The other day I had a seller refuse to contribute to the loss on her short sale. Her home was $100,000 upside down, and she had been trying to short sale for two years. She told me she absolutely did not want a foreclosure on her record.
During negotiations with Bank of America, the mortgage insurance (MI) company requested the seller pay $3000 to offset some of the $100,000 loss. When they pulled the seller's credit report, they saw she had taken out another loan after she initially defaulted on her mortgage. This is what triggered the request for cash contribution . This is not an uncommon request.
At first, the seller agreed to pay the $3000 to get her short sale approved. All was well.
Or so I thought. A day later, she changed her mind. You see, she had read up on the internet and knew better - she would not pay a dime and they should cover the whole loss.
I told her the short sale would be denied if she did not contribute the $3000. This was about the third round of negotiations. The investor and MI company had done their analysis, and without the contribution, they would simply foreclose. This was not a bluff.
The choice was clear. Invest $3000 for a short sale or invest nothing and get a foreclosure.
If you're curious what a Bank of America denial letter looks like, here you go....
* Situation altered to protect identities.
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Yikes!!! We hear lots of this and it just makes you scratch your head in wonder! WoW!!! She will most likely regret her decision!!!! Seems like a good deal to me....
Wendy, what a bummer. Thank heavens we don't have very many in my market - I've yet to list or sell a short sale. Not sure that if the time comes I will have the patience.
Deborah - Yes, she will. I had to edit out more unfortunate aspects, too.
William - It does happen, especially when the seller is showing ability to pay on other loans, has a good credit score and employment.
Patricia - Patience and the ability to move on... :)
Wendy, this sense of entitlement has to end at some point. So many people think they are owed everything.
Hi Wendy... this seems to fall into the category of penny wise and pound foolish on the part of the seller.!
Unbelievable..$3,000 to write-off $100,000.
Wow I have heard of this have not yet seen it. I know that she will regret this down the road.
I came up against the same issue with BofA. I did finally get them to approve the ss that had MI with no right to pursue any deficiency. It just so happened this was a first and non recourse loan. Trying to untangle MI is a mystery. From what I gather, what mi insures is really what the initial deposit was, for example on a 10% down, $100,000 purchase price, loan amount of $90K, we are talking about $10K being insured and how long have the owners been paying the MI per month. AND more importantly we know that the full amount is NOT covered so how much really will a bank get from the MI company? The full 10K...I don't think so, just does not make sense as a business model to pay out 100%, there has to be a cut somewhere for expenses. There is too much behind the scenes that I would love to get under and really understand as I believe this is very gray in many ways.
sometimes people can't think with cool heads and calmness. This is why working with a professional can sort them out of trouble.
I am not surprised they are requesting it. It is a different world now
$3000 to avoid foreclosure is NOTHING if it is within the realm of possibility for the seller. That is actually a very lenient deal by BOA standards. I have seen them ask for much more from sellers who are much less under the amount of the loan.
How many people think this is criminal?
I for one believe that it is. The question who is the Bad Guy. I believe the banks request for 3,000 to let the buyer off on the $100,000 was something the seller should have jumped on in a heartbeat.
All of the information presented here does not say the Seller intentionally purchased the new home with the intent of defaulting on the old mortgage, however that is what it smells like to me. I consider that FRAUD and if so I believe the Seller should be prosecutedto the fullest extent of the law.
Again, all the facts are not presented here, so my apologies if I am misreading the sequence of events.
I have a BOA short sale ask for $10,000 and one for $2,000. She should count herself lucky! Wachovia is coming after another short sale I had for the full amount of the deficit $58,000!!
Comment #13 Tim:
I re-read this post and cannot for the life of me see where you get the idea that the seller bought the home planning to default.
If the seller has the money - and there are those that don't - this is a very fair deal. How stupid can people get? Pretty stupid.
The internet can be such a bad source of information for consumers! Weigh the cost of the credit impact for the next 10 years with a foreclosure, against the $3000.... and your seller is WAY money ahead to pay up NOW. I've had clients choose foreclosure over a zero interest note for a small negotiated amount ($65/month for 5 years), and they can't even open a checking account now!
to Agent Aaron - I did say I did not have all the facts. Maybe I have just talk with to many people that wanted to take advantage of lower home prices and buy a larger home when they were underwater on the home they currently owned. I suspect you have heard of buy and bail.
I'm with Agent Aaron #15, where does it say seller was intending to default? If seller has $3000 to spare without being homeless, I'd say pay it and be done with it.
What is it about not being able to see the forest or the trees?
MB
It's emotially draining when they get like that. Obviously your responsibility to your client has been completely fulfilled and you've gone as far as you can. Now what?
To all, Possibly a miss read by me. I am assuming the New Loan was a new mortgage, while she had been trying to short sale for two years. Wendy might come back to clarify what the new loan was. Either way Wendy said the Seller originally agreed to Pay the 3,000. Which to me means they could pay it and then they changed their mind based upon what she read on the internet. Versus the internet, i would think she should have consulted an attorney.
