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Scott, Home Buyer in Thousand Oaks, CA

Short Sale Ethics

Asked by Scott, Thousand Oaks, CA Thu Jul 3, 2008

I placed an offer on a short sale about 4 months ago. After a few months the sellers agent asked for best and final offer. I went up 5000.00 on the price. I have been by the property since then and notice it still being shown. I asked if they are still accepting offers and was told no, that we are waiting for the bank approval. Today I called the realtor and not telling her who I was asked about the property, because I noticed the listing price went up to my offer price. She said that they are still accepting offers and that the new price is the current offer price. I am wondering since they asked for best and final, are they allowed to keep taking offers. Is this ethical?

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Answers

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Scott:

I specialize in short sales, both listing them and helping buyers get a great deal when buying them. The answers here have gotten a bit off track from your original question. Although I am not claiming to know how all lenders work, I can tell you that all the lenders I work with will require you to have the following information before they will speak with you:
1. Loan number
2. Property address
3. Names, as they appear on the loan
4. Social security number of the borrower
5. AND an authorization to release information, signed by the sellers / borrowers, giving the lender permission to discuss the status of the account with you specifically (and one of the lenders I work with actually requires that there is a password on the auth).

Also, (and I am not sure if this is just what the banks say or if this is really the law, you might want to check with an attorney) the banks say that because of the Homeland Security laws, they cannot release any information to anyone not on the loan or given written authorization by those on the loan. They can't even confirm that the person HAS a loan with them. I have even experienced this when calling a lender about a loan on an investment property that is in my husbands name. He had to give them written authorization to speak with me, and I am his wife in a community property state (what his is mine and whats mine is his state).

The best advice I can give is make sure your realtor is staying on top of the listing agent. There are a lot of listing agents out there who are taking short sales and are inexperienced in how to handle them. The way I get short sales approved on my listings is I call EACH lender EVERY day. Your Realtor has to make sure that the listing agent is doing this or you might end up buying the home from the bank as an REO after they foreclose.

I always tell my buyers, the one with the most patience is usually the one that wins in a short sale. If you are working with an experienced short sale agent, it can still take as long as 60 days. Feel free to contact me offline, through my profile, if you want more information on the short sale process. Meanwhile, have your agent be a thorn in the listing agent's side, hope the listing agent is calling the bank daily, and either wait or keep looking for another property. Most importantly Dare to Dream.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
3 votes Thank Flag Link Fri Jul 4, 2008
Scott,
Very interesting posts. Ethics really don't have any thing to do with this situation. Ethics are part of Realtors work ethic. We take an oath to behave in certain ways dealing with the public, each other and clients. In a short sale the agents represent the seller and the buyer. The seller is trying to get the lender to accept less than they owe. The agents are not working for the bank and the bank doesn't owe anybody anything except it's shareholders.
Highest and best is pertinent to each individual offerer. The bank now has your offer and unless you made a confidentiality clause part of the contract the agent for the seller can shop your offer. The bank is trying to get the loan paid off by selling the asset, nothing more.
Best advice is to be patient and pay close attention to the market in Thousand Oaks. If other banks place REO property on the market, the prices can tumble and you might want to withdraw your offer or ammend the price downward. If the market is showing signs of having hit the bottom the bank might be inclined to hold on for a better price.
1 vote Thank Flag Link Sat Jul 5, 2008
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
Contact
Scott,

Short sales can be very frustrating for the buyer, especially if there is interest from several potential buyers. Unfortunately the home can be shown and other offers can come in until the bank makes a final decision. The bank is trying to recoup as much of their losses as possible, so often times they will allow offers to come in until they complete their process and accept an offer.

Of course for you the buyer who this can be a very frustrating process. I have worked with buyers on short sales and I can tell you that every situation is a little different. The short sale can involve more than one bank (if there is a first and second loan on the property), and this can complicate the process even more. Different banks can have very different guidelines and very different processes in place when handling short sales.

Are you working with a Realtor who is representing you alone? They can help you with understanding what is going on and making sure to stay in constant contact with the listing agent to ensure that information from the bank to relayed to you as soon as possible.

