With the housing bubble burst and evaporation of credit, short sales have grown in popularity as debtors behind on their mortgage seek to offload their depreciated property and avoid the derogatory effects a foreclosure can have on their credit report. Ads in the paper and tacked onto telephone poles at intersections scream about the great steals to be had.But what is it actually like to go through this process whereby the bank agrees for the house to be sold at a small loss instead of incurring the sizable fees a full foreclosure would entail? A lot harder than the brightly colored bold letters would have you believe. Long-time reader kyleorton walks us through what he went through to buy his a house listed at $274k via short sale for $229,000, a procedure complicated by Bank of America bureaucracy and a seller’s agent that didn’t feel like doing any work.
We had missed seeing this house earlier because of a “Sold” sign out front for the entire time we were looking. It came down in July of 2009 and I had Neil schedule a showing right away. It was exactly what we were looking for and we planned to put in an offer right away.
The first red flags should have been Neil’s first attempts contacting Gus about the short sale details. Despite us being interested in one of the few listings he had, Gus was incredibly difficult to get in touch with and it took several voicemails before we got some response.
Finally, we just wrote our offer and it was accepted in late July. Gus told us that he had an inside contact at Bank of America and thought we could close quickly within 45-60 days. Neither Gus nor Neil understood the structure of BOA’s short sale process. There is more available online, but my summary is that Phase 1 is Bank of America checking that the offer is fair and the best they can get. A BPO (Broker Price Opinion) is ordered. A BPO means that a local agent is hired to tour the house and give a structured opinion of the value. These need to have been done recently at any point where the bank makes a decision. In Phase 2, another person signs off on it as well as the investor owning the mortgage. In many cases this investor is Fannie Mae (you can find if your mortgage is owned by Fannie Mae online) but it didn’t own the seller’s mortgage. Of the actual work being done, this takes the most time.
The real waste of time, though, is getting the file in front of these people. By following up frequently, Neil was able to track the progress of the file as it landed on the desk of each person. It take a week for a file to be transferred to the next level and each time it’s assigned first to a manager who then assigns it to a negotiator. Several times Neil called a negotiator he was met with a full mailbox and a secretary said that the person had left the department and it would be reassigned again.
By the middle of August we wanted to hear some indication of progress, especially since Gus was to have such a good contact inside. Looking back at emails I sent to Neil asking for updates, I have a lot of responses like “I left another message for Gus today. . I wish I could report more, I am trying as hard as I possibly can to get in touch with him to get answers. This is driving me nuts too!” My wife and I started looking at options for temporary housing for a few months.
By the end of August, we had gotten fed up with the lack of communication from Gus. Neil took it upon himself to be entered as an approved party for the property so he could call the bank directly for information and updates. Of course this required paperwork from Gus and the seller’s approval but getting that took a couple of weeks. I know from dates on forwarded paperwork that the seller was responding incredibly quickly (you’ll see later how I know that he was more motivated than anyone to do this well) but Gus would ignore calls for days rather than get it to us. Eventually Neil was so dismayed that
he called Gus’ manager, prompting this response: “Anything further, please direct calls and inquiries to me and NOT MY MANAGER!!”
Neil also suggested that the best short term option might be to agree to an addendum allowing us early occupancy of the house for no cost. The owners had moved out and we needed a place to stay. They weren’t making payments on the house and we would have to buy a refrigerator and maintain it so it seemed like an even trade off and the best way
to help us wait out the process and move along. Thus we begin “squatting” the first week of September.
Because I was living in the house, I was able to witness the little evidence that things were happening. At the end of September BOA ordered the first BPO on the house. I was able to walk through with the broker and pick his brain a bit on the process and what he was asked to write up. Things were happening.
Even with access to Bank of America, Neil was having difficulty getting someone to talk to. Hold times were a few hours and lead to someone who could read off the status in the computer but voicemails for the file’s negotiator were infrequently answered. I was beginning to get frustrated and met Neil at his office to call Bank of America together. It was at this meeting that we found out Gus had neglected a significant portion of the short sale forms. He hadn’t sent an up-to-date HUD form that lists all of the debts, liens and costs to sell the property so Bank of America knows what amount they will be receiving when all was said and done. They also had an incorrect offer to purchase. Neil assumed even more responsibility here as he pushed through the HUD paperwork at the local title company (until closing, the title company thought Neil was the listing agent as they never heard from Gus and it was the listing agent’s job). He also received the BOA Short Sale worksheet and forwarded it to Gus. The seller later emailed Neil for help with it as apparently Gus wouldn’t return his calls either.
