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When a Short Sale in Elk Grove Takes a Year to Close
Happy couple after closing a short sale in Elk Grove © Big Stock Photo
People love to hear my tales about true stories that happen in Sacramento real estate, especially when it comes to long-suffering short sales in Elk Grove. Why Elk Grove? Because so many of the neighborhoods in Elk Grove were built during 2004 to 2008 or refinanced during the boom, which means Elk Grove has had its fair share of short sales. Also, many of the loan modifications promised to homeowners turned out to be jokes.
Lots of short sales close within 3 months, but every so often I get that oddball short sale that turns out to be a huge challenge.
Many oddball short sales are problematic due to condition because buyers just don’t want to do any work. They want a turnkey home in a nice neighborhood, and they don’t care if they buy the home for a little bit less if it needs work. They prefer to buy a home that requires zero work even if it means paying a little more.
I have sold this pool home in Elk Grove 5 different times. I listed this in October of last year. I was beginning to wonder if this was maybe a flashback to the early short sales of 2006. It was a boomerang, every time we’d go into escrow, BAM, it would fall back out again. It didn’t help that there were 3 loans, all with HUD. Yup, it was an FHA short sale through Bank of America, one of the worst types of short sales among the hundreds I’ve closed. We worked our way through it and got the Approval to Participate and received an approved price of $350,000.
Things were looking up, and we were very close to receiving the short sale approval letter when all of a sudden, BAM, Bank of America dumped the servicing and the loans for this Elk Grove short sale were sold by HUD to an institutional lender, BSI, which seems to specialize in buying underwater mortgages held by FHA and others.
The negotiator at BSI told us they were sending out an agent to do a BPO and obtain an estimate for the repairs. Instead, they sent a representative of an investment group that planned to buy the property from the bank after foreclosure. How do we know this? The guy told the seller who he was. Grinned and carried on about how they buy foreclosures directly from the bank, bypassing the trustee sale. The seller should have kicked him out of the house, but he didn’t.
We were a week or so away from foreclosure. The bank suddenly decided it wanted an additional $40,000. This was about the time somebody in the neighborhood stole my sign post and dragged the panel to the high school. Then some agent in Elk Grove — probably a doofus with too much time on his hands and not enough business — reported my listing to MetroList and accused me of relisting the home without written permission, which of course I had. I don’t understand the problem with some agents.
Now, other listing agents might have given up at this point. Just washed their hands of the whole mess. Not this Elk Grove Realtor. I promised my seller we would close. First, I told the negotiator at the bank that I knew all about the scheme to sell the home privately to an investment group and to intentionally thwart the seller’s chances of a short sale. There are laws against this kind of behavior. And I let him know that I had advised the seller to obtain legal advice.
A lawyer? BAM, the foreclosure sale was postponed. We ultimately found another buyer who was willing to pay the higher price and do the repairs required by the buyer’s lender in advance of closing. Those kinds of buyers, btw, are few and far between these days. By the hair of our collective chinny, chin, chin, we closed escrow today, a day early even.
Dangers of Hiring Any Old Realtor for Sacramento Short Sales
All Sacramento short sales are not the same, and a seller should not just hire any old Realtor he or she can find to do a short sale. I can’t express the sentiment enough that if you need to do a short sale, you owe it to yourself to hire the best Sacramento short sale agent you can find because you have no idea, and I mean seriously absolutely zero idea, of what can happen in a short sale, but a specialist does. A specialist can prevent some crap from ever taking place to start with.
For crying out loud, Sacramento short sales are traumatic enough without lopping a second or third helping of pain on top of existing angst and agony.
In this next short sale I’ll share with you, the seller had hired some other agent in Sacramento to do his short sale. He called me because he hadn’t heard anything from his agent for a while and wondered what was happening. Asked if I would be so kind as to go over to his house and check it out because he lived out of town.
Tahoe Park is not that far from Land Park where I live, so I drove over but not before I checked his listing in MLS. Lo and behold, the listing was still listed in MLS as “expired pending” status, which is not allowed. It meant there was an offer of some sort, most likely expired as well but not necessarily; however, the listing itself had expired and there was no longer any agreement between the seller and the listing agent. The seller insisted that he wasn’t even aware they were in contract.
First thing I noticed when I arrived at the home in Tahoe Park: there was no sign in the yard. The place looked forlorn. Lockbox was there, but no sign. There was another lockbox, too, the kind attached to the gate by a preservation company hired by the bank, which meant a side door was drilled out. It would appear that the short sale agent had simply given up on this client and forgotten about the listing. I retrieved the key from the lockbox, inserted it into the lock and slowly pushed open the door. There was something on the floor in front of the door. God, I hoped it wasn’t a dead animal. It was a pile of old mail and a FedX envelope. I called the seller and he asked me to open the FedX envelope. Dated in September and this was February. The letter from Bank of America informed the seller his short sale was denied.
