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Karen List's Blog

By Karen List | Agent in Campbell, CA

A Very Complex Short Sale Transaction on a Home in Saratoga About to Foreclose

This was the most complicated and complex short sale thus far for me for sure. The situation for the seller was an extremely sad one. The seller actually lived in this home for many years and raised a family here. This wasn’t the typical short sale scenario in which the owner bought in the height of the market, yada, yada, yada. This owner owned this home for a very long time. 

 

This home was owned by a married couple, the wife, a very successful business woman who did very well. She became ill and went into a coma, which is her current status, and the family desperately tried to save the business she had built to be such a successful one. The family basically took out every penny they could out of the equity of the house to keep the business going until she was back on her feet. Unfortunately, she just got worse, and at this point, she is in China and things are not looking too good for her. 

 

The husband just could not afford all the debt he incurred in trying to save the business and the mortgage payment that went up significantly when he took out all of the equity from the home. He actually owed way over and beyond what this home sold for at $1,350,000. He wanted to save his credit from a foreclosure, so he decided to sell this home as a short sale. 

 

The buyers wrote this contract in April and this home just closed escrow last week. So, it took about 6 long months to get this deal closed, and as usual with short sales, no guarantee it would even close at all, but it appeared to be a pretty solid case.

 

The first issue arose when the seller was in China visiting his wife in the hospital for a few weeks, so communication was hard to get the contract signed and submitted to the bank as soon as possible so that this home would not go into foreclosure. Of course, it was completely understandable that the seller was out of town, although, the clock was ticking to beat a foreclosure on this home.

 

There were 2 loans on this home and the first loan was in process and going rather smoothly, but then the second lender decided that the owner could not sell the property without his wife’s signatures on the contract and all documents. So, of course, that is ridiculous, being that she is in a coma, which was already explained to Wells Fargo. But, we all know how banks work these days … lots of restrictions and no logic. So, not surprising that the bank would be just as incompetent and they typically are in these short sale cases.

 

The owner had to acquire a conservatorship to give to the second lender to get approval to sell the home, so that was another stumbling block since he had no money and time was still ticking for a foreclosure date. The buyer actually had to pay for all the attorney’s fees and such to get the conservatorship if he wanted the house, which was about $7,000, otherwise, the seller’s hands were tied.

 

As we were waiting for the second approval with conservatorship and such, the approval for the first was going to expire and go to foreclosure. And, while waiting for the second approval, the first was actually sold to an small investor in which typically the process starts all over again from scratch, if the first is sold to an investor. However, in this case, we were promised that the new investor would continue to work on this short sale and not start the process over with a whole new timeline to work with for approval. So, we got REALLY lucky that the investor was small, just a handful of people, and we could actually talk to a human being who would work on the file, rather than ‘customer service’ and just the endless loop of nonsense that normally takes place with a short sale process.

 

Also, as we waited for the second loan approval, the first loan with the new investor was indeed about to foreclose and actually had a foreclosure date set up and was advertised for sale and the whole nine yards, although, the negotiator from the new investor promised they would work with us and not go to foreclosure status if we could close the transaction by September 15th. So, even the neighbors thought there was going to be a foreclosure auction and such from the word on the street.

 

To top it off, to hold off the foreclosure date, the new investor on the first loan wanted an approval letter from the second within 2 days, which is nearly impossible to get in most cases. But, luckily, we were able to obtain the approval letter for the second loan just in the knick of time, literally! Although, the second lender wanted an additional $33,000 to make this transaction happen. Luckily, we were aware upfront when we first wrote the offer in April that the second lender may want up to $50,000 to let the short sale deal go through. So, it wasn’t a great thing that the buyer had to pay another $33,000 to get the deal to close, but it was nice that he didn’t have to pay more and up to $50,000 to make it happen. 

 

At this point, we are about 30 days out for closing on September 15th, which 30 days is pretty standard and not typically an issue, but it really does give no room for error, and it is nice to have some kind of cushion. 

 

The transaction itself once we had lender approval from both banks went very smoothly until the very end, the 11th hour. When the buyer’s lender needed a document from the title company to get the loan documents for the buyer to sign, out of nowhere, the title company just lagged big time. We were begging for it so we could get the loan documents to sign and close on time, and the title company just was not seeing the urgency. That happened on a Friday and nothing happens over the weekend, since lenders and title companies are closed. So, all day on Friday we were trying to get the final document and nothing happened until basically after hours. Come Monday, when we were scrambling to get the loan documents to sign and close in time, the escrow officer was out sick and no one was stepping up to fill in for her. We were calling all day, trying to reach managers, the sales rep, just frantic to get help, and finally the sales rep was able to set up an evening appointment for the buyers to sign their papers, although, we lost yet another day, since again, it was after hours.

 

But, by the grace of God, we were able to close on time at the very 11th hour. We even had to do what is called a special recording in which we funded the loan and closed the transaction the same day, which typically, that process happens in 2 days. So, we truly closed at the 11th hour to get it done by September 15th, which was the final day allowed on the short sale approval letter.

 

Because the owner was in such a hardship financially for some time, he was not able to maintain the home, so the buyers do have a lot of work to do, but the buyers were looking for a home that needed work in which they can remodel and add their own taste and personal touches. And, after 6 months of waiting and the roller coaster ride to boot, and as sad as the situation is for the owner, at least the owner was able to avoid foreclosure and knows this wonderful family are finally owners of this great home on a great lot that will look fabulous once they finish the remodeling and take great care of this home.

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