1031 exchange short sale

A Cooperative Short Sale is a Privilege; It’s Not a Right

cooperative short saleIf you ask a lawyer if you should file a lawsuit, that answer will probably be yes. Just like if you ask a Sacramento real estate agent if this is a good time to buy, you’re gonna hear YES, this is a good time to buy. Because that is asking a person in business for himself or herself if you should do business with that person. It is rare for a person in business to turn away that business. If a person routinely turned down a source of potential cash flow, sooner or later that person would go out of business. But many people do not understand that concept.

Another concept people do not understand is if you are trying to buy a short sale, that short sale might not be approved. No bank is required to do a short sale. A short sale is a privilege; it’s not a right. Even if the bank agreed to do a short sale, a bank can say no later on. For example, if I were an investor who needed to do a 1031 exchange, I would not be trying to buy a short sale. Because when you do a 1031 exchange, you have a certain period of time in which to identify a property and a certain period of time in which to close. Once those time frames have come and gone and you haven’t closed, you’re hosed. Your preferential tax treatment goes bye-bye.

I have closed short sales in which an investor was doing a 1031 exchange. But it was risky for that investor. Because there’s no guarantee. It’s risky for any short sale buyer. It says so right in the documents a buyer signs.

Just like there is never a guarantee with a Bank of America preapproved Cooperative Short Sale. Just because the bank approved a Cooperative Short Sale does not mean the bank will approve an offer from a buyer. And just because the bank might approve an offer from a buyer is no guarantee that Bank of America will close escrow. Bank of America reserves the right to pull the plug at anytime, and there’s not a darn thing a buyer can do about it. There is even less recourse when the investor along the way fires Bank of America, like Fannie Mae seems to be doing lately.

Oh, Bank of America has a fancy name for getting fired. It’s called a Release of Servicing. But it’s being fired all the same. Fannie Mae recently fired Bank of America right before final approval of a short sale. Instead, Fannie Mae hired Seterus to handle the servicing of that loan. Bank of America was about to approve the Cooperative Short Sale for a 1031 exchange buyer. It had issued a counter offer in Equator and was getting ready to draw the final approval letter. But when Seterus took over the servicing of that loan, Seterus said nope. No can do. Seterus does not do Cooperative Short Sales like Bank of America.

You know who got the short end of that stick? Welcome to the world of short sales. If it were me, I would not give my money to a lawyer to pursue a case without merit against Fannie Mae (aka our government), but some people have little respect for money, much less common sense.

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