And this is how I came to list an FHA short sale with Bank of America in Tahoe Park last February. I’m not certain the previous agent even realized this was a HUD-related situation.
After MLS removed the expired listing and allowed my listing entry, the previous buyer’s agent called to submit the same lowball offer she had previously submitted. As a top Sacramento short sale agent, I know it is not necessarily in the best interest of the seller to submit a lowball offer on a short sale. Not only that, but since it’s an FHA short sale, two things must happen: #1) the seller needs to receive an ATP from HUD, without which the sale will go nowhere, and #2) HUD will prepare a formal appraisal, not a BPO, and the offer price must meet or exceed the net expected.
The agent appeared highly agitated and frustrated that I could not advise the seller to take her buyer’s offer, especially since the seller had previously accepted an offer from that buyer. Well, that was part of the problem, the offer was too far below the comparable sales. Would her buyer like to increase the offer or does the buyer believe banks are handing out short sales left and right like toasters?
It took a while to obtain an offer that would meet HUD’s guidelines and to meet the seller’s expectation of commitment duration. FHA short sales are not processed quickly and can take months and months. On top of this, since the sellers no longer occupied the home and had moved away, we needed to obtain a variance from FHA because the reason for moving did not fit like a round peg into a round hole. That’s how the government works. No square pegs in round holes allowed without a variance.
But the long and short of it is we got the ATP, we got the variance, and we closed the escrow in September. I know this without hesitation, and the truth is if the seller had not finally hired a top Sacramento real estate agent who used specialized knowledge to close this sort of FHA short sale, he’d have a foreclosure instead on his record.
Fighting HUD in an FHA Short Sale
It’s sort of surprising in a way but many home buyers in Sacramento do not know what kind of loan they have, especially after a few years pass since closing. From their point of view, it doesn’t matter. They still owe all of that money for decades. Whether their loan was FHA or conventional or VA, who cares? But it makes a difference if the seller needs to do a short sale. The rules are very different.
Whenever this Sacramento real estate agent approaches a short sale, the very first thing I do is figure out the seller’s type of loan. If the loan is FHA, for example, there is no requirement to submit an offer with the FHA short sale request. That doesn’t mean a seller might not want to submit an offer, as there are reasons for it, providing the buyer is willing to wait, but it’s not a requirement and, in some situations, it can be a much easier process without an offer.
We had a short sale recently that could not close. It was the first short sale in a long, long time that had been rejected without hope of any further action. Ordinarily, I do not give up; I continue the fight and, if the bank says no, I reconfigure the short sale package and resubmit. Eventually, the banks say yes. But when HUD says no, it means no. To protest would mean fighting the department of Housing and Urban Development.
One can request a variance and build a very strong case. But after that case is presented, it’s sort of like getting an opinion from Superior Court. One could appeal but an agent can’t do it. It takes a lawyer to do it at that level.
Sometimes, clients forget that Sacramento real estate agents are not lawyers. We might seem that way, but we do not have a law degree, we cannot give legal advice, and we cannot practice law, even if our shoes are nicer.
In this particular situation, even though the home was not habitable, HUD rejected a variance request. This was a round peg trying to fit into a square hole. Apparently, there is nothing in HUD guidelines that deal with homes that are uninhabitable. Because the bottom line is when you’ve got Lily Tomlin in her telephone operator role running HUD, the answer tends to be no, especially when they can’t figure it out.
The Rules for an FHA Short Sale
All short sale transactions in Sacramento, especially the FHA short sales, are handled from the perspective of the short sale agent and thus limited by that agent’s experience and education. The more an agent learns, the more an agent realizes in horror what the agent doesn’t know, or at least one would hope it works that way. But some agents take a 3-hour class and proclaim themselves to be certified short sale experts without closing any short sales.
Moreover, short sale seminar classes seem to be gearing up at the moment, even though short sales are on the decline. To sell those short sale classes, the promoters proclaim that banks want to hire short sale agents to move underwater inventory but that’s not entirely true. As long as homeowners are making payments and unlikely to default, the bank doesn’t care. Also, banks have no shortage of real estate agents at the bank’s disposal.
Agents can be such suckers. I know this because I worked in the real estate seminar business some 35 years back. That well known real estate guru is dead now.
