Home Buying in Denver>Question Details

ehesting, Home Buyer in Denver, CO

can you take any legal action on a short sale that will go into foreclosure before you the bank approves your offer.?

Asked by ehesting, Denver, CO Fri Jan 18, 2013

i have had an offer on a short sale since 11/2/12 (house scheduled to go to foreclosure 1/23/13). I have had loan pre-approved since dec. Last week the BPO was complete and the negotiator was to meet w bank to make sure all was in order (meanwhile the foreclosure date gets pushed to 2/13 - so i thought to allow time for me to close on the deal). As of yesterday 1/17/13 - the foreclosure date is now 1/23/13. They stated today via email that pushing the date back to 2/13 was an "error". Can i take any legal action here or on the fact that i have had a valid offer since 11/2/12 with pre-approval and now may not get "my" house because it will go into foreclosure?

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Carole Higgins’ answer
Clarification for other brokers that don't know me I held an employing brokers license in Denver for the last 10ish years- having relocated to Suttons Bay Mi I put it on ice for a while but I am well versed in CREC rules and practice
0 votes Thank Flag Link Mon Jan 21, 2013
Well you got a lot of answers here. Here is an answer based on experience. The buyer can not take action as the "contingency to get short sale approval is a sellers contingency." If there was a specific performance clause you might have a chance- but there is another option. I have represented 2 short sale sellers who successfully went through the county court systems and requested emergency temporary restraining orders (TROs in legal speak). In both cases I went with them to the court for moral support and also to make sure if they did get the restraining order it was properly taken to the public trustee so that the sale could be stopped. Both of these sellers had very good reasons for not being able to tolerate a foreclosure in their credit file and unusual circumstances as to how they got into foreclosure int eh first place. Absent this motivation most sellers will be unwilling to go thru the hassle but you could ask them. Since the foreclosure sale date is Weds I am guessing you are in Adams county which is even more of a pain as the court and the trustee's offices are not all that close together.

If the sellers are willing this might be an option for you but they will probably need an attorney to draft the legal filing and even then it is not a guarantee that they will be able to get their motion granted. Another option for you might be to get a hard money loan for 3 months and go bid on the thing yourself at the foreclosure sale. Neither of these are great options and neither guarantee you the home but it gives you some ways to pursue the property. If you need help with the hard money loan piece or bidding at the trustee sale you might contact Aaron Lebovic, I imagine he will come up if you google him but if not contact Jerry Spaeth at First Integrity Title Agency and he should be able to help you find Aaron. Last but not least an easier option is to simply wait for it to make its way through the foreclosure process and try to buy it as an REO from the bank. Hope some of this helps.
Best of Luck out there!
Carole & Greg Higgins
0 votes Thank Flag Link Mon Jan 21, 2013
That's really helpful, thanks for the insight!
Flag Wed Jan 23, 2013

This is not a question that any real estate broker can answer for you. You must seek counsel. Best of luck to you.
0 votes Thank Flag Link Sun Jan 20, 2013
As you can tell by my answer below...I agree with you. You can also see lots of brokers giving legal advice through the post. Not sure what they are thinking. There is a reason they are called "law"yers.
Flag Mon Jan 21, 2013

Contrary to the Bank of America apologists here on Trulia, this is often the case with them in particular and other notorious banks. Let us know what bank it is. What you have is a contract with the seller and a pre-approval with your lender. Sadly, this is not 'your' house. Not yet and possibly not ever. The bank has every right to cancel the sale to you and send it to foreclosure sale at any point in this process. Again, sadly I have seen them do it with no explanation whatsoever. If the listing agent has access and communication with the bank you may get an answer. Often these banks do what I call 'going into the witness protection program' by disappearing and not answering any emails or phone calls for days and even weeks at a time.

Short sales are a not easy and not for the faint of heart. Also not meant to put your whole heart into it due to all of the potential problems that can occur. A lot will depend on what the BPO comes in at. Sometimes higher than the perfect home next door. I wish you the best and wish I had better news for you. I have seen them send homes into foreclosure after all negotiations are done and have given 'verbal approval'. I have also seen them postpone the sale for a week at a time until the closing is done. There is not a consistent 'normal' way things are done with short sales. And there is really nothing legally you can do to force the bank to sell this home to you at any price. You should know more this coming week. All the best and best of success on your purchase.