Short sales can be very frustrating at times, but they can be a great deal for the buyer as well.

Good luck!

Lisa Cartoano
Alain Pinel Realtors
1 vote Thank Flag Link Sat Jul 5, 2008
I actually just bought a house via short sale so I do have some experience in this. I never once had to call the bank myself and I was even competing against other offers.

I am not telling you to "cower in the corner" I'm just telling you that being nice is always a better way to get what you want. Being a bully and a pesk might make you feel good but its not going to get you a deal. You can physically call the lender, and good luck to you if you try, but it will only make things worse. In my experience they will only talk to the seller or the seller's agent and you calling them will just slow things down and perhaps make them not want to work with you because you're an annoyance.

Unlike some other people on here, I am just trying to give you some good advice and tell you what has worked for me. Short sales are nerve wracking and often times, as you're apparently finding out, its hard to get the truth from even the seller's agent whom you would think would be bending over backwards to get a good deal through so that they could make their commission. If I were you I would be asking my agent daily how their phone call to the seller's agent went today to make sure they're constantly on the ball. Other than that, you really can't do much but wait (or look for other houses). Good luck!
1 vote Thank Flag Link Fri Jul 4, 2008
To reply to advice given by Kevin & Jovan... As the buyer, trying to contact the bank is useless. They have no business with you and they are legally bound not to discuss someone else's loan with you. Would you be happy if any old person could call up YOUR bank and discuss YOUR payment history/loan balances/etc with them? I dont think so. You need to work this through the seller/sellers agent and not try to call the bank. Doing so will only frustrate the bank further and probably move your folder to the bottom of the pile out of annoyance.
1 vote Thank Flag Link Fri Jul 4, 2008
Hi Options Realty,

I apologize if I misread your answer. However, I also believe you misread my answer.

If you read my answer carefully, you will find that my disagreement with your statement is not that the bank has the final say - that IS my closing statement.

My disagreement is your specific statement of "a bank will OK one offer, only to renege later".

My point is if the bank OKed one offer, there should be a formal short sale approval letter and they can not renege what's written on the paper because that's what we will be using to do final negotiation and close.

If there is no formal approval letter, I don't see Bank has formally OKed the deal, they are only negotiating, so yes, anything can change until they issue a formal approval letter in writing.

Sylvia
1 vote Thank Flag Link Fri Jul 4, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
Contact
Scott:

The short answer is, the SSA or Short Sale Addendum, which should be submitted with all offers on a short sale property states, at Paragraph E. "OTHER OFFERS. Unless otherwise agreed in writing, Seller may continue to market the Property despite acceptance of Buyer's offer, and to present to Short-Sale Lender(s) any additional offers that are received on the Property."

So, unless you received an agreement IN WRITING not the continue to market the property from the seller, the Listing Agent can continue to market the property in any fashion they see fit. This is why it is important that you work with a realtor that knows the short sale and/or REO market if you are going to make offers on those types of properties.

Even though the SSA allows the submittal of other offers, my expeience is that the banks want to work on one offer only, as long as it is reasonable. I take backup offers, but advise the realtors submitting these that there is already an offer in to the bank and they are in backup position. Then if my first offer withdraws or the bank comes back with a price my first offer does not want to accept, I can quickly get them another offer to work on.

Have your realtor call the Listing Agent and get an updated status on negotiations with the bank. Remember, in a short sale, the person with the most patience is usually the person who wins. Dare to Dream.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
1 vote Thank Flag Link Fri Jul 4, 2008
Here are some of the mechanics:

Legally the bank has no say over the property as title to the property still is in the name of the Trustor. The Trustor has the authority to enter into the listing agreement and sell the property. Short Sales create a strange twist, since the property is being sold short now the Trustor has to hope the Beneficiary (the Bank) will agree to take less than what is owed. Keep in mind the Beneficiary has no authority to transfer Title to the property so their influence is limited. The Beneficiary can agree to accept less or refuse to cooperate and force the Trustor to make payments on time or face possible foreclosure (after default) through a Trustee’s sale.

