888-391-5245 on March 7, 2011 at 5:32am

All,

  1. There is a difference between a Hard Deposit (as "The Negotiator" terms it) and a NON-REFUNDABLE deposit as originally requested by the 2nd to go directly to them !
  2. As for being authorized to speak with Bill, the Credit Union was absolutely WRONG.  Any lender cannot as much as "acknowledge a loan exists" to anyone who is not specifically authorized by the borrower.  If it were not required, I guess I could call anyone's bank and discuss their mortgage without their knowledge, right?
  3. It is absolutely correct that debt collectors (lender on a loan in default) can request anything they want - even to have the contract written on zebra-striped paper, but it doesn't mean they can dictate it, nor does it mean they will get what they want.  Sometimes, as in the HSBC example, their request may be illegal.
  4. If anyone does pay a 2nd anything without the 1st knowing - even a non-refundable deposit, it has to go on the HUD or it will have been paid outside of escrow which is fraud.  And, when that happens, the 1st will have something to say as to how the 2nd got money without the 1st approving it.  I wouldn't want to be part of that deal !

Make sure your E&O is paid-up...........

 

Best of Luck Bill, it seems liek you're doing everything you can to proetct your client !

 

Cheers,

Thom Colby

Broker / Negotiator

Newport Beach CA

 

 

Permalink Reply by Bill Travis on March 7, 2011 at 5:35am

Give me some good reasons why it is to my buyers benefit to put up a non-refundable deposit for 90 days.

 

 

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