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
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Permalink Reply by Jeff Bradshaw on
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The 30 day rule from BoA has already been challenged in court and BoA lost, yet they continue to tell people that. I noticed Bill said the CU dropped the requirement. Its amazing that when you challenge the lenders and they know they are doing wrong how quick they back down. Lenders are trying to get away with as much as possible. Just look at the market they caused. They knew these loans would fail or they would not have bet against the same loans that they issued via Credit Default Swaps. Now they continue to break the rules and do what every they want. Why don't they just stop doing short sales all together if it is so bad for them like they portray it to be? Hmm lets see, oh yea those same investors that they screwed by selling the loans to them want to complete short sales. I just read a post yesterday where BoA declined a short sale yet the investor did not even know one was being done. The agent contacted the investor which was a local CU and let them know. The CU manager got upset and is getting in contact with BoA. Sounds like the lenders do not really want to do short but know they have to since the investors are demanding it. Well its the investors that are keeping the lenders in business yet they are not even treating them with respect.
The Negotiator said: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.
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Permalink Reply by The Negotiator on
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I think you are trying to understand this from the wrong point of view. You want whats best for your buyer (obviously). Agreeing to the non-refundable deposit (hereinafter “NRD”) is a term that a buyer doesn't want, so, of course you would not agree (I wouldn't either in your shoes). Put yourself in the sellers/lenders shoes. Would you want a "SERIOUS" buyer? A buyer who said "I want this house so bad, I am willing to put my money where my mouth is." I hate to say it, but, a buyer is not a "serious buyer" unless they have skin in the game. If you were the listing agent, I think you would agree with me.
In a non-short sale would the homeowner want a NRD? Of course, they want a serious buyer. In short sales, because of the approval time, buyers are walking to much because they don't have anything to lose which is causing many problems for the lender and homeowner (starting over with a new buyer). 2--4 months goes by before the deposit goes non-refundable which gives the buyer an EASY out.
This debate comes down to different points of view from different parties.
However, to speak to your point directly. If you buyer was serious about the property, why wouldn't they put up a NRD? Have you had buyers walk on short sales for some "lame" reason? I know I said I would not like this whole thing if I were in your shoes, but, I think I just talked myself out of that statement. I think I would want my buyer to sign the NRD because that tells me my buyer isn't walking for some lame BS.
Good talks...
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It never will be as easy because of the volume, but remember the lenders knew that this was coming. I owned a Prudential office in California back in 05 and attended a summit in Colorado Springs put on by the then CEO of Country Wide. He stated then what his predictions for the market would be and failures that would happen. He told us of this impending doom that was about to happen. The lenders knew that these loans would fail. When Mark Burry in 04-05 got Deutsche Bank to write the first Credit Default Swap against the Home loan Bonds and all of the lenders jumped in, they knew what they were doing. The lenders should have been more prepared for this since they created it and knew what was about to happen. It is not cost effective for servicers to complete short sales. So, it is better for them to make them difficult. Remember the servicer fronts the interest payments to the investor while the homeowner lives rent free. Until the servicer takes the home back they are out money. So of course they do not want to complete shorts, they would much rather take them quickly. But they can't because the same investors that the lender sold these junk loans to want short sales to minimize their losses. Too bad the banks haven't figured out that those same investors are the ones that keep them in business.
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.
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Permalink Reply by Thom Colby CA Brkr 888-391-5245 on
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Bill -
There are NO good reasons to do it. a "Non-refundable deposit" is not for 90 days it is NON-REFUNDABLE.
Thom
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Permalink Reply by Bill Travis on
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My buyer is serious; wants the house; isn't looking; and will wait Provided there is progress being made and we are updated on the progress on a regular basis. If the listing agent does not update us; does not return my email or phone calls in a timely manner, and it appears there is no progress being made, then my client may reconsider waiting.
I place my clients interest above my own interest, which is above my interest in a commission.
If someone asks me to advise my client to put up a 90 day NRD, then I need to have good reason to advise the client why it is in his best interest.
What can you tell me that will convince me that a NRD is in the "best interest of my client"? I'm willing to listen and learn.
The Negotiator said:I think you are trying to understand this from the wrong point of view. You want whats best for your buyer (obviously)...
...However, to speak to your point directly. If you buyer was serious about the property, why wouldn't they put up a NRD? Have you had buyers walk on short sales for some "lame" reason? I know I said I would not like this whole thing if I were in your shoes, but, I think I just talked myself out of that statement. I think I would want my buyer to sign the NRD because that tells me my buyer isn't walking for some lame BS.
Good talks...
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Bill Keep up the great work. You are right the client comes first.
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Thanks Jeff,
I was just searching for an investment in a condo unit for a Canadian client. I found one where the agent has these requirements on a $45000 condo, plus others:
- Buyer Must request 3% closing cost concessions
- Listing agent/negotiator to retain $1,295 of that concession
- $1,000 non refundable earnest money deposit 90 days
- EM forfeits to the listing agent
- Escrow Must close on or before 30 days; Extensions will not be granted (This is the listing agent requiring the buyer to agree to NO Extensions of close of escrow.
This is a listing that I'll certainly tell my buyer about, but also advise him to not waste his time. There are others.
Jeff Bradshaw said:
Bill Keep up the great work. You are right the client comes first.
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Bill -
Is this in SoCal ? WOW !
Thom Colby
Bill Travis said:Thanks Jeff,
I was just searching for an investment in a condo unit for a Canadian client. I found one where the agent has these requirements on a $45000 condo, plus others:
- Buyer Must request 3% closing cost concessions
- Listing agent/negotiator to retain $1,295 of that concession
- $1,000 non refundable earnest money deposit 90 days
- EM forfeits to the listing agent
- Escrow Must close on or before 30 days; Extensions will not be granted (This is the listing agent requiring the buyer to agree to NO Extensions of close of escrow.
This is a listing that I'll certainly tell my buyer about, but also advise him to not waste his time. There are others.
Jeff Bradshaw said:
Bill Keep up the great work. You are right the client comes first.
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You are mistaken. Read the original statement. Non-refundable if buyer walks before 90 days. Non-refundable does not mean never. It means that if buyer walks outside the terms of the contract they will lose the deposit. There is the inspection period where the buyer can walk and the time line of the short sale the buyer can walk and get the deposit back.
Thom Colby said:
Bill -
There are NO good reasons to do it. a "Non-refundable deposit" is not for 90 days it is NON-REFUNDABLE.
Thom
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Thom, this is in the Phoenix area.
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I obtained a legal opinion on the questions about this scenario.
- The CU has a legal right to demand the terms in the "policy agreement". The other party(s) do not have to accept.
- The CU would "probably" be in violation of the sellers privacy rights by talking to the buyer or buyers agent if they had promised they would not communicate with the buyer or buyers agent regarding the sellers loan.
- By signing the "policy agreement", notwithstanding that the language says "agreeing", the escrow officer, and/or the agents are simply "acknowledging" the "policy agreement".
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Exactly what I thought.
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