We had the same scenario happen last week. The bank wanted a contribution because the owner had rented out their property the entire time the property was in default, and of course they didn't send any of the rent collected to the bank.
Well let's hope this person comes around and listens to the voice of reason and common sense! Unbelievable, can't the Seller do the math?
I am assuming your transaction did not close and all your hard work was for naught!
The seller made their decision. At least as agents we tried and can sleep at night knowing we did all we could for them. Frankly it may be a decision that will be regretted down the road.
how did she take out a 2nd after defaulting on the 1st??
Wendy,
Seems pretty lame to me that she didn't take the deal.
Who's the bad guy? Hard to say without seeing the details. If this owner felt entitled due to how "easy" they made it for this person to get a loan...that sense of entitlement is easy to understand. Does the seller really have $3000 to pay or is she truly being misguided?
A third party should be brought in immediately...accountant, lawyer..someone other than the REALTOR...who so many think we are out there for the sport of it.
Is she truly being her own best advocate? She needs to be prodded a bit more. If she bit on the apple of easy money, she can easily bite on the apple of you have no responsibility for your actions.
Continue to qualify her.
So, it sounds like coming up with the $3,000 wasn't the issue, she just wasn't going to do it. Heartbreaking for all involved.
Wendy,
Does a short sale not screw your credit as well? We don't have this in Canada. Just wondering.
That's frustrating. Sometimes people don't understand what is needed to successfully complete a short sale, and there's so much bad information available.
Wendy - It's amazing that some will not even attemp to even care. Of course in a case like this, we all know it's not the home owners fault ... is it ? They don't want the foreclosure, but don't want to use their cash to prevent it.
Thansk for sharing. People need to know......
This is a complicated issue. Seems very foolish on the part of the homeowner -BUT - Bank of America has a sweet deal with good ole Uncle Sam to cover any losses. I have a sneaking suspicion that the $3000 will go to fees, (read profit) and that the rest of us will cover the "loss" on the property. Crazy times we are living in.
Cake...eating it all....the seller has the "she's the boss" attitude...and of course knows more than the lender or you...the internet made it so....let's hope for her sake...and yours....she is enlightened before the Foreclosure Bus runs over her.
Wendy - such an excellent post of a real life case study that is playing out thousands of times across the nation.
It will cost the bank or investor or MI company much more than $3,000 in holding costs and legal costs to foreclose, but at least they made their point that they yield power. If the MI company pursues a deficiency judgment they may get more than their extra losses unless the borrower files bankruptcy in which case everyone loses more.
I could see it if she lived in a non-recourse state but here in Florida, where this took place, it is just foolish to not give up 3k and then have a deficiency judgment for 100k. On the other hand, I've had a similar situation happen to me 4 times so far out of about 100 deals.
Wendy. It's been my experience that MI doesn't ask for money unless the borrower has the means to pay it. It's frustrating when our customers don't take our advice. But of course it's always their decision what to do.
As the world of short sales turns. .
Similarly , it happened to me already. . they went to the Internet and they found a solution with someone else. . .we don't want your help anymore.
???
I'm sure at some point she will realize you were right and she should have coughed up the $3000. I've done my share of shortsales so I know how much time and effort you put in to this. I hope you have another shot at it when she gets more reasonable.
How frustrating. Seems like a no brainer to me, and as though the seller is not seeing the big picture.
Wendy- These stressful situations, cause people to sometimes make irrational decisions. I guess the question which comes to mind is why would she NOW rather take the foreclosure and credit consequences over a 7-10 year period,rather than the $3000 payoff contribution which would reduce that time frame to 2-3 years? She would have to wait should she choose to make a loan application at sometime in the near future compared to the "dacade of damage" she will suffer for this decision made now. A settled account certainly is preferable over a foreclosure on her credit report.
Refuse to pay $3,000 to make up for a $100,000 deficiency? I just don't understand how some people think.
Dana #21 - I've withdrawn the listing. I cannot help her.
Bryant - It's more frustrating when they get their parent authorized on the account who takes over, like with this one :)
Danny #27 - I am not sure, it was probably early on, maybe when only a month or two were missed. The credit report showed the payments to the others were being made, so obviously there was some income available elsewhere.
Wendy,
The only Short Sale listing I failed to close was for the same reason. Seller (young, healthy, employed) wouldn't sign an interest-free repayment agreement for $7,000 over 10 years! House sat vacant for 8 months before foreclosure, pipes froze in the winter and eventually it sold for HALF the original contract! Seller has the foreclosure on a credit report. A Lose-Lose result.
Wow that is being really short sighted. The days of a lender forgiving the entire debt are becoming more rare.
Wendy:
A home owner who is in this distressed situation feels cash-strapped and does not want to part with any money. It is probably a desperate feeling. But, I think in the end she will be sorry that she did not take this advice and just get it done so she can move on without a foreclosure on her record.
Wendy - Was she paying her mortgage/bills over the two year period she was trying to do a short sale, if not where did her money go, was she working? All two often I see people doing a short sale who are employed and have no money, I just don't get it. I'm sure she'll regret it in no time.
