You are very welcome ChicNotGeek. I felt your frustration earlier and I could almost feel your lighter spirit in your last post. By all means take a look at the other properties in the subdivision and see if something there might work out better for you. A word of caution though is that you have to be looking to stay in whatever you buy for a good long time if it is in an area where foreclosures are increasing. You might want to look into why there are so many foreclosures happening (maybe a huge tax assessment increase or something).
Consider this, if you can get a property even $1k less than this one, it would wipe out all the costs you incurred. Also you would actually be saving a lot more because the 1k would have been financed for 30 years which would have cost you like 3 times as much (including interest) to pay off.
As I said before, you have a goal. Do not expend too much of your energy on the incompetence of others..it would be a total waste. You seem to be a very a proactive person so channel your actions towards finding your new home and go for it. Once you close and are settled in, this will all seem so very unimportant. Remember, there is always a reason...
Good luck and I wish you the very best.
PS Great post, Grace. In our situation and what I am starting to see and hear about, the First Lienholder actually (go figure) never even knew there was a second lien because their foreclosure Attorney apparently didn't do a thorough search prior to filing the foreclosure and didn't pull up the other lien. It was when we requested clear title halfway down the mortgage process that the scramble began. I'm actually at the point where I'm thinking of requesting clear title on short sales before we even submit the file to underwriting, so we avoid these kind of fiascos in future. So very frustrating for everyone involved...

Hello Chic,

Unfortunately, I have to agree with my colleagues and with Thomas McCarey, in particular. Normally, the procedure for short sales is:

1. Offer made to sellers
2. Offer accepted by sellers
3. Offer approved by all lenders
4. Buyers begin investigations, inspections and obtain reports
5. Buyers remove contingencies
6. Loan is funded
7. Escrow is closed

Until steps 1-3 have been completed, I do not usually recommend that my buyer clients begin any inspections. This way, should there be a problem in getting lienholder(s) approval(s), the buyers would not have expended any funds toward costs that could have been avoided. In the future, it might be a good idea to wait to do any inspections until after you are assured that all lienholders will agree to the sale.

The upside to this is, as Nike pointed out below, the situation is not completely lost. If you feel it is appropriate, your offer of financial assistance (even as small as a few thousand dollars) can be all that it takes to get the second lienholder to accept the offer. Otherwise, as Nike noted correctly, a foreclosure wipes the second lienholder of the claim and that is NOT what they would prefer.

Have your agent talk with the listing agent and see if there is any "participation" that you can make that might help the second lender approve the sale.

Good luck!!

Sincerely,
Grace Morioka, SRES, e-Pro
Area Pro Realty

Thanks Nike,

Not that I want anyone else to go through this, but it's comforting to know that we're not alone. My husband and I decided against chipping in any more money to the 2nd lien holder because our rationale was what was to stop the 2nd lien holder from 'demanding' another $3K, and then another $3K, etc etc ... AND we had already agreed upon a sale price, and got pre-approved for a certain amount. And it was after that, that all of these shenanigans started happening. Had we known what the lien obligations were from the get go, (hindsight is always 20/20, right?), we may not even have put an offer in on the house. We almost kind of get the feeling that the current owners/sellers are just trying to get out from under a house that's lost value, instead of them truly being in financial straits. We've also since learned that 4 other homes in the development have gone into foreclosure/bank-owned, and their prices are actually LOWER than the house we bid on ... so it almost seems like we're not getting such a good deal after all. Anyway ... we'll figure it out ... thanks for all of your feedback, and letting me vent a little!