Until the Trustor signs the Purchase agreement there is no contract to enforce. If the Trustor signs the purchase contract and your try to sue in court to enforce the contract, the Beneficiary does not have to accept less than what is owed and you would have to pay the full amount of the Beneficiary’s claim if you were to prevail in a civil proceeding.

Now looking at your situation, the Beneficiary has nothing to gain at this point to move forward on your offer if others are coming in higher or they believe that others may come in higher. The Trustor is not going to sign the purchase agreement without assurances from the Beneficiary that the Beneficiary will accept a short and the Beneficiary is out to cover their asterisk not yours. Thus this creates a situation that the offering price can move upward during the listing period until the property is no longer short or at the time the Beneficiary is comfortable with the amount of their loss.

Ethics really aren’t the issue here, the liens against the property are more than the sale price. There is not an ethical rule that states a lien holder must accept less than they are owed just because there is an attempt to sell short or that an offer has come in and some negotiation has taken place. Short Sales are nebulous from the start, everyone is trying to mitigate their losses so what is happening with you is not a surprise.

Last, Short sales are not easy and can be frustrating. In the beginning of June we had 225 escrows and by June 30th only 93 closings on single family detached. N.A.R. research has shown that only 1 out of 23 short sales are closing escrow.

Scott, this was a fantastic question and I will post a video blog on the topic soon.
Web Reference: http://www.homebuysblog.com
1 vote Thank Flag Link Thu Jul 3, 2008
Hi Scott,

I have gone through the same thing you have gone through and was frustrating and I felt my client was treated very unfairly. However with another client everthing went smoothly and we closed on a shortsale. My suggestion is to find more than one home and to place multiple offers. It is a number game. If you disclose to everyone that you have a pending offer on other homes you will be OK. You will increase your chances and indirecting making lenders be aware that there are other options for you. That may make them respond faster.

Sincerely,

Homa
Broker Associate
Prudential California Realty
0 votes Thank Flag Link Fri Jul 4, 2008
You do have the right to call the lender. Don't listen to people who have no idea what they are talking about. Ideally your agent should be doing this, and/or the agent representing the seller/bank should, but if no one is doing their job (which all too often seems to be the case) then you have every right to stand up for yourself. How anyone could say "you don't have any right to call the lender" is just beyond me. Is there some new law that has been passed? Remember that this is the internet and anyone can post things on here... even people who have no idea what they are talking about. Don't live in fear! Stand up for yourself! Don't be "nervous."
0 votes Thank Flag Link Fri Jul 4, 2008
But no you dont have any right to call the lender. You are buying from the owners of the house, aka the sellers. The bank does not own this house and cannot approve your offer. They are soley in the mix because the seller is asking them to forgive the seller's debt. The buyer has nothing to do with the bank and its inexperience like this that is slowing down the whole process for everyone. You should be nagging your agent, who should be nagging the seller's agent who should be nagging the bank. Thats it!
0 votes Thank Flag Link Fri Jul 4, 2008
Also, I am not sure exactly where we said to call the bank and ask about someone's "payment history and loan balances." We are talking about standing up for yourself and having the nerve to ask these lenders to actually use their brains and consider your offer. And asking why they didn't take your offer for the price that they eventually made the asking price.

Don't cower in the corner and take advice from people like "Nervous." Doesn't the screen name say it all?

You have every right to call the lender, especially if they have ignored your offer. Do you really care if you frustrate them? Haven't they frustrated you?
Web Reference: http://www.keyserhomes.com
0 votes Thank Flag Link Fri Jul 4, 2008
And not contacting the bank, or at least having your agent do it, will keep you exactly where you are! Which, judging from your initial question, is a state of limbo that no one should be forced to endure!

