If foreclosure procedure is initiated on a short sale transaction, do I have any legal rights or is the contract considered null and void...

Asked by Gregg, California Sun May 1, 2011

after conveyance of the property to the bank? CALIFORNIA Bank approved short sale property, offer made, purchase agreement and addendum accepted. Listing agent hasn't provided seller's signed copy or the short sale approval letter. Property is subject to foreclosure any time on or after May 22, 2011. The sellers and listing agent are dragging their feet, which might not allow for enough time to close the loan. Can I sue for specific performance and cloud the title?

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Gregg, Home Buyer, California
Tue May 10, 2011
Thanks for all the responses!

The property had originally been approved for short sale, but the previous potential buyer was declined due to DTI issues. Based on the previous appraisal, the negotiator had no issues with offer price. BPO is fine, but the bank has requested a 2nd appraisal, since it has been 6 weeks since the last. There is enough equity in the home for the bank to recuperate all of their expenses, allow $3000 to the sellers, and still have additional proceeds from the transaction. Assuming that the appraised value has not decreased by more than 7% in the past 6 weeks, these figures should still be applicable.

There IS now a purchase agreement signed by both parties; we are now awaiting only the short sale approval, which is expected to take up to another week. According to the listing agent, the sellers' lender will extend the date for COE, and we have already taken steps to amend the purchase agreement to further extend contingencies, inspections, and loan closing date.

It seems that things are now progressing satisfactorily, but there is still a slight concern that the lender will not approve the short sale. There is also a little bit of suspicion, as the listing agent has not been cooperative at all.

Having already obtained a Right of First Refusal, my next question would be:

IF the listing agent hypothetically received a higher offer, could they be working on another transaction without telling us, then present it to the bank and complete that transaction, at which point, there would be no legal recourse to obtain the property? THIS question goes back to my prior inquiry about specific performance. Lis Pendens would not be valid after reconveyance of title.

Should this occur, then I'm guessing there would only be rights to sue for damages and, perhaps, file a complaint to have the agent's licensure suspended or revoked. Is a mortgage processor and underwriter, I had seen many questionable transactions in the early 2000's; During the latter part of the decade, as a Title Clearance specialist, I also saw many anomolies from people trying to get "creative" in transferring title. These occured after properties became REO. I had never had a case disputed after petitioning to have a Lis Pendens expunged. I've also never had a case such as this, or one that I was aware of, that had similar issues withn a short sale.

I don't want to appear to be too paranoid, but I have a vested interest in this property that I don't want to lose. One might suggest that I'm jumping the gun, but timing is everything. The idea to initiate litigation and file Lis Pendens was intended to protect that interest.

As it stands, I am pretty much at the mercy of the listing agent and must hope that they act in good faith. Otherwise, all parties will lose.

Again, thank you to everybody who has contributed with answers. I guess it's difficult to give a specific answer when one doesn't have the complete details. As every case is different, I hope that the responses are applicable to other situations and can at least provide leads for prospective borrowers to follow. As I had faith that everything would transpire according to agreement, I opted against taking action while the window of opportunity was open. Now, I can just hope for the best. Pardon my French, but "Wish in one hand, $hit in the other, then see which one fills up first."

After many hours of legal research and a lot of good feedback, I still followed my heart and the advice of my agent. To sustain control of a situation, one must pull out all of the stops to secure their interests. I think the best action for people to take is to consult an attorney if their puchase is important enough to warrant it.
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Tue May 10, 2011
Gregg

Talk to a lawyer. Your offer must be way less than the BPOs the Bank feels they can
do better foreclosing, and then re listing it on the market and selling for more.

The BPOs are done by agents from the area you are looking in. They are paid $150
to done one. In a short sale there may be 2 loans, about 4 BPOs are done and also
an appraisal if the bank deems it fit.

If one of the lenders is Chase run dont stop, do not walk. If you have money
go spend it on lawyers. The 2nd may not be forgiving the debt and a 1099C will be issued to
the seller, if so, then the next stop is bankruptcy and a cost of $5K. But if one forecloses
there is no recourse, hope you get it ;-))

Good luck.
Perry
0 votes
Bob Georgiou, Agent, Danville, CA
Tue May 10, 2011
Gregg,

That won't matter if the property slips into foreclosure. If the home goes before you close, you have few options if the home is sold on the steps. If the home goes back to the bank, you still have a shot to close. Good luck.
Web Reference:  http://bob2sell.com
0 votes
Dan Tabit, Agent, Issaquah, WA
Sun May 1, 2011
Gregg,
Who is working with the bank? Is it the listing agent or do they have a short sale negotiator? Bud is correct that banks often have two tracks going simultaneously both short sale & foreclosure. The trick is to make sure whoever is negotiating with the bank gets the foreclosure date pushed out. This happens frequently, but there are occasions where the banks left hand doesn't know what their right is doing so take nothing for granted. As long as you are pre-foreclosure make sure the file is moving forward and not forgotten.
0 votes
Bud Zeller, Agent, Folsom, CA
Sun May 1, 2011
It's not unusual in California for the bank to approve a short sale and have foreclosure going on at the same time. Your other concerns should be discussed with your Realtor or attorney.
0 votes
Joseph Domino, Agent, Scottsdale, AZ
Sun May 1, 2011
Until you receive a signed copy of the contract, you do not have a contract, only an offer. Read the terms of your offer, it will tell you what your specific rights are.

It likely says that until you have a signed contract in your hands that your rights a limited. Even then, with a Short Sale there may be overriding factors that may allow the bank cancel the Short Sale and foreclose.
0 votes
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