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Short sale approved, escrow opened, 10 days prior to close and seller called bank to cancel short sale. He will re-instate.

Posted by Enrique Vasquez-Plaza on March 17, 2011 at 1:09pm in Short Sale Discussions

Usually when I think about a case like this I think... "Well, probably they didn't even explain the seller his other options to save his home".

 

Well, I assist the seller obtain his loan modification back in early 2010 (payment went from 2200 to 1300).  Then instead of signing it, he called me to do a short sale due to the fact he is getting divorce from the wife, and he wants to get rid of it.  After explaining the consequences, he insists short sale is best.  We waited some time, and then we started the process.  Wife agree.

 

Now, after I was hired to list the property, obtained a qualified buyer, got the short sale approved, opened escrow and being 10 days away from closing escrow, he calls the bank and cancels short sale.

 

He mentioned it to me, and I told him is a valid intention -since I believe is his right to save his home despite me looking like Ive being taken for a ride...- but to inform himself to avoid possible legal issues or possible liabilities not from me but from the buyer... (never threatened him)

 

Now, negotiator emailed me to let me know he called and cancelled.  He has being always a good client and has a good relationship with me, however as soon as I informed him of the short sale approval, he became unresponsive and uncooperative .  

 

Buyer has obtained financing; paid for her appraisal, for her inspection report and it was ready to close, but now this happen.   In the meantime, he is not returning my call.

 

If anybody has a suggestions I would greatly appreciate it.

Thanks!

 

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Replies

  • Bill Travis March 21, 2011 at 2:26am
    Thanks Jeff, I understand.
  • Jeff Payne March 21, 2011 at 1:42am
    Bill, I understand what you are saying but if there is not sale closed, there is no commission to pay the buyers agent.  Agents are not party to the contract, the agents have an MLS agreement that specifies the commission to be paid when the sale closes, in this case the sale has not closed.  Now if the listing agent were to be paid thru a lawsuit for commission earned, the buyers agent would be entitled to get paid also.

    Bill Travis said:

    Damon has it correct. My concern is that in AZ the listing agent contracts with the buyers agent through the MLS listing sheet to pay a fixed  $ or % commission. We are not allowed to qualify that amount, nor are we allowed to negotiate commissions within a contract.

    So, my legal question need to get answered is, if after the lender approves the sale and the buyer agrees with the lenders approval terms, the seller backs out, is the listing agent going to owe the buyers agent the agreed on commission?

  • Bill Travis March 21, 2011 at 12:31am

    Damon has it correct. My concern is that in AZ the listing agent contracts with the buyers agent through the MLS listing sheet to pay a fixed  $ or % commission. We are not allowed to qualify that amount, nor are we allowed to negotiate commissions within a contract.

    So, my legal question need to get answered is, if after the lender approves the sale and the buyer agrees with the lenders approval terms, the seller backs out, is the listing agent going to owe the buyers agent the agreed on commission?

  • Karen Walls March 20, 2011 at 2:22pm
    Thom above gave good advice.It happened to me but was not my listing but the Seller filed bankruptcy and did not inform anyone. I had the buyer. Selling agent was clueless as well. So immediately the company (pros) handling the deal canceled the short sale. The Buyer was of course not happy with the wait, and time and it seems no (pro company) one quite knew that the trustee could approve the short sale. That happened with the trustee approval. It all went well, but being so close to the redemption period, we were under the gun and lost a few months or so. It just surprised me that the company handling the SS did not offer that as an option to the seller intially which could have saved time etc. The approval came alright after the redemption period a day late and a dollar short. I now in advance, provide a document which stipulates that if the seller is considering or is to file bankruptcy, please advise accordingly as they should be held accountable for listing fees just as with any other contract. And it is very important to see if they are using Bankruptcy as leverage to buy time if for nothing else, and if they have been denied loan modifications. Short sales are such a fertile ground for litigious action, sometimes it makes you wonder if your help to help is helpful period! And I guess specific performance goes out the window legally? Buyers rights? aye yi yi!
  • Noel Hagen March 20, 2011 at 7:45am

    Enrique,

    This happened to me just recently..  Usually I avoid all short sale but I couldn't avoid this client, my buyer wanted to go with short sale property. The sellers were not cooperating at all and just 4 days before the closing they decided not to sell the property and got a lawyer who told them that he can stop the foreclosure!  My client waited for 4 months to close this deal and paid for appraisal & inspection fees (total over $1000) and not only that if you consider what my buyers have lost is thousands of dollars-this transaction started in Oct.2010.. if the buyer purchased other property in Oct/Nov the interest rate  was 4.375% fixed 30yrs with no points and could close the deal in 30 days.  Now we have to start   all over again and now interest rate is 5%!!  my client , buyer got the loan from BOA/conv. and the seller loan is from BOA/FHA but got no help neither short sale dept nor loan dept.  I think the bank should  tell the seller there is no more turning back once it is approved.

    my case, the sellers know exactly what they were doing and they used the agents and buyers to drag the foreclosure process to delay while they live there for free of mortgage for years and now more free years! . oh, this sellers are going thru divorce too to get the SS approval. they were denied for loan mod.  I think they are total fraud. They know how to abuse the system very well. It's a free ride for them.  this sellers like yours when they got SS approval in 2 months they were not very happy.  they thought it can take for several months. they went on vacation so they couldn't sign the doc on time either. they can't pay mortgage but they have money for vacation.  Another week either wife or husband was out  or something.  every week is different excuses to sign something. They knew the approval said the approval is good until May so they don't want to sell the property until May! The Buyer was ready to close in less than 30 days which was in Feb.  And last, they have no indication of moving out either ! (I heard some sellers do not move out for months even after closed of escrow).  My buyer don't want to take a legal action against this sellers so nothing I could do but move on.. And I don't want to be part of it either. 

