Short-sale Nightmare, part II

Hey Kids,

In my last post, I talked about the short-sale nightmare of having Bank of America drag their feet and pass the buck on a short-sale for over 7 months before foreclosing and auctioning the property off for $214,000, when they had an initial offer of $310,000. This foot-dragging has killed lots of sales, but some of the banks are getting better.

Today, I want to tell you about another issue you may face if you want to buy or sell a short-sale; the dreaded second mortgage.

So, Steve lost his job as a mechanic with an aircraft service company. He tried everything he could to save his credit and keep paying on the mortgage, taking odd jobs and eventually applying for unemployment. He applied for a loan modification, and after months of sending, re-sending and updating documents, his application for a modification was denied, because he was unemployed.

Steve gave up and hired me to market his home as a short-sale on June 30. He owed about $200,000 on his first mortgage, and $14,000 on a second. I got a call from a neighbor of his who’d been renting, and she put in an offer on July 6 for $160,000. I was representing both buyer and seller, which is rare, and I was happy to do it. Commission to my company was $9600. Stay with me here, ’cause this is important to the story.

So, we apply for the short-sale. The first lien holder, Chase, agrees to all of the terms, including the commission, and offered the second lien holder, Golden 1 Credit Union, $1500 to settle the $14000 debt.

Now, bear in mind that this is pretty typical; when there is no equity, the second gets wiped out in a forclosure, and I’ve seen seconds settle for as little as 3% of the balance owed.

Golden 1 refused to accept it, saying they wanted $3000. Chase came back and said $1500 was their limit. Golden 1 said they wouldn’t settle for less. Since Chase was paying me $9600 in commission, I decided to offer $1500 of it to settle the matter.

Everyone was happy….except for Chase. You see, the bank has to agree to all of the terms, and even though they were going to pay me $9600 commission, they weren’t going to allow me to give any of it to Golden 1.

Yes, they were willing to give me $9600, but prohibited me from giving any of it away to any of the parties. And no, I could not legally or ethically send Golden 1 the money after closing the deal.

I went back to Golden 1 and their rep said that $1500 was nothing. I argued that it was better than nothing, because nothing is what they’d get if the house went into foreclosure. She argued that after the foreclosure, they could go to court and get a judgment against Steve for the full amount of the lien plus interest and other fees.

They wouldn’t budge. Chase wouldn’t budge. The deal was dead in early September.

The good news for the buyer is that I found her another home (yes it’s a short-sale). It is going smoothly, and is scheduled to close next week.

Steve went to see a lawyer about bankruptcy.

There is a possibility of some good news for Steve. A Chase rep contacted me in early October and said that although Steve did not qualify for the government’s HAFA (home affordable foreclosure alternatives) program at the time we started the process, he might at this point. He applied and has not heard a word since. I’ve called several times, including today, and they said they are still working on it.

Keep hope alive.