Foreclosure in Pittsburgh>Question Details

Mofaust, Home Buyer in Pittsburgh, PA

Are banks being unethical on short sale closing dates?

Asked by Mofaust, Pittsburgh, PA Wed Mar 31, 2010

I am buying a short sale home. It is a proven fact that banks lose much less money on short sales then on foreclosures. We have agreed on a sales price but now the bank is asking for unrealistic closing dates for the sole purpose of collecting per diem charges. I have two other friends who are buying short sales and are dealing with the same type of situation. I know the bank has the right to demand what it wants, but why are they being so stupid as to risk losing a transaction just to re-coop a few hundred to $1000 on a deal? What is the incentive? Plus, I feel they are setting traps and being unethical to the buyers of the properties, because most times they don't reveal per diem information until a sales agreement has been met.

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Mofaust
Have you agent file for an extension now, stating this is FHA and you cannot close in 2.5 weeks going FHA. If they grant you the extension then there is no per diem. That should put your mind at ease. That being said, a good lender can close in under a month. We just closed on from beginning to end in under 2 weeks but it was sweating it the whole time, too stressful.

Good Luck!!!
1 vote Thank Flag Link Wed Mar 31, 2010
As an update,

Litton Loan Services was the owner's lender for this short sale. The short sale department handled things terribly!!!! We started by agreeing on a net amount to the bank and they demanded a 2 week closing. They wouldn't agree to a later closing. So they raised the net amount by 2 grand. Then we gave them that and they again would not agree to a realistic closing date. So we played this game until they raised it by 5 grand. This was April 29th (day before tax credit ended). Then we finally gave in and gave them the money and they came back asking for 8 grand more. We walked away, all parties lost because the bank was too greedy and tried to call our bluff. Now the bank doesn't have a sale, the owner is still in debt, and NO ONE got to take advantage of the tax credit. On top of that, both us and the owner have since fired our realtors (whether it was their fault or not), so they worked for months on this with no reward.

I feel terrible for the owner, who may now go into foreclosure. I feel bad for both realtors, who didn't get a sale. Meanwhile, the big banks will continue to not care because they get bailed out by the government for mistakes they continue to make.

As an afternote; my wife and I have since found a different house which we are closing on soon!

Thanks for everyone's comments and if I were in the real estate market I would be pushing for better laws on short sales ASAP!!!
0 votes Thank Flag Link Wed May 12, 2010
The banks have been and continue to be unethical. This has not changed in my 15 years in Real Estate. That is why I tell a potential client all the downsides I know before we put in an offer. Fairness and Ethics have nothing to do with the processes.
0 votes Thank Flag Link Sat May 8, 2010
Short sales are not for the Buyer with a tight schedule. Patience is the most important part of a short sale. PA REALTORS® Association has 3 specific forms to make all parties involved aware of the short sale.

Both the Buyer agent and agent for the Seller have to be familiar with the process. The lender accepting the short sale has procedures that must be followed. This usually includes two appraisals, a complete title search (there are usually liens and judgments that must be satisfied also) a hardship letter from the Seller. These are just a few things required. After all requirements have been met the lender will approve accepting the funds that remain to satisfy their mortgage. Typically, this is a minimum a 90 day process. Keep in mind that process does not really begin until the Buyer of the property has been approved and received a commitment letter from their Lender.

The very most important part of a successful short sale purchase or sell is having REALTORS® that are familiar with the process.
0 votes Thank Flag Link Sat Apr 10, 2010
Is it games or stanards and processes the banks have implemented to ensure cases don't sit forever. I think the banks are not so much playing a game, but have implented processes for all cases that take out any thinking of the indiviual negotiator. So I think there are metrics in place that force deals to be resubmitted in not closed in a certain time frame from acceptance (no matter what circumstances or if there are other loans involved).

The banks processes are getting in the way of what everything would be common sense.


Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee

http://www.milwaukeebailout.com
0 votes Thank Flag Link Sat Apr 3, 2010
Hi, Mofaust,


More comments--I really liked the answer from Johnny in VA and I am really pleased that behavior like requiring a signed contract prior to revealing all the documents will end! It has been really difficult for buyer's agents! How can you represent a buyer when you can't find out what the seller will do?

Here's my concern about the per diems:

Unless a real estate lawyer tells you that the language in the addendum they ask you to sign clearly lets you off the hook if the delay is in *any* sense their fault, you may be liable for the per diem. This has been true in one transaction I was involved in. Althought it was a foreclosure, not a short sale, we're talking about the same situation--to get the house, which sounds great, you are tempted to agree to their egregious terms and hope for the best.