This setback started most of the process over again but we entered Phase 2 sometime in the middle of November. In December of 2009, the house was officially foreclosed on. I was well aware of all proceedings because as a tenant, I had to be notified of any legal action. Apparently this is common and a short sale can still be completed before the auction date (scheduled for mid-March). By the time the file made it to the investor’s desk for approval in January, the first BPO was outdated and BOA ordered another one on January 22nd. It was approved and on January 29th we moved into Phase 3.
Phase 3 means that another person at BOA puts together a packet of all of the closing instructions for the title company. BOA will tell you this means that you’re home free and should be able to close within a week but they never consider the week or two it will take for someone to look at it. In this case, we received closing instructions on February 10th and found that BOA approved incorrect numbers. We were off by about $7000 needed to pay delinquent taxes and a judgment on the property. Neil discussed an option with Gus to make up part of the amount from the seller’s relocation company and Gus said he would ask the seller to pay the judgment outside of closing.
With the end in sight, Neil called Gus daily to see if the arrangements had been made. When Gus finally called a week later he said he couldn’t get a hold of either the relocation company or the seller. This was almost certainly a lie. Finally, the next week
(while I believe Gus was on vacation) the seller actually called Neil, my agent, to see what was going on. He had signed documents from the title company but couldn’t get Gus to return his calls either and was hoping we had closed. With only weeks until the public auction, Neil was able to contact the seller’s relocation company directly and that same day had a plan in place to pay these amounts outside of closing and bring the closing numbers together. Another week later, the checks had been sent out and we had a scheduled closing date for March 8th.
While the most difficult portion was over, none of the normal people involved are used to a short sale so every little thing was more difficult. The insurance company had cancelled the policy we set up earlier so that had to be done again. The lender couldn’t send the
loan packet to the title company until they had an insurance receipt so I had to badger the insurance company to get it to them. The title company couldn’t tell me how much to bring to closing until they had the loan packet. And to make everything more difficult, because of BOA’s requirement that their cut be wired, the title company would only accept a wire transfer and not a cashier’s check as usual. Since we were closing on Monday morning, that means I had to transfer funds by 1 pm on Friday and we didn’t know about the requirement until after I had pushed everyone around to get everything done on Thursday.
So eight months after the accepted offer and six months squatting we arrived to our closing. Gus went to the wrong place. As Neil, the title officer, my wife and I told jokes at his expense while waiting for him to sign the final piece of paper (a statement that none of us were related or working to defraud BOA).
This wasn’t quite the end of the journey. Because of the way we handled the late taxes, the title company actually sent in a small amount more than the actual taxes plus interest due. And since this apparently takes a few minutes longer to process, the county did not
record the payment for two weeks during which I received notice of unpaid taxes and the person answering phones for the treasurer insisted all payments had been recorded and I was delinquent. I wanted everything to be absolutely done, so within a few more insistent calls to the county treasurer they recorded the payment. And then BOA and the law firm that handles their foreclosures in our area had pushed back the date for the public auction but not actually released it.
I called the law offices several times in late March and early April to check on the status, but the law firm could not cancel the sale unless BOA told them to in writing. Regardless of whether BOA actually had a lien on the property and any right to force the auction. In the end, the real estate agent makes a huge difference in this process. Gus may well be a competent and helpful agent, but was fed up with the process and property. Either way, had Neil or someone as diligent been handling both sides of the transaction, it would have closed in 2009.
While I’m very grateful to Neil and his hard work, he and I agree that he and most agents don’t have the knowledge or experience to handle a short sale as well as possible. He’s sworn off short sales, though buyers and sellers would be better off if he took his new knowledge, sought more experience and helped more people through it. If I had only known the true length what to expect at each point, it would have been far less stressful.
Original sale price: $ 271,021 (Nov 2006)
First listed for: $274,900 (Nov 2008)
Revised listing price : $249,000 (2/28/2009)
My Purchase Price:$229,000
Have you ever bought, or thought about buying, a short sale house? Leave your thoughts in the comments.