Short Sale Nightmares

by on February 6, 2013Shannon O'Brien

Many homeowners and buyers have experienced short sale nightmares, from miscommunication with lenders to lengthy waiting periodsShort sales accounted for 12 percent of home sales in October 2012. This number is a vast improvement over October 2011, when 28 percent of all home sales were short sales, according to the National Association of Realtors®. The number of short sales now outnumbers foreclosures in most regions, which is good news for lenders. After all, they make 6 percent more from a short sale than they do a foreclosure.

Why then, do they make the process such a nightmare? From overly lengthy waiting periods to miscommunication horrors, millions of Americans have their own version of a short sale nightmare.

The Hardship

In 2002, at the tender age of 20, Carrie bought her first home. It was an ideal situation as the house was in her name but she shared it with her rent-paying siblings and mother. As the kids grew up, they moved out. Mom moved out eventually as well, leaving Carrie responsible for the entire mortgage payment.

While this is bad enough, Carrie went through an ensuing series of calamities, from being laid off at work and relocating to another city to renting to a series of nightmare tenants. In fact, the last tenants left the house in such poor condition, she was unable to either rent it again or pay to have it repaired.

She decided to sell. The house, in need of substantial repair work, sat on the depressed housing market for six months. Carrie continued to fall behind on her payments. Then came the inevitable foreclosure notices, eventually ending with an auction date.

Finally, an Offer

With the foreclosure auction date several months away, Carrie’s real estate agent, whom her new husband refers to as “an angel,” miraculously secured a buyer. Things started moving at warp speed, thanks to Carrie speedily handling all communications.

Then, the transaction hit a brick wall, also known as a second lender. “You would think that time had split into two separate forces. The time-space continuum was running circles around us,” recalls Carrie’s husband, Derek. “One branch of time was speeding up and against us. The other branch had slowed down. The people who were on our side had their hands tied and were unable to help. The people who didn’t care about us and our situation always seemed to drag their feet as if they wanted us to fail – or at least go crazy trying to succeed,” he concludes.

The Nightmare

Carrie and Derek married between the time the first lender approved the short sale and the second lender reared its ugly head. With his income added to hers, she no longer qualified for a hardship consideration, and the second lender wanted to dig its hands into hubby’s savings. While the negotiations were occurring, the foreclosure clock continued to tick. Finally, they cut a deal with the second lender and breathed a premature sigh of relief.

One week before the date of the foreclosure auction, the title company demanded proof that all funds had been wired. “It was like handing someone a twenty-dollar bill and then they are standing there with the twenty-dollar bill in-hand … asking you to prove to them that they have it,” recalls Derek. “The money wire-transfer had been completed weeks ago. The money was in their account and they wanted us to provide proof,” he recalls. Crazy-making? That’s not the half of it.

They faxed the proof, as the foreclosure clock continued to tick, and heard nothing back from the title company. The foreclosure auction date came and went. Finally, three days after the auction was to have taken place, Carrie received the short sale paperwork. The deal was done and nobody had bothered to let her know until after she assumed the bank had taken back the house.

Short Sale Definition, Tax Treatment and Other Ramifications

Never-Ending Threats

The story above is just one example of what can happen during the short sale process. While we read news stories and hear anecdotes about short sale nightmares, most of them have to do with how long the process takes. There is so much more, however, that can go wrong.

Maria DeLong hired an attorney to handle the short sale of her Birmingham, Mich. condo. The attorney made it clear to the lender that all communication with DeLong was to go through him. The bank, however, decided it wanted to communicate directly with DeLong and continuously harassed her with phone calls during the process.

The worst of it, though, was that a week after the short sale was finalized, Bank of America sold her old mortgage – still in her name – to another lender. This lender started the process all over again, dunning her with phone calls and letters, threatening to foreclose on a home she no longer owned nor bore responsibility for.

Buyers’ Short Sale Nightmares

Buyers have their share of short sale horror stories as well. Take the family in Charlotte, S.C., for instance, that purchased a short sale in 2011. While the transaction itself proceeded somewhat smoothly, it’s what happened a week after closing that was the horror.

They arrived at their new home one day to find a trash-out crew attempting to “dispose of all personal possessions” in the house. Sent by their former lender’s property preservation team, the family had a tough time convincing them that, indeed, they were the new owners and that all of the items in the house belonged there. It took the family six weeks to clear things up with the bank. In the meantime, they had someone posted at the house round-the-clock to protect their belongings.

In one of her conversations with the former lender, Bank of America, the family’s real estate agent jokingly asked if buyers of Bank of America’s previously-owned homes should post guards at the home for the first six weeks of ownership. “That might not be a bad idea,” the bank’s representative replied.