But you should not expect the best. Small example: I represented a buyer on a bank repo. The contract stated that the utilities were to be turned on for an inspection. When they did start the arrangements to turn on the water, it turned out they had a large unpaid balance due. Without payment in full, the water could not be turned on, even for the one day we needed. Interestingly, there was more than one villain. The sheriff's department had received the check from the bank for the past due balance, and simply hadn't paid it! I think this was actually the subject of news reports. Quite a few years ago and I can't remember. What I do remember is that the bank was definitely out of compliance with the contract, which stated that all utilities would be on for the inspection. Yet they refused to give the buyer's hand money back! The buyer wasn't comfortable buying ( a contractor flipper got this house and made a killing,) so we had to take the time of 2 people representing our company, me, and the buyer to go to the magistrate. When I called the listing agent assuming my buyer's hand money would be refunded immediately, I was shocked to hear that that lender's policy was *never to give back hand money in any circumstances,* but rather to force any buyer to go to the magistrate. I'm assuming that this kind of behavior will be changed by the new regulations.

Each bank is different, so you *might* get decent treatment on the per diem issue, but I wouldn't count on it, especially if they know you are getting a mortgage and will not extend to a 5 week closing.
0 votes Thank Flag Link Wed Mar 31, 2010
Hi Mofaust:

How are you doing?

Unfortunately, nothing one of the "bailed-out" banks do, would surprise me. How does loan fraud, RESPA violations, and obstruction of justice sound?

Those are some of the reasons the feds are instituting new short sale guidelines on April 5th. The Home Affordable Foreclosure Alternates program or HAFA, will provide lender's and homeseller's financial incentives on short sales, provided the homeseller has a qualifing "hardship", and can not qualify for a loan modification.

However, the lenders do have contingencies:
1. Potential loss.
2. Local Market Conditions
3. Timing of pending foreclosure
and my personal favorite,
4. Borrower Motivation

Maybe that's the issue. The bank doesn't think that either you or the homeseller is "motivated" enough. Perhaps, you could send the bank pictures of you working out, a la Rocky Balboa, getting motivated for your short sale. In these strange days, sometimes humor helps.

Then again, you could always write a formal complaint, sometimes that's the only way to hold them accountable.

Johnny Yankoviak
Weichert Realtors
Gainesville, VA
0 votes Thank Flag Link Wed Mar 31, 2010
The home is in really great condition for a short sale/foreclosure situation. There is nothing aesthetically wrong with the home. We have been through it multiple times. It has been vacant for 6 months and has been winterized. The electricity works. It survived the North East blizzards with no apparent water damage.

Still, the only question remains is in what situation am I personally (out of my pockets) responsible (as the buyer) for per diems?
0 votes Thank Flag Link Wed Mar 31, 2010
Usually a short sale contract accepted either verbally or in writing by the bank allows adequate closing time for buyers who state a non-negotiable closing date. Of course there are always per diems, and often they do not exclude delays caused by the lender. But you do have a choice on whether to accept the bank's terms, and that is to walk away. How great is this house? As I understand your situation, you have not agreed to these conditions yet, and you should not!

Much as I dislike the behavior above, I do not think they are *necessarily* doing it to be mean to buyers.

Rather than sitting around thinking how they can make your life miserable, they may simply be signalling to you to go away and let them sell for less to a cash buyer. They want a sure, certain deal ASAP rather than top dollar. So rather than saying "Let's screw this consumer" they may be saying "We need this out of inventory for sure by a certain date, and we will actually take a lower sale price from an investor with cash to close in a couple of weeks."

I am not saying these people, the mortgage lenders, are nice, or necessarily any wiser than when they jumped on the bandwagon to make loans people couldn't afford. And the fact that they ask you to make your offfer before they reveal all their terms is something still cannot believe is legal. But they may simply be trying to get their own heads above water. A quick, sure closing for cash is one way they can do that.

Of course each company you deal with is different. But, especially if you want the tax credit, I would not consider risking it by buying either a short sale or a bank repo.

I would start looking with a good real estate agent for a house in good location that might be dated or even dirty, but that you could at least clean and live in while you plan upgrades. This is a safer route to a good house, and may not cost more than those short sales. Remember that the low prices for short sale properties trade off against the risks you are now aware of. These are risks cash buyers, especially those who may be contractors, can afford to take, but that most owner occupants cannot! Don't do it without thinking very carefully about the worst case scenario!
0 votes Thank Flag Link Wed Mar 31, 2010
If it's from the seller's bank, any charges should be on them and if it's from your bank, any charges should be on you. Unless, of course, something else has been agreed upon in the Agreement of Sale.
0 votes Thank Flag Link Wed Mar 31, 2010
Thank you everyone for your input. One last question that no one has been able to answer for me.... "what is needed for the buyer of the short sale to be personally liable for per diem charges." In my little knowledge, it is either the buyer's lender, the title company, the seller's lender, the underwriters and anyone else I didn't mention that is responsible for delays. So who gets charged? Those parties or do we (the buyers) get charged the per diem?

