Suggestions for dealing with current owner who does not want to leave?

I am set to close on a short sale next month. However, the current owner who is losing the house does not want to move out because he is living rent free and wants to continue doing so for as long as possible. He is threatening to let it go to foreclosure, in which case we lose the house. We proposed the idea of renting the house to him, though he has not responded and we do not think that he will want to do that either, since he has not had to pay on the house for two years and do not think he wants to start now.

 

1. Even if we work out some agreement for him to pay us rent for a month or two, what type of guarantee can we create that he will have to move out after the month or two is up? Any suggestions? Maybe have him put up some sort of collateral? Have any of you heard of anything like this before?

 

2. Any other suggestions for how to deal with this?

 

Thanks!

 

 

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I have blogged on this issue a few times.

 

Here's an extract from one of my blogs:

"Thus, from years of bitter experience, lenders have learned that it's often better (cheaper) to attempt to gain the cooperation of the owner and have him agree to voluntarily sell and vacate his home, rather than evict him under foreclosure. Lenders also understand that the chance of ever recovering the money owed to them by the debtor is slim. But many debtors choose not to sell because, around the time they realize they will never catch up on their payments, they often have another "Ah Ha!" flash of insight: that if they stop paying their mortgage and just wait for the foreclosure axe to fall (or better yet, engage in a hatfull of tricks to keep that axe at bay) they can live "rent free" for at least 6 months. So now the debtor turns from borrower to squatter, perceiving it to be in his best interest to prevent the foreclosure for as long as possible. And if the house, the lender's "security", should fall apart in the meantime, so be it."

 

Your client may well have started out intending to do a short sale, but he has changed his mind.  The ONLY way to induce a seller like this to move forward with the short sale is to show him, if possible, that it is in his best interest to perform a short sale. These are usually the reasons people do short sales: (1) protect their credit (2) avoid the humiliation of being "put out" (3) avoid the humiliation of neighbors etc knowing of their troubles (4) avoiding bankruptcy (5) avoiding a deficiency judgement (6) getting "cash for keys" or similar - Chase has been paying up to $30,000! to homeowners to perform a short sale (7) ignorance....

 

Forget about yourself and concentrate on the client.  You need to be in a symbiotic relationship here.. help him, he'll help you.  From what you describe its time for you to pull up stakes and move on to someone who actually needs your help.

 

The way to best deal with this situation, unfortunately, is to prevent it from happening upfront  A good test is to ensure that your client has "skin in the game" - if you're going to risk your time, he needs to risk his money.  Pre-MARS that was simple - demand an upfront payment.  There are still legal and ethical ways to ensure this.  Consult a lawyer.

 

Take a look at this blog I wrote in Feb, 2010, "Are you buying a Foreclosure Home?  Does it have a tenant in it?"

http://activerain.com/blogsview/1475297/are-you-buying-a-foreclosur...

 

Good luck!

@Bill Travis - I don't believe FTC MARS allows a seller to back out at any time prior to close of escrow.  In CA, using the standard purchase agreement, my understanding is that once the terms of the lender's offer (short sale approval), is accepted by the seller and that is conveyed to the buyer, I do believe the seller is stuck.  Also, FTC MARS is about using OUR services not about the seller's contractual obligations to the buyer.  Just my thoughts.
Are you the Listing Broker?  If so, depending upon your Listing Agreement you may have an action against him for the commission.  Otherwise, the only other option would be that the Buyer file for specific performance with the courts which is highly unlikely unless you have a very aggressive Buyer.  Move on to another property if this doesn't work out quickly.

@Stephen McWilliam - Now it would be an interesting question whether FTC MARS would allow you to sue for commission after the seller accepted the lender's offer (short sale approval).  

It was my understanding that this is exactly what FTC MARS speaks to -- our fees.

Stan,

 

Lots of great perspectives and sharing of experience here!  Here's a couple of my thoughts - I am not an attorney and you should see legal advice as soon as possible;

 

1) This seller is playing you like a fiddle and the music is not good.....

2) You should have a 99.9% expectation the Seller is not leaving until he /she is forced out by the Sheriff and only after an Unlawful Detainer Action and an Eviction Proceding.  This is CA - it's really difficult and very lengthy to get someone out of a property.

3) You will likely have to sign an "Arms's Length Affidavit" which includes language that the seller / former owner cannot remain in the property.  The Short Sale Lender won't let you allow him to stay and If you do go through with it, and allow him/her to stay, you may have legal consequences with the former lender.

4) Do you have any money on deposit in escrow?  You may not get it back because in order to cancel escrow and release the deposit, all parties (seller and buyer) have to sign the Cancellation & Release instructions.

5) If you do close, you will have to deal with the squatting former homeowner.  In CA, this will take many months to get them evicted / removed and cost you a bunch of money.

 

Quite frankly, if you were my client I would work on getting you out of this transaction ASAP.  I would also ensure the Short Sale Lender is notified the seller is no longer cooperating and make sure the lender retracts / cancels their approval immediately so you have reason to get your $$ refunded.  If you're obtaining a loan and have not removed your Financing Contingency, tell your own Lender the seller is not cooperating and will not leave - that will facilitate a Loan Denial if they know you are not going to be living in the property and the former short-seller will be living there.

 

To provide an example, I know of a transaction in CA that was very similar.  The buyer allowed the former owner to remain - to help him get on his feet expecting it to be a month or so (He had aleady been there 3 years without paying the mortgage - why anyone thought he would move is beyond me!).  As expected he stayed, and stayed, and stayed.  The new owners tried to get him evicted but the judge ruled that they had allowed him tenancy with no specified term at no cost - basically a life tenancy.  The new owners were first time buyers and couldn't affford their new mortgage plus their rent where they were living and the expense of the eviction.  They ended-up losing the house to foreclosure and guess what,,,,, the former short seller is still there - rent free 4+ years later.