    I went to a few short sale seminars last year (BOA and Wells Fargo) I heard how the banks are going to make the shortsale transaction easier for agents and clients and they said next few years going to be short sale market..  I don't know how are the banks & govt.  going to prevent this kind of situation before wasting time and money.

    I don't have any suggestions but I think we all agents must report to CAR and HUD. I know there are more sellers like this everywhere now and there will be more every day. there should be some consequences for these sellers who fail to complete the transaction.    I know other countries if the seller fail/cancel the transaction they have to pay twice of deposit to the buyer and no need to get seller signature to release the deposit fund either because it was already in the original contract if the seller do not cooperate in timely manner.

    Thanks for sharing your case. 

     

     

  • obed montez March 20, 2011 at 7:04am
    I am sorry but the way I read this post was that the buyer is being difficult, not the seller. I believe that the reason this is confusing is that Mr David Altuzarra   is calling the buyer "an investor".  It sound like the poster is not talking about  the bank's investors nor seller 
  • Damon Botticelli March 20, 2011 at 7:01am

    The new FTC ruling that went into effect on 1/31/11 requires 2 new disclosues (one at the time of the listing, the other to accompany the short sale approval when it is received) which allow the seller to "not accept" a short sale AFTER the approval letter has been issued.  If the seller does not "approve" the approval then no commission is due.  Listing agents should be incorporating these disclosures into their listing agreements and have similar provisions in the purchase agreement to protect the seller in case they choose not accept the approval.

    I'm glad to hear your deal is back on track, but be sure to get the new disclosure signed.  We (short sale agents) have to choose our clients carefully (I'm learning) or we end up doing a lot of work without getting paid.

     

    *see http://www.realtor.org/letterlw.nsf/pages/0211mars?OpenDocument&amp... or just search ftc at realtor.org for info on the rule and how it relates to short sale agents.

  • Will Pollock March 20, 2011 at 4:39am

    This has happended to me several times.  Either the servicer includes the seller in their robo letter campaign to entice their distressed borrowers to apply for a mod (even thought that borrower may have previously been declined or presented with a mod offer that acutally would have INCREASED  their PITI per month, or they hear from a friend or relative or co-worker who saw on the morning news that the lenders are modifying loans right and left.  They cling to any hope that comes along, no matter how remote the possiblity.   I always ask up front, prior to the listing agreement,  if the borrower has attempted a loan modification with the lender and, if so, what was the outcome.  This information comes in handy when the seller has a last minute change of heart.  Here's some tactics I use when faced with this situation:

     

    1) Calculate the interest rate required to bring the P&I on their principle balance down to 31% of the borrwer's gross monthly income using a new, 30-year term.  In most cases, you'll get a negative number.  If it's anything less than 2 or 3% the lender won't mod the loan because the loss on the loan would  too large.  If it's a negative number, it means the lender would actually be paying the borrower to borrow the money.  Then explain to the seller that lenders consider the financial feasability of modifications using this parameter and even the US treasury doesn't expect HAMP lender participants to modify below a 2 or 3% rate as that would be too much of a loss to require the lender to take and the HAMP subsidy would be too expensive for the government. 

     

    2)  Remind the seller that, even after the modification, he'll still owe way more money on the loan than the house is worth. "Would'nt it be better to be rid of this upside down situation on this house, do the short sale and in two years become eligable to purchase a house at today's market value with a loan and a payment that makes sense for your family's budget?

     

    3)  The nuclear option ( I use this one when #1 and #2 don't work and it's very effective).  Send the seller, via certified mail, a demand for payment for services rendered (the amount of the demand is for the ENTIRE listing fee/commission, not just half it).  Include with the demand a copy of the listing agreement highlighting the language regarding at what point your commission is considered earned and payable.  Explain  in the cover letter that you intend to exhaust all remedies available to you in civil court for payment.  Also explain that the buyer with whom the seller is in contract may also have civil court remedies for the seller's breach of that contract. 

     

    I know this sounds like harsh teatment, but a contract is a contract.  We exhaust a lot of resources to pull these short sales off and the time to change your mind is NOT after you are

     in contract to sell and have obtained a SS approval. 

  • Ellen Kirwan March 20, 2011 at 4:38am

    I think if the approval letter was in line with the purchase contract and released deficiency then the seller is still bound by the contract and the buyer would have recourse.  This happened to me as the seller wanted to continue to collect rent.  He came around when he received notice of Trustee Sale.  Just closed this last week!

  • Enrique Vasquez-Plaza March 20, 2011 at 4:17am
    Thanks again Shannon. Thanks too Thom. Finally, thanks Tni, i have contacted Realtor legal line twice and already know implications, consecuenses and possible liabilities, however i wanted to hear other stories, and so far has been good. Thanks!
    At the moment we are moving forward.
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