Hi ChicNotGeek,

I just had a situation exactly like yours that closed on July 8th. I am so tired of these mortgage companies not doing thorough searches before foreclosing and signing off on contracts to sell properties in short sales. My clients actually ended up negotiating with the second lien holders and chipping in another $3,000.00 to close on their loan because they were paying $295k for a property that appraised at $375K so it was really a no brainer for them to pay $298K to get it.
Legally though, the mortgage company had decided to refile the foreclosure and include the second mortgage at that point to extinguish their claim. Their argument was that it would cost them $500.00 to refile the foreclosure so they were not going to pay the second lien holders more than that. (Ha ha). What my client's attorney was able to negotiate initially was for the Mortgage company to refile, get the second lien off, then give my buyers a right of first refusal (or first option) to buy the property. This might be a good way to go, in your case. Get a good Attorney and have them negotiate with the bank so you get first option once they refile the foreclosure (which I'm sure is what they will have to do). Also inform your Lender so they can ensure that your loan stays active. I hope you have a good Lender because your Loan Officer will have to coordinate all this. I spent about two weeks just calling back and forth to "keep the peace" during my client's process.
Don't give up hope just yet, you might still be able to see this through...Good luck.

Chic,

It's an interesting point that you raise regarding the agent having ownership interest in the property. Information such as this is supposed to be disclosed at the outset. Here's the rub though, the realtor's negligence has absolutely nothing to do with the costs that you incurred as part of your due diligence. It surely may be something the realtor's board may like to know, but just as the costs my buyer incurred last week to have a Bucktown home inspected would not be returned had the inspection yielded intractable problems, you have no recourse for monies to be returned because the ratio established by the lien holders has not been met to qualify this transaction to close.

Here is what I know to be the dirty secret about short sales, all lien holders have to waive their rights in order for the short sale to be approved. Rather than cast primary or secondary lien holders in a negative light I think it is important to recognize that we are talking about real dollars that were lent and now are being asked to be converted on a pennies to the dollar basis. Not necessarily the way I want to be recompensed, and not the way the second lien holder wishes to be treated in your circumstance as the seller is roughly $40,000 shy of the threshold demanded by the lien holder.

But as I arrive at this juncture what puzzles me is this - was this ever an executed contract? If the second lien holder hasn't signed off, how was a contract approved? And if a contract wasn't approved, why was an inspection undertaken?

I suppose at the end of the day, it's irrelevant. And I suppose the only salient point in this circumstance as with every real estate transaction is a bit of Latin that most of us know - caveat emptor.

Better luck with your next transaction.

Tom McCarey
The Real Estate Lounge Chicago with @properties

Thanks all for your feedback.

In the process of the seller negotiations with their lien holders, the sellers have already offered an extra $3K to their 2nd lien holder to close the deal. (They are about $40K away from what the 2nd lien holder is requiring, which is why I don't think this is going to successfully close.) If they have enough money to do that, and then the deal doesn't go through, we should get reimbursed since their banks don't feel that they have enough of a financial hardship case to go through a short sale. The sellers also fixed two things that the home inspection revealed at their own cost. How much financial hardship are the sellers really suffering?

Why shouldn't we be held harmless because of their inability to make a financial hardship case? We did everything right; we got pre-approved, started the mortgage process and was ready to close within 7 days post-bank approval, got the inspection, got the appraisal, and were very very patient. It just doesn't seem right. If this is the 'cost of doing business', what then prevents every seller from claiming a short sale to get a free inspection and appraisal at the inconvenience of an unsuspecting potential buyers?

Secondarily, and this has always bothered me, but it wasn't disclosed until well into the process after the contract was signed that the sellers real estate agent is also the OOR for the property.

Stacy and Kipp are right on - part of getting a ridiculously low price is accepting the risk that the deal won't go through. Next time you could try to negotiate that in your contract with the seller. Someone going through short sale not likely to cough up extra money but you never know until you ask. Remember everything is negotiable.

Eric Marcus ABR, CRS, CPS
Certified Negotiation Expert
ESM Realty
Your Real Friend in Chicago Real Estate
773-244-1110

Agreed... that's the cost of doing business

Thats the cost of due diligence incurred by the buyer that will not be reimbursed I'm afraid.