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If the seller makes a mortgage payment, does it stop the short sale process?

Posted by Barton Anderson on September 14, 2010 at 6:09am in Short Sale Discussions
Hello all,

We are in the process of buying a short sale. The bank never countered our offer and asked for the "arm's length"
paperwork to be immediately executed 3 weeks ago , and informally
indicated to the seller at that point that approval was forthcoming.

Last week, after hearing nothing, the seller's agent asked us if we could
please postpone closing for 6 months since the sellers made a mortagage
payment on 9/8 and that meant Wells Fargo was stopping the entire
process and we'd have to start all over again in 35 days.

I've asked for documentation from the lender as everything I've read has
indicated that payment sequence is not an element in this process. (We
have other reasons to believe there is a serious breach of contract here
but we do not wish to sue.) While I wait out the 5 days these
"motivated sellers" (heavy sarcasm--it's clear all these people want is a
free ride and their realtor is assisting them) will need to provide me
with one document, I am asking this question here: is it true that the
entire sale has to stop, right at the point of the bank issuing its
approval, just because the sellers made their first payment in 6+
months?

Thanks in advance.

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Replies

  • Dana Harris Carter September 22, 2010 at 3:50pm
    I'm a Preforeclosure/Bankruptcy/Fraud Specialist of 15 years and have NEVER heard of such. Sadly, if the listing agent was smart enough to put in the contract the following special stipulation there is nothing you can do legally which is "All parties acknowledge that this offer is contingent upon the final approval of the seller's lender due to the anticipated shortsale request!" With that contingency it protects the sellers from the usual "breach of contract allegation. Obviously, nobody is going to wait 6 months for a property and I'm can tell that you're intelligent enough to find your client another property elsewhere. I'm just so sorry that you wasted all of this valueable time and pray that your clients did not spend any funds on this transaction yet. It's agents liket this one that gives our industry a bad rap because the listing agent knows the truth. She's using the attorney as a "cop out." What attorney? It must be the closing attorney. However, it's the listing agent that negotiates the shortsale NOT a closing attorney. They don't get paid to get shortsales when acting solely as a closing attorney. The other answer to your question is that is that rarely, if ever, do lenders require one payment when a property is in preforeclosure. They would've had to pay the entire arrears owed to the lender which would, of course, defeat the entire purpose of pursing a shortsale. Nevertheless, I wish you much success in finding the right property at the right price for your client. As long as the listing agent's company returns the earnest money expeditiously, I would move forward because you'll NEVER find out the truth due to "confidentiality" reasons. Although some lenders will say they require a payment to do a shortsale I've personally NEVER in my 15 year career ever given into that trick and will fight them vigorously, if asked to do so, with my clients permission. I do agree with the other comments and especially Michael Schneider's in that their personal/financial circumstances may have changed and now they want to pursue a loan modification. In that scenario, as you probably know, they would have to close out their shortsale request before being permitted to start the loan modification. Otherwise it's in violation of all lenders policy to be in both programs (shortsale and loan modifications) simultaneously.
  • Barton Anderson September 20, 2010 at 8:43am
    Once again, my sincere thanks to everyone for the input. It has been very helpful.

    I wish I could report that this is all resolved, but the seller's agent has dropped this particular line of discussion and now is just simply asking us to extend our offer so we would close in six months but will not offer any sort of explanation or documentation at all. Our offer runs out on 9/30 and we will just let it go since it's such a mess. It's disheartening because of these, and some other recently discovered, issues
  • Shannon Noble September 20, 2010 at 8:28am
    From my experience, the lender will only stop a foreclosure process if the entire late balance is paid in full. The parital money will go into a suspence account and will not by applied. Also, I have seen where the lender will also send back the payment since it is not the full late balance due.
  • Michael Schneider September 16, 2010 at 4:10am
    Sounds like they are in a trial period and trying to hold on to the option to sell, in the event that the trial is not converted into a permanent mod.
  • Barton Anderson September 16, 2010 at 3:57am
    Thanks, Michael. We had thought that too, but they have asked us to extend our contract for six months, so it's just a mess at this point. We have asked their agent simple straightforward questions that don't contravene confidentiality and for which we need answers in order to proceed, and now that this ruse hasn't worked for her she has just point blank refused to reply.
  • Michael Schneider September 16, 2010 at 2:58am
    Possibly, the homeowers are discussing a loan modification with Wells.
    In which case, they would be making a payment, under a trial period, and this would stop the short sale, I believe, as most Servicers will not allow a homeower to be under review for both a modificaiton and a short sale.
    The information fits this possible scenario, I think.
    HAFA for example requires that the Servicer consider the homeower for a mod, prior to accepting into HAFA.
  • Barton Anderson September 15, 2010 at 11:16am
    Hi Maya, thank you for your reply too. My realtor of course disabused the seller's agent of this notion, but it has been very helpful to be able to show the other side just how wrong they are with these comments from other professionals. In fact, they've moved away from stone-walling on this issue so they're running out of ways to avoid just telling us the truth.

    Honestly I don't understand why one would enter in a contract and then start lying. The sellers have final approval of the bank's approval so if they don't want to sell they can easily end the situation by producing the approval and then not approving the bank's approval.
  • Maya Thomas September 15, 2010 at 8:00am
    I've had banks require a seller to make a mortgage payment as a condition of approving the short sale so I don't see how this can be true.
  • Barton Anderson September 14, 2010 at 7:29am
    Hi Bryant,

    Thank you for your reply. That is exactly the question we are trying to get an answer to, but in the meantime I trying to arm myself with as much information as possible. Their agent went so far as to say their attorney gave them this information, and I am fairly sure she made that up. I appreciate the feedback very much.
  • Bryant Tutas September 14, 2010 at 7:22am
    Barton. I am not aware of making one payment to stop the short sale. It all sounds fishy to me. But in all fairness I am not involved in the transaction so this is just my opinion. Either they want to close or they don't. That's the question a that needs to be posed.
This reply was deleted.
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