Here's another suggestion: Ignore short sales altogether and look for listings from real people who need to sell their homes. There are a lot of these listings out there, and you can deal with a real person. If you find a listing that has been on the market 90 or more days, and the seller needs to sell, you can often get yourself a very good deal. This has the added bonus of inflicting more pain on the banks that are ignoring decent and realistic offers on short sales. And you will sleep easily knowing you didn't interrupt the lender's three-martini lunch and golf outing.
Web Reference: http://www.keyserhomes.com
0 votes Thank Flag Link Fri Jul 4, 2008
Your situation unfortunately seems typical of people dealing with short sales. We have posted on this several times. Lenders got us into this mess by giving anyone with a heartbeat a loan. Now, instead of making the situation better, lenders have made the situation worse by making it almost impossible to get a loan, and on top of that by not using their brains and selling these short sales in an intelligent manner. We have seen this so many times... people make realistic, decent offers on short sales and lenders ignore them for months. They hire real estate agents who don't live in the area to represent these properties, and then when they do get back to the buyers after several months they are surprised that the buyers have moved on to other properties. Then the lenders have to lower the price more. Then when they get realistic offers on the new price they will ignore them for a few months and repeat the process. It just makes absolutely NO SENSE why these lenders can't wake up and actually sell these houses when they get a decent, realistic offer. It almost seems like they are TRYING to lose money instead of make it.

Here is what I would suggest: Go up the chain of command. Find out who the bank/lender is that owns that house and keep making phone calls until you find someone who actually makes decisions. It will be difficult, because you will find that these guys are probably out to a three-martini lunch or puttering around a golf course somewhere while they lose money, but be persistent. Pound away at the agent who is representing the property and ask WHY they raised the price to the price you offered, instead of just taking your offer. Make them give you contact information for whoever they are dealing with at the bank. Keep calling that person until they get back to you. Be persistent. You might have to speak their language, so offer to take them on a three-martini lunch or to pay for their daily golf excursion. Sooner or later you will prevail, or will at least have some fun in the process.
Web Reference: http://www.keyserhomes.com
0 votes Thank Flag Link Fri Jul 4, 2008
Short sales are very tricky. There is a short sale addendum that allows for them, the banks, to take their dear sweet time. Time is not of the essence, as in the normal sales contract that we use in Arizona. They can continue to take offers. The short sale is MUCH different from negotiations with an individual owner. Til the banks sign off on all documents, they can continue to take offers. They are looking for "highest and best". What we realtors dislike immensely, is that the home continues to remain in active status, til the bank signs off. It can easily be 2-4 months of just waiting, then they take another offer.

It is also very important to have a realtor with a HIGH threshold for frustration, as the banks will ask for the same paperwork over and over. Get yourself a tenacious negotiator, someone with lots of experience in short sales. Ask that they produce those address that they have had close. Many agents do not even want to deal with the short sale.
0 votes Thank Flag Link Fri Jul 4, 2008
Sylvia, I think (at least in my experience) that the banks make it excruciating for all involved- their initial acceptance (not in writing- verbal) is simply not reliable. Because it's a relatively new phenomenon, it's easy for a Realtor to accept a verbal OK, convey it, and have it not come to fruition.
Thank you for your apology- it is very appreciated!
Web Reference: http://optionsrealty.com
0 votes Thank Flag Link Fri Jul 4, 2008
Sylvia, if you review my response, it's pretty clear that banks are the final answer- please do not indicate an untruth from Options without certainty first- thank you. The "final" acceptance was not provided in writing to this buyer, and short sales currently have approx. 1 in 10 success rate. Not good odds. The price after foreclosure is often MUCH LOWER.
Web Reference: http://OPTIONSREALTY.COM
0 votes Thank Flag Link Fri Jul 4, 2008
By the way, what Options Realty said below is not true - when a lender really agrees with a short sale offer, you should received a written acceptance from the lender. That written acceptance has details on the terms and conditions the lenders will accept. That can be different from what the seller accepted.

In short sales, the lenders have the final say.

Sylvia
0 votes Thank Flag Link Fri Jul 4, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
Contact
I have to agree with you - I have been very frustrated by some listing agents who handle short sale and REOs, Really, all they have to do is to pick up the phone or email and let people konw about any status change.