I audited a short sale class a few days ago and was astonished at the crap thrown out. Some of the information touted as fact was completely wrong. I won’t name the class except to say that I understand agents have few places to go to get this information and, if one is starving to death, even a handful of sand tastes good.
A big deficiency exists in the FHA short sale field. I see this by the questions asked online from frightened buyers. An FHA short sale happens when the existing financing is an FHA loan and the sale at market value is underwater. HUD (Housing & Urban Development) has set forth very specific requirements and guidelines. The first is to obtain the Approval to Participate in the short sale program outlined by HUD. To get that ATP, homeowners must be first be examined and evaluated to see if they fit other foreclosure alternative programs offered through HUD.
This happens even if there are no other programs that fit that homeowner’s situation. This happens even if the homeowner can no longer live in the home because all of the interior walls have been ripped out and the plumbing stripped. After evaluation of such a situation, which sounds completely insane, then the servicer will request a variance. You just have to know the rules and follow them. The short sale guidelines make sense to HUD. The strict rules don’t have to make sense to anybody else.
FHA also offers loan modifications, for example, only to owner occupants. If a potential seller does not occupy the home, the loan modification will not be granted. No investor loan modifications. End of story.
Yet, that did not stop a homeowner who rented out his home in Sacramento from trying. Even after I sent him the particular HUD guidelines, he still hoped they might give him a loan modification. Who am I to stomp on a homeowner’s desperate attempts to keep a home? I won’t squash those dreams, even if the dream is impossible. It’s not my house. Besides, the owner, even though he was not an owner occupant and has long since moved away, still needs to be evaluated for other foreclosure alternatives.
In my most recent Bank of America FHA short sale, we waited to receive the go-ahead on the Approval to Participate before putting that Sacramento short sale on the market and obtaining a short sale offer. It is the sensible and smart way to do an FHA short sale with Bank of America. Even so, it still took another 90 days to obtain short sale approval. And I’ve been working on short sales since the market crashed in 2005. I’ve closed hundreds, more than a 120 short sales last year alone. This Sacramento short sale agent is always looking for ways to streamline the short sale process.
If you’re sitting in a FHA short sale in Sacramento that seems to be dragging out and going around in circles, you probably have a listing agent on the job who doesn’t close very many FHA short sales. Experience is everything in this business.
Bank of America FHA Short Sale Approved
Wow, a Bank of America FHA short sale started in December of last year finally closed escrow in November. It took 11 months to close the sale of this Rancho Cordova home. And this was an escrow in which the seller hired and paid a lawyer to negotiate. They did this before they called me. I was hired solely to sell the short sale, not to negotiate, which is a little odd but OK. I do whatever my clients want.
A representative from the Sacramento law firm called the Bank of America negotiator at one point almost every single day. It’s not just a Sacramento short sale agent who struggles with the B of A FHA Short sale processes. Lawyers can fare even worse.
I’ll tell you who has the hardest job in all of this. It’s the buyer’s agent. It’s that Sacramento buyer’s agent who is saddled with the job of having to call that potential homeowner every week or so to explain what’s going on. These agents have to give plausible reasons for the delay yet continue to build hope in their client’s heart. It’s not an easy job by any stretch. Half the time the buyer’s agents don’t know what’s going on because nobody tells them anything. They are not allowed to talk to the short sale bank.
I understand how difficult that job is, and that’s one of the reasons I post my updates online. Yeah, right on my website, you can read Sacramento short sale updates. Buyer’s agents and their buyers can access daily updates. Each property is identified by the street name without the house number. No personal information of either the seller nor the buyer is divulged. It’s mostly actions committed by and requested by the bank so all parties to the transaction can monitor the movement. My Sacramento short sales do not fall into a black hole. Anybody and their Uncle Joe can see that I am constantly on top of my short sales. I am held accountable for my actions.
Which is more than one can say about Bank of America and its FHA short sales. Unfortunately.
You see, there is nothing that I can really do about a Bank of America FHA short sale. Especially when I am not negotiating it. I am not an agent who farms out her negotiations to another short sale negotiator. I care about my clients too much to do that. (Although, sometimes it is necessary to bring in a lawyer, but that’s rare.) I do my own work. I am hands on. As a result, I have learned that I can lessen the damage, the heartbreak, the disappointments by not putting that short sale on the market until we have the Approval to Participate from FHA. That’s the only way I have found to shorten the 8- to 12-month wait for approval on an FHA short sale at Bank of America. After receiving the Approval to Participate, that wait is only 4 to 6 months, and that’s not half as bad.