 

If you cannot get the current owner out prior to close of escrow - YOU need to get out of this transaction as soon as possible.

 

Thom Colby

Broker

Newport Beach CA

 

 

@Thom Colby -- Where was that judge coming from MARS?  Maybe FTC MARS.  LOL.  What a nightmare.  

 

Great story and practical advice.  I didn't realize this was a buyer. 

 

I have had short sale sellers and their agents play a game of chicken with my buyers on this issue before.  But, I have been successful in playing hardball back.  This isn't a game -- it's people's lives.  Be prepared to get tough or walk away.  If the seller won't vacate they are breaching the agreement.

He is not allowed to rent the property to start off with.  You  will have to sign an arms length transaction agreement that states that the buyer seller and the agents have no knowledge that you have made a rental agreement with him. Maybe you can reason with him and get him a HAFA Short sale where in some cases the bank will help him financially to move. 

You know there is always one who sneaks in like this...............first they want the help, but there are some that have it in their minds Obama is going to get them a free house.  They hear of how the banks are bailed out and they want a bailout too.  I myself think if I stopped paying my mortgage someone from the bank is going to knock on my door and evict me.

 

I do not know why people get this into their heads, and to me the stress of not knowing when will be the day they knock on my door would be too much for me.

 

Legally there is nothing you can do.  Legally that seller is the owner until the home is foreclosed upon.  I had a guy call me last week who said he wanted to drag out a short sale for as long as possible, you have to know when to walk away from these people.

 

If is was possible to do a HAFA short sale there would be some financial incentive for them to get funds at the closing, but legally there is nothing you, or the buyer can do all seller's have the legal right to cancel up until the bitter end.

 

Catherine Gheen

 

Also one more thought as I have read some of the comments from other agents.  In California there are two major Civil Codes that protect seller's in duress, CA 1695 and 2495 are quite lengthy and the court will side with the seller.  There is no way you can try to get your commission.  Walk away chalk it up to a lesson learned.

 

 

 

 

 

 

Catherine Gheen said:

You know there is always one who sneaks in like this...............first they want the help, but there are some that have it in their minds Obama is going to get them a free house.  They hear of how the banks are bailed out and they want a bailout too.  I myself think if I stopped paying my mortgage someone from the bank is going to knock on my door and evict me.

 

I do not know why people get this into their heads, and to me the stress of not knowing when will be the day they knock on my door would be too much for me.

 

Legally there is nothing you can do.  Legally that seller is the owner until the home is foreclosed upon.  I had a guy call me last week who said he wanted to drag out a short sale for as long as possible, you have to know when to walk away from these people.

 

If is was possible to do a HAFA short sale there would be some financial incentive for them to get funds at the closing, but legally there is nothing you, or the buyer can do all seller's have the legal right to cancel up until the bitter end.

 

Catherine Gheen

 

I Agree with Thom as well.

The seller usually has to agree to an arms length agreement stating that the seller can not stay in the home after it sells. The lender can come back to the parties involved and go after you both for the difference of what was owed and what the bank got from the short sale.

 

 I WOULD NOT WANT THIS PERSON AS A RENTER ANYWAY. He has shown his true colors and only puts his needs first and to me- has no integrity.

Get you money back.... and find someone else who wants to sell their home. Also another point. Who knows if the home is being kept up and if will be honest with disclosures. MOVE ON. You need to talk with the agent representing you on this deal and have them talk with their broker for advice.

 

 

You should be very wary of continuing with this short sale at all. If this guy is not willing to leave and you go through with it, even if you successfully get him evicted what if he takes all the appliances with him and strips the house of everything saleable?  

Everyone is giving you really good advice... if it smells bad it is most likely bad. For a short sale to be successful the seller must be willing to co-operate. If he has been through bankruptcy his credit is already trashed, so a f/c will not worry him right now. You have to understand that most people in this situation are at their lowest point financially and are also extremely desperate. Keeping a roof over his head without paying is his primary goal. It is unlikely that you will come out of this well if you continue to try and make it work.. you could be heading for a whole lot of grief. No house is worth what could potentially be a complete nightmare for you.You should be fully aware of your legal recourse within the contract that you entered.  I am not an attorney and cannot give legal advice but you don't mention your agent in all of this... are you doing this without representation? 

I'm a seller, deeply underwater, waiting on the offer from the lender. I was approached originally by a Realtor/law firm about doing a HAFA shortsale. I'm unemployed and would like to relocate with my wife(working RN)and son, so I can find work. The realtor found a buyer immediately for $10,000 under $150,000 asking price. We owe $280,000+. The lender accepted the offer some weeks later, and my lawyer emailed me last week that the shortsale was accepted, but that we have to pay $9000 at closing. I don't think my lawyer has received the papers from the lender yet. I emailed back to my lawyer, asking how we can negotiate with the lender over $9000. 

 

Hello,
      Attached is July's account statement from IBM. 
What is the procedure for negotiating  the $9000?
Regards,  Kirk
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I can go back and ask them to do it in a promissory note, or a certain amount at closing with a scheduled amount of payments afterwards.

   Should I expect more from my real estate lawyer? My accounts showed about $9000 cash and also credit card expenditures that I pay off immediately. Though we had never missed a payment, we haven't made a mortgage payment for 2 months, on advice from my lawyer. As I explained and documented to my lawyer, all cash and extra expenses have come from withdrawals from my IRA, $45,000 over the last 18 months. We want to sell to the buyers who've waited this long with us. We want to move this summer to get our son in school on time. Everyone knows we're motivated and I don't want to be pushed into a bad deal. Advice anyone? Please

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