Thanks again for the great help!
0 votes Thank Flag Link Wed Mar 31, 2010
A question of ethics is most often subjective. Because of the flood of activity many banks are struggling to catch up with the demand for the enormous amount of work they've been slammed with. Often they are forced to hire large amounts of un-trained people and throw them into the process with little or no training in attempts to keep a handle of the load they've been given. Many times these people are going through training while they handle files and that is a HUGE opportunity for the "ball to be dropped" and errors to be made. In five days the new short sale guidelines will go into effect and banks will be held to standardized processes to help streamline and regulate the process. Found a great article on TheChicago77.com that outlines these guidelines: thechicago77.com/2010/02/the-short-sale-process-part-2-%E2%80%93-new-regulations-mean-an-easier-process/ that article is part two of an excellent article that explains the Short Sale process from start to finish to give you an idea of what is going on while you wait around. Part one can be found here: thechicago77.com/2010/02/the-short-sale-process-part-1-how-to-hit-a-bulls-eye-while-blind-folded/

You can also find a lot of helpful info on our site dreamtown.com/blog

Best of luck with your situation!
Web Reference: http://www.dreamtown.com
0 votes Thank Flag Link Wed Mar 31, 2010
In that case, you will not be responsible for the seller's lender's fees unless it has been agreed upon in the Agreement of Sale. I would get with your agent and their broker to have a chat with them. At least the broker should be setting things straight and explaining things your agent could not.
0 votes Thank Flag Link Wed Mar 31, 2010
Sorry if I am confusing you, I am still talking about the seller's lender. I am negotiating with the seller's lender. My lender has nothing to do with this.
0 votes Thank Flag Link Wed Mar 31, 2010
Oh.... you're talking about YOUR lender and not the seller's lender, right? All banks do per diem interest charges based on when your closing date is. That's all legit. Suppose that the closing date is the first, the bank will charge you 30 days interest up front. Now if you have a closing date at the end of the month, you won't see those up front charges from the bank. In either case, you are still paying the same amount of interest in total.

Does that help?

Terrence Charest, e-Pro
0 votes Thank Flag Link Wed Mar 31, 2010
Terrence,

I am being represented by a real estate agent with some prior experience on short sales, but they have not been very helpful or motivated on the sale. We put our original offer on this home in December 2009! The owner was unsure about selling it at that point. Then in February 2010 they decided the short sale was the best option. Mid March we put the first offer in to the bank asking for a mid May closing date. They responded on March 24th asking for an April 9th closing date. We responded by sending them a sales agreement with an April 30th closing date with an addendum requesting no per diem charges to us (the buyer). We JUST found out they declined those conditions. They will agree to April 30th closing date though, but now it is the beginning of April and that still seems too short. In what circumstances will I be personally responsible for paying out-of-pocket per diems?
0 votes Thank Flag Link Wed Mar 31, 2010
Many times closings are getting delayed and extensions have to be given so the Banks are now asking for per-diem, however with good reason they will waive the per-diem charges. That is not unethical as the closing date is many times the sate the seller's negotiator puts on the HUD statement.
Web Reference: http://mypbchomes.com
0 votes Thank Flag Link Wed Mar 31, 2010
They originally gave me 2.5 weeks. It is for an FHA loan and I am a first time home buyer. Around here I have been told that getting FHA loans together takes at a minimum 6 weeks. I just have reservations with committing to the agreement with the risk of out-of-pocket charges to myself on per diems. No one is very good at explaining how banks handle per diem charges. Thanks!
0 votes Thank Flag Link Wed Mar 31, 2010
I hope that you are being represented by either a real estate agent or attorney who knows how to write a short sale contract AND knows how to negotiate properly. Verbage could have been put into the contract which would prevent such nonsense from the lender.

Now whether it's "unethical" or not is up to individual interpretation. I would say that they are risking the sale falling apart.

If you are not being represented by a real estate agent, find an attorney.

Hope that helps,

Terrence Charest, e-Pro
0 votes Thank Flag Link Wed Mar 31, 2010
Mofaust
How long did they give you? I am not finding that an issue here. And if you are close and cannot make it then you file for an extenstion and they almost always will give it. If they give it there is no per diem charge. Banks take a long time and then they go into the hurry up and close mode. They keep the timeline close but not unreasonable. I very rarely see the banks refuse an extenstion here as long as it is a reasonable time line for closing, ask the realtors in your area if they are having a problem with this.
Web Reference: http://www.di4homes.com
0 votes Thank Flag Link Wed Mar 31, 2010
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