Sacramento Real Estate Views

Short Sale Hell

Still Doing Business With a Bank?  Read On…..

I have a client who recently went through a hell of an ordeal with their lender in attempting to sell their home short.

These folks have had a rough 2 1/2 to 3 years.  They are in the real estate industry and started feeling pinched financially in late 2006 to early 2007.  The market had turned sour and he was unprepared for how to deal with the changes in the market opportunity at the time.

His wife had steady work but the reduction in his income left them short and they ended up in debt trying to keep their home life stable.

They continued to think that the economy would get better and they could recover their situation but the market and economy got worse.

And worse. And worse.

Time to Stop the Bleeding

Seeing that the situation nationwide was not getting better and the local economy in dire shape, in April of 2009 they made a conscious decision to completely restructure their financial life to start over.

For them, that meant bankruptcy to wipe out all debts and getting rid of the house. It was worth $125K less than they owed and they determined it would be years before that value would come back.

They had already waited too long for the market and their fortunes to turn back in their favor.  They had to take action to get back on the road to financial recovery.

The Bank Says “No Problem”

Because they had intended to give the house back to the bank, preferably selling the home short, they stopped making their payments as the bank wouldn’t talk to them until they were late.

After a couple of months, they approached the bank about a loan modification and were told that it was possible however the investor wouldn’t lower the principal loan amount.

They declined to even try to get the loan modification as anything other than a principal loan amount reduction did no good for long term financial stability.

They asked the bank about a short sale and were told to fax in a documentation list and they would review it.

He called the bank several times over a 60 day period to make sure they stayed in and each time he spoke to someone different who told him something different than the last person he spoke with had told him.

Because the bankruptcy was now finalized, the bank continued to push toward a loan modification seemingly ignoring the fact that they had clearly said, repeatedly, that this wasn’t an option for them as the principal loan amount would not be reduced.

Trustee’s Sale Scheduled

The bank had scheduled a trustee’s sale to sell the home at auction.  When the notice was posted on their front door, they called the bank to ask if they were still going to be able to sell the home short.

They were told the trustee’s sale would be postponed.

The day before the trustee’s sale was to occur, they called the bank to follow up on the paperwork and to inquire about the postponement of the sale.

They were told that they were going through with the trustee’s sale and the home would be auctioned off the next day.

No one anywhere along the line, in all the calls to the bank, ever gave the impression that they would be foreclosed upon provided they got their information to the bank.

For some reason, the bank would not even attempt to cancel the sale.

The next day the property sold to the highest bidder at auction.  The buyer at the auction said to my client “not to worry, we’ll work something out so you have time to move”.  That evening, they were served with a 3 day notice to vacate or be faced with a lawsuit.

When you are foreclosed upon, the homeowner has NO rights at all.  They are required by law to move out immediately.  If a renter were in the property they would have rights but not the homeowner.

Understandable but you’d think the decent thing would be to work with the homeowner to get them out as quickly as possible without adding undue stress to their situation.

This is the reason so many people who go through the foreclosure process destroy the home before they leave.  They are in financial trouble, they are lied to all along the line and finally snap ripping up everything in sight.

My clients are not that kind of people but just wanted to get the hell out of the house and get on with their lives.

They were lied to by the bank. They were lied to by the investors who purchased the property.  All this on top of feeling guilt for walking away and having to move out on short notice.

Are the better off?  Absolutely they are but not without having to go through hell to get there.

What They Learned

In talking with them, I learned that they hadn’t attempted to go through the loan modification process with the bank.  They didn’t know about he HAFA program and that the bank is compensated by the government to allow homeowners to sell short.  The caveat is that you’ve got to go through the loan modification, or HAMP, process first, reject it then you can go through the HAFA program to sell short.

This coupled with the fact that they have a monthly income surplus was probably the reason the short sale request was ultimately denied.

They had a surplus only because of the bankruptcy.

During the final stages of the process, the bank said that they had to have a hardship in order to qualify for a short sale.  My client said to them that they had just finished a bankruptcy and wasn’t that considered a hardship?  The bank said no as now you have no debt and can pay your mortgage!

My clients, with a bankruptcy on there credit report, won’t be able to get financing for a home purchase for 2 to 4 years yet the bank didn’t consider it to be a hardship.  Amazing.

The Moral of the Story

There is no rhyme or reason to what the banks do.  None.  If there is, only they know it and they’re not talking.

My clients had an offer from an investor for $220K.  The house sold at auction for $199K.  The opening bid was $190,800.  In this case, this was probably about the same amount to the bank.  Usually, it’s far less.

My clients have said that they will never do business with a bank again if they can avoid it.  They’ve closed all banking accounts and gone to the local credit union.

I don’t blame them one bit.  Now we know why people used to, and some still do, hide money under their mattresses.  It’s safer!

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Tags: Rocklin, Roseville, short sales sacramento

This entry was posted on Thursday, July 29th, 2010 at 9:14 pm and is filed under Short Sale Information. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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