Sounds to me that in this case, the seller just does not want to deal with counter offers back and forth, and just want the best and final offer from whoever who submits an offer.

Being a short sale, the sold price will be much less than the money the seller owned the lender(s), the more you offer the better chance the offer will be accepted by the lender, so we usually continue to accept offer until the lender agrees and send a short sale approval to a specific price and/or offer.

The fact that YOU submitted your best and final offer, does not mean it's a price the lender will accept; also does not mean other people's best and final offer is not better than yours.

I think what is really wrong is the fact that the listing agent told you something that's not true - that they are not accepting any more offer, while they still are.

Even if your offer was rejected by the lender and she started to accept offer again, the agent should have called your agent and let you know that's the case so you have the opportunity to up your offer or start looking at other homes. This is just the right thing to do.

Sylvia .
0 votes Thank Flag Link Fri Jul 4, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
Contact
In my experience, banks are the absolute WORST at negotiating a short sale. You're better off waiting until the property forecloses. While there may be a competent listing agent, a bank will OK one offer, only to renege later. That the agent isn't being up front with your offer simply means that they are representing the seller in an effort to get the best possible price, but there is no excuse for not relaying all pertinent info (e.g., "the bank is not cooperating- they still insist on other offers."). Ethical? No. Reality with "short sales"? Yes.
Web Reference: http://optionsrealty.com
0 votes Thank Flag Link Fri Jul 4, 2008
Scott,

Article 1 of the realtors code of ethics states:

"When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly. (Amended 1/01)"

Taking your words at face value I would say that the agent has violated article 1 because they lied to you about taking the property off of the market. My recommendation would be to have your agent speak to the listing agent about this.

Cameron Piper
Web Reference: http://www.campiper.com
0 votes Thank Flag Link Fri Jul 4, 2008
I think that short sales are a waste of time. I was lied to for several months, getting the same run around as you. In the end, the bank foreclosed on the property anyway and put it up for auction. You don't have a contract for sale until the bank approves your offer. Therefore, the seller can continue to accept new offers to throw at the bank in hopes that the bank will actually approve one. Save yourself the drama and withdraw your offer. You can get the property for less money when the bank takes ownership and buy it as an REO.
0 votes Thank Flag Link Fri Jul 4, 2008
Scott,
Short sale is usually priced below market because we know that the process takes time and by the time you have an approval, the value is already low. To be honest with you, you need an expert agent to monitor the value and fight for your offer. I am closing a short sale right now that that had an asking price of 350k in Norwalk, the listing agent told me that the bank had an appraisal and that they couldn't sell it for the price I am asking. I ran my own comps (CMS) and sent it the agent to send it with my offers. The next day I had an answer - my offer was accepted. If you put an offer on short sale, don't lose your interest. Ask your agent to keep checking to see if there's an approval. Not checking it for months probably let the other agent know that you don't want it anymore, therefore they need to keep doing open houses to get more offers.

Good luck,
Charita King 562-276-8681
0 votes Thank Flag Link Fri Jul 4, 2008
Yes all foreclosures, pre foreclosures, short sales have drama.
http://www.lynn911.com
0 votes Thank Flag Link Fri Jul 4, 2008
Scott,
The listing agent should not alter the listing price AFTER receiving contingent offer(s), unless they have written lender approval. Instead of YOU offering your highest and best, you should require a counter-offer in writing from the seller's lender. Yes, the listing agent can still market the property and accept BACK-UP OFFERS. Did you sign a C.A.R. Form SSA? Just last week, another new client contacted me to represent them on a short sale offer. I specialize in assisting both buyers and sellers find clarity in today's uncertain marketplace. I now have 4 pending offers out, all of them happen to be on short sale listings. I also have an additional dozen offers waiting for lender approval for one investor client. I also use a "Confidentiality Agreement" with my offers. I am probably one the few agents in Ventura County that does. Wouldn't you feel more confortable if your offer wasn't being used to leverage a higher offer? Enjoy your 4th of July!
0 votes Thank Flag Link Thu Jul 3, 2008
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