Beware the “Short Sale Specialist” Real Estate Agent

Then there are the many real estate agents billing themselves as short sale “experts” who truly have no business handling them. The short sale is such a complicated process, and the outcome so important to the homeowner, yet agents everywhere think nothing of using a distressed homeowner’s situation as a learning experiment.

Horror stories of inexperienced agents botching short sales can be found all over the Internet. Some of the problems these novices create come from not understanding that they need to know what kind of a loan the seller has, whether there is a second or third lien on the home, and that an FHA pre-foreclosure sale is significantly different from a conventional short sale.

Unfortunately, there is no penalty for these agents. Although they are sworn to uphold a certain standard of ethics by their national association, they are allowed to mislead consumers about the extent of their education and experience, to the consumer’s detriment. As one ActiveRain agent puts it: “When a Realtor® takes a short sale listing without the experience or resources necessary to ensure success, it should be viewed as a violation of the Realtor® Code of Ethics.”

Ignorance on the part of the real estate agent causes many short sales to fail and many foreclosures to succeed. Yet, as the above stories prove, even with the most seasoned short sale agent at the helm, short sale nightmares can, and frequently do, occur.

Feel free to share your short sale nightmare – misery loves company, after all!

{ 4 comments… read them below or add one }

Patricia F Benjamin October 30, 2014 at 7:42 am

I started the short sale process back in October of 2013. We had a buyer very quickly. However, the process took so long that the buyers dropped out just before the short sale was approved. The process was complicated by the mortgage insurance company that came out of the woodwork at the last minute looking for case and promissory notes at closing. Once we lost the buyer in June, the mortgage company began entering the property into “auctions”. None of the auctions have produced a buyer. In addition to the first auction in January which did not produce a buyer, there have been at least 3 consecutive auctions. The last one ends 11/4/14. The mortgage company has refused to stop auctioning the property and insists all retail bids go through the auction house. In the meantime, the foreclosure process was speeding along and the court granted Nationstar a strict foreclosure. We went back to court and got an extension to 2/10/15. We believe the auctions are hindering us from obtaining a buyer through the traditional real estate market. What can we do to get the mortgage company to stop these auctions?

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Karen September 12, 2013 at 1:10 pm

I’m in the middle of a short-sale nightmare with Bank of America, who farms out liquidation of their distressed properties to a third party, REDC. Neither REDC or BofA communicate with either. They have conflicting information, conflicting status of the mortgage documents and process, and ask the homeowner to resolve the absence of internal communication between employer (BofA) and vendor (REDC). They absolutely refuse to pick up the phone and actually speak with one another. It’s like the mortgage falls into a vacuum of inertia.

With a purchase contract submitted over a month ago, all the paperwork had to be resubmitted again because BofA cannot access, or acquire, the documentation already submitted to REDC.

I’m incredulous at the gross mismanagement of liquidating a distressed property…. like a bad marriage, a mortgage is really EASY to get into, and very DIFFICULT to get out of.

There is no consistency in statements between any of the staff. In this day and age of computerized record keeping, they “lose” more files, hide behind “waiting for the computer to kick out the next task on Equator system” etc etc.

I finally filed a complaint with the Attorney Generals Office in my state against both REDC and BofA. Our “regulators” and “oversight” agencies, who handed out billions in bail out money, need to step up their game. These “too big to fail” banks have already failed the American public.

If they are so inept at processing a sale in an expedient manner, what they heck are they doing with investors monies????

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Debbie August 7, 2013 at 1:40 am

I m so mad with this situation and i dont know what to do! My house was in shortsale For almost two years in june 9 i received a letter from chase they got and offer and has to be closing before july 5 i called to my realtor and she told me that means need to find out a new place to live. They gave me less than a month to move out.
It was a nightmare because no money no get a new place someone borrwed me 2000 to move out
During these dates i received another letter from chase they Will give me 3000 as an incentive they sent me to the title property to sign a bounche of papers everything was ready
I found a new home and still waiting For the money so i can pay back .
Today july 6 i received a new letter from chase saying they denied the property sale!

This make me confunse , why they así me to leave the house in less than a month why they sent my to the title property if nothing was approved by them yet…

Please i need any suggestion what to do? Where should i go? To get clear info against this situation

Helppppp

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Jim V February 8, 2013 at 1:47 pm

I knew most of the potential problems with short sales when we put an offer on the home we now live in. The key to success, in my opinion, was that foreclosure was inevitable, the sellers did not have resources for the lenders to seek, and the property was vacant. We had to increase our offer by 1% to get it accepted after 8 months of waiting and negotiation, but the actual closing part went fairly smoothly.

All things considered, I’d probably do it again given the same circumstances.

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