Robert McGuire ASR
Your Castle Real Estate
Direct - 303-669-1246
0 votes Thank Flag Link Sat Jan 19, 2013
There is no legal action to take as, unfortunately, the bank is not obligated in any way to accept a short sale on any property. However, a bank negotiator can sometimes be reasoned with, especially if your offer is reasonable and at, or close to, fair market value (FMV) It would definitely be worthwhile for the listing agent to contact the bank's short sale negotiator to request that the foreclosure date be extended to allow the offer that you have submitted to be evaluated.
0 votes Thank Flag Link Sat Jan 19, 2013
P.S. Another broker below has indicated that the buyer and seller do not have an accepted contract. THAT IS ENTIRELY FALSE. The buyer and seller do have an accepted contract (not a mere offer) in play. The CREC Short Sale Addendum that we are required to use under state law for all short sale transactions, modifies the contract making it expressly contingent on Short Sale Approval by the lien holder(s). It has the same effect as any other contingency (inspection, appraisal, financing). The lien holder is no more required to approve the contract than an appraiser is required to appraise the property at the contact price, or the new lender is required to make the loan for the buyer. A contract is never a guarantee of sale/purchase since most contracts must resolve contingencies that could cause the contract to fail. That is why some buyers are not good candidates to attempt to purchase a short sale, which is why short sales are generally sold at discount to market value . . . lower demand for the short sale property due to the practical issues like the ones this buyer is discovering.

Lien holders will never consider a short sale contract if the offer has not been executed by both the buyer and the seller. The seller has ultimate control in whether to accept an offer, just like in a regular sale. I'm not a lawyer, but as a licensed Colorado broker I am required to know this.
0 votes Thank Flag Link Sat Jan 19, 2013
IMHO: Short sales are contingent upon Lien Holder Acceptance. your financing approval and BPO are steps towards a successful transaction, not an approval by Lien Holder. Is the foreclosure being taken by the public trustee or by the Sheriff? Important distinction and could directly affect the transaction. This is not your house; you do have a contract and certain legal rights. You can consult an attorney, though the expense is yours per contract. Additional resources on my blog on short sales: http://www.boulderrealestatenews.com/?p=878 . On a personal note: A good Buyer's Agent is going to explain everything you are asking and get this transaction closed. Foreclosure dates are moved around all the time.
0 votes Thank Flag Link Sat Jan 19, 2013
P.S. if you are not a Colorado broker, please do not post on this question. Colorado is the only state in the country that has a public trustee system of foreclosure and our state laws are highly unique (and faulty) in this regard. Our short sale practices here are in large part based on that fact, and likely do not resemble those in any other state. I am not a lawyer but if this buyer and seller signed a CREC contract and Short Sale Addendum, this buyer would be wasting their time and money to attempt legal action against a bank, or against a homeowner who is losing their property in foreclosure, for a short sale that didn't go through.

In a foreclosure situation, it is truly the seller who is suffering. A buyer can simply go buy another house, but the seller is LOSING THEIR HOME. I wish those in my industry would learn about foreclosure defense and help their clients save their homes rather than pushing short sales as a cure-all. Helping a client save their home does not pay us brokers anything, as a short sale does, but I can tell you it's the right thing to do, and it earns tons of referrals. There are cases where a short sale is the better alternative to helping the client keep their home, but it takes an experienced and caring broker who is not just looking out for their own commission check to know the difference. I have been doing short sales in Colorado since 2004 and I am now to the point that I refer my clients to a foreclosure defense lawyer and/or a loan modification lawyer to explore those options BEFORE I even attempt a short sale. We sell the American Dream, which has become a nightmare for so many people. It's time to fix our laws and keep people in their homes whenever possible.
0 votes Thank Flag Link Sat Jan 19, 2013
I am so happy to hear your response above, I wish everyone felt this way in our business, I know I do! THANK YOU!
Flag Sun Jan 20, 2013
You should consult with an attorney who will review the specific Agreement. Have you tried to ask for a 30 minute free consult with a real estate attorney? Some firms will offer the first 30 minutes for free to help you decide if you should proceed with engaging them in the matter. This is usually enough time to assess your next move while getting free legal advice. http://www.naplesrealestateguys.com/
0 votes Thank Flag Link Sat Jan 19, 2013
Since your contract to buy is contingent on the bank approving the short sale, you agreed up front that you might not get to buy the house. Read the Short Sale Addendum that you signed when your broker prepared your contract.