Wendy, $3,000 was a small price to pay for avoiding foreclosure. Now she absolutely has a foreclosure on her record. Too bad!
Wendy contributing to closing is one thing a bank may do.
We tell them up front what might happen, sounds like the seller got bad "internet" advice.
I know how you feel, we do so much darn work on these and to have buyers walk or sellers say no, is hard. You are so good at short sales I know it will be better next time.
You can always let the bank close the file and then open it with a new buyer. I mean, if you have the time before foreclosure. Sometimes a new negotiator sees things differently. In one of my other Bank of America short sales, the negotiator issued a short sale approval letter with no contribution. Then the buyer canceled. When we sold the home again -- in a falling market for the exact same price -- the negotiator requested a $10,000 seller contribution.
I'd say a seller has about a 50/50 chance nowadays that the bank will ask for a seller contribution. One of my clients signed a $30,000 prom note on a purchase money loan of $200,000. Others are paying $2,000 to $15,000 to be released. If a seller hasn't made any payments for a few months, sometimes all the banks want are to recoup 1 or 2 missed payments. It's often worth it not to have a foreclosure.
We have this happen all the time and have begun to counsel sellers (and buyers) that they may be asked for a contribution above and beyond the purchase price. This way there aren't any surprises when we get an approval letter with a $3000 stipulation for cash contribution. There seems to be no rhyme or reason to how these things are determined! Just had one listing go to trustee sale after we had a buyer wait 3 months and the bank who had initially approved the short sale at list price.....never again responded.
The longer I am in real estate the less surprised I am when I hear stories like this.
that's a great post...
a short sale expert has proposed this question as a must have for any listing presentation.
Will you bring money to the table to close the deal if necessary?
We have a love/hate relationship with the internet for this very reason. You can learn anything you need to know on-line, and if you look hard enough you can even find something that tells you what you want to hear, even if it's wrong.
I do like Vince's suggestion of qualifying questions regarding the seller's ability to come to closing with funds, if necessary. And I think it's likely to be requested by the lender if they can see that the owner is currently paying other financial obligations.
I just had a seller refuse to contribute $1000 to get the short sale approved. It is so frustrating!!
My wife had a closing where the seller had to bring $70,000 to the closing table to get the property sold.
I have sellers that refused to take $20K promissory note and bring $2000 to closing- this is for the 2nd lien. I informed them the 2nd lien will send the account to collection - 2 months later they agree to accept the offer of $2000 to closing and $20K promissory,but by that time the account was already sent to collection, now we are closing next week and they will sign promissory note for $80K.... Go figure.....
Wendy--In these parts, agents are chipping in with these kinds of numbers. You worked hard; you received nothing. I am not sure your integrity would be impugned if you took $1,500 less and got the deal done. i know I sound like an heretic, but these are my honest feelings. We are in a business to close deals. If we do not get as much from the deal as we had hoped, that is life. I am amazed that people would leave deals on the ground over $3,000. I am equally amazed at some of the comments i have read here. Our goal is to get the deal done; that seems like it was possible
Wendy is trendy....
Most excellent post...I have my sellers primed to kick in should it be required. i explained to them how much they have to gain or lose either way. they are on board and COE has been sighted. We are in the countdown.
I love this business....thank you
Elliott - You've opened up a whole new topic! This case wasn't about ability to pay, the seller had ability, it was just against their principles...
Some homeowners will pay for loan modification but don't think they should pay towards a short sale. Most likely the seller has not paid the mortgage for a couple of months which adds up to more than $3000. So, it's sort of like pay a smaller fraction of what you should have paid.
Oh boy... yep... "I saw such and such on the internet"...
I can't tell you how many times I've had to correct this with a B of A short sale seller...
On top of that... "So and So" said I would not have to contribute something to get B of A to waive their future deficiency judgment rights because of a "new" program...
Lots of Laughing!
Elizabeth - Comment #51 - The reason why that happened is that the Arizona office has a cash contribution policy in place. So if you close the file and your negotiator is from the Plano TX office, then no cash contribution is needed. This is with BofA short sales.
Wendy - Why not have the buyer pay the 3k? If need be, re-write the offer to make up for the 3k contribution and whatever else and re-submit the short sale.
Satar - The funds were not the problem with the seller. He believed, on principle, that no money extra funds should go to the lender.... Unfortunately, the parent got involved, enough said.
I've seen that rejection letter a time or two, and yes, they are not bluffing. Bank of America hasn't been too bad for us over the past six months but when it comes to the MI companies, that's a whole different story. They are two separate entities and Bank of America has little to do with what they demand. Thank you for your post and sorry you put in all of the work without getting paid on the deal.
Wendy - it's frustrating when your trying to understand how some homeowners think....or should it be 'not thinking'. Great Post!
Well, I agree with the seller. Why throw good money after bad? ;)
This year I have seen more Sellers shoot themselves in the foot. It is painful to be a party to it...you give advice, direction and facts then..splat they hit the wall anyways. On the other hand most Sellers are paying attention. Still stories like this are painful