It is up to the owner of the property to take legal action to challenge the foreclosure, if the owner believes they have been harmed by the bank's actions. Here in Colorado, challenging foreclosure is very difficult under current state law. Representative Beth McCann will be introducing legislation soon to improve the current foreclosure law. I encourage everyone to write their state representatives and demand they pass this legislation. Rep. McCann introduced similar legislation last year, but the banking industry quickly defeated it at the State House. It needs all the support it can get if we are to stem the tide of foreclosures in Colorado and put our state economy back together in a lasting and meaningful way.
0 votes Thank Flag Link Sat Jan 19, 2013
What is the basis for your Lawsuit?
What have you lost?
0 votes Thank Flag Link Sat Jan 19, 2013
All good answers below, and I feel your pain. Short sales are never easy. I'm curious though....What sort of "legal action" are you wanting to take? As others have said, we are not attorneys and cannot give legal advice. And your agent should have explained to you that short sales are a risk. Sometimes they just don't happen and the property goes into foreclosure.

You can't really sue anyone...and what would be the point? Do you really want the property so badly that you'd hire an attorney and try and force the seller to sell? Even when you've likely signed a Short Sale Addendum that clearly states you need bank approval?? It's a shame when things don't work out the way people want it to, and they look for ways to "take legal action" to get what they want. Just doesn't make much sense to me, and probably not worth the time, money and hassle.

Talk to your REALTOR and have him/her contact the bank's negotiator or asset manager to see if the sale date can get pushed out.
0 votes Thank Flag Link Sat Jan 19, 2013
I am sorry to hear this; that sounds like an extremely frustrating situation. I like to say short sales are somewhat like roller coaster rides; sometimes when the ride is over, you look back and realize it wasn't a fun ride...other times, it ends in with you feeling like it wasn't so bad and you'd ride again. If you think short sales are fun, then there is probably something wrong with you. :-).

A bank considering a short sale simply makes a business decision based on several factors. Such as, will they make more money, or rather, lose less money, if they make a claim on the mortgage insurance policy and foreclose on the house. Or, will they lose less by short selling the house. This is a rather simplistic explanation and there's more to it, but the point is, how do they lose the least. It may be that they have figuered it will cost less in this case to foreclose on the house.

In Colorado, Since the short sale lender isn't a party to the buy/sell contract, they are not bound in any way to the terms the buyer and seller have agreed to. If they approve of the deal the buyer and seller have made, the deal moves forward, if they don't approve of that deal, they have the option to proceed with foreclosure, or take some other option.

You have a couple of alternatives from my perspective; you could bid on the house at the foreclosure sale if you have the cash, or if the house doesn't sell to an investor at the auction, the bank will put it back on the market under their control and you can have another shot at it then. By far, most properties at auction go back to the lender and get relisted with a Realtor later.

Try to ascertain why they have chosen to proceed with foreclosure. When they say there was an "error", it could be any number of reasons, but could also be as simple as they are missing some paperwork that they must have in order to postpone the foreclosure sale.

I wish you luck and hopefully you'll let us know what happened; you can never stop learning in this business, that's for sure!

Now for my disclaimer...ah hem, THIS IS NOT LEGAL ADVICE AND YOU MAY NOT RELY ON THESE STATEMENTS FOR YOUR PARTICULAR SITUATION. I don't know all the details of your specific siuation so I am speaking generally. Consult your legal counsel for specific legal advice. ...Oh yea; always remember, free advice is worth what you paid for it.
0 votes Thank Flag Link Fri Jan 18, 2013
Unfortunately, you cannot take legal action and just because you have loan pre-approval just means you are a qualified candidate and that your offer was accepted by the seller. If the BPO comes in really high or the property has a lot of equity, the bank may not want the short sale to go through. If it does end up going to public auction on 1/23/13 you can go to the auction and bid on the property that way but you will need to do so having the money in place. Good luck and hope it works out.

Nina Kuhljavascript:{}
Web Reference: http://www.kuhlnina.com
0 votes Thank Flag Link Fri Jan 18, 2013
Hi Ehesting. As I am not an attorney, my understanding would be that there is no legal action that you can take as there is only an offer, not an accepted contract in play. If you have additional legal questions, I would contact an attorney.

Also, the fact that the auction date is set for 1/23/2013 really doesn't mean much with short sales-it happens quite often. Generally, the bank must make an offer by Wed, if they don't the sale is continued for a week at a time until either the bank pushes the sale date out or actually makes an offer.

Also, the sale can be pulled up to 9:59am on the sale date. So, I would advise you to talk to your agent, and let them know of your concerns.

Good luck!

Brendan McCaw
Keller Williams Denver Central
1777 S Harrison St #1100
Denver, CO 80210
0 votes Thank Flag Link Fri Jan 18, 2013
Any legal questions must be referred to an attorney. Real estate brokers like those of us here on Trulia are not allowed to answer such questions.
0 votes Thank Flag Link Fri Jan 18, 2013
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