San Diego Housing Bubble News and Analysis

Play hardball.....

Consider the possibilities from your perspective:
1) The bank agrees.
2) The bank refuses, and forecloses. Two months from now you buy the place for 10% less than your current deal.

Either way, heads you win, tails the bank loses.

XBoxBoy

The question that remains is that will the bank realize that they will lose more money by foreclosing? Or will they hold the property so they can write off the loss later? It's Wells Fargo by the way...

When you play poker as long as you have your strategy set with all of your outs identified then you will do fine. If you want to play hardball then so be it. However what you are trying to do is apply your own speculation about how the bank "should" behave based on your own logic. The problem is that the banks are in this situation due to greed and not logic.

So it would follow then that it could be very logical for the banks to continue to be short sighted and act in a greedy manner.

If you lose the home over the 5k there are plenty more homes that you will not miss out on.

I would say that your chances are somewhat less then 50/50 but you will not know if you do not try. My personal experience is that it has been pretty difficult to get the bank to move on the numbers especially after they have gone through the process of getting the approval.

Let me ask you, how long has it taken to get the approval for the line release?

If you do ask for the 5k then how long will it take them to process that request?

At any rate like I said, don't be afraid to ask. Weigh your risks. Think about it this way... suppose it takes them another several weeks to approve your request. However in that time loan rates go up and you end up locking in a rate 3/8 of a point higher then you would have locked into had you been able to close earlier because of the delay. So now you get 5k in hand but in a several years you will pay more then that in interest. This is all theoretical and indeed in that same time rates can go down further and you would be BETTER off! Just try to consider all angles. It may not hurt to ask, but if you really love the home consider all possible outcomes. If you just like the deal but are just so so on the home, then go for the 5k.

I would caution that you should be buying the home cuz you love the home, not just because it is a good deal because there will be plenty of good deals.

Good reply.

If you love the place and don't want the next one down the pike, then fold...but if you can live without it go ahead and call the bank's bluff.

btw, I would have called the bluff. End all further contact if they back out...then in a week...lol the bank calls you back. you got the deal.

I would have something to offer but I think SD put it well.

Banks generally will do the math.
If they think they can net more as an REO, then they will. Sometimes they can. Often there are variables at play that you cannot decipher. For example, if their mortgage insurance only kicks in if there is a trustee sale, they might be willing to go a lot lower on the market value of an reo.

Bottomline, you really need to define your variables and play your game. If you spend your time trying to bluff them and end up losing something dear (money or a favorite home) you will end up with regret. Focus on what is most important here and act accordingly.

By far, by very very far, the best way to cope with a short sale is to build all the possible variables into your offer. Use this case as a learning process. In your next short sale offer, make sure you build in a credit for non recurring closing costs, recurring closing costs, and repairs into the original offer. That way it will be included in the HUD that the listing agent delivers with the short sale package. Even though you don't do any diligence prior to submitting the offer at least you will have some built in cash back. Now by doing this of course you may (will) weaken your offer but at least you will not be quibbling over a few thousand dollars on the purchase of a home worth hundreds of thousands of dollars.

If you are making an offer on a short sale and you are coming in like 20% down I would advise not to weaken the offer in such a manner. However if you are coming in fairly close to the asking price AND there are no competing offers, then yeah go ahead and build it into the offer.

The worst thing as a buyer that you can do to your chances with a short sale is to change things up, which then require another HUD (most of the time) and then throws a wrench into the process. It essentially gives already overburdened loss mitigation departments more excuses for more delays.

Thanks for all the great advice...here are some responses to your questions, etc:

1. We are "kind of" calling their bluff. There is NO WAY we will let this issue lose us the house. All we have done at this point is ask the bank to reconsider their offer to pay up to $75 for the repairs (why not just offer $0?).

2. The banks still has not actually approved the sale. It has all been verbal at this point and even though we are in escrow there has been no paperwork from the bank saying that they have accepted the deal. Either way, it has been since mid July that we've been waiting since the seller's signed the offer, took it off the MLS and started negotiating with the bank.

3. We are actually locked in for 60 days with Navy Federal (check out their rates!) for "free" so we have a few weeks to dilly dally before losing out on our great interest rate.

SDRrealtor: I'm not sure what you are saying here...Are you saying that we should have told them from the beginning that they would be responsible for up to say 5-10K of termite repairs? Isn't that already in the contract since they are required to pay for section 1 repairs?

Well this info actually changes how I would consider this transaction. My response to your points follows:

1: The 75$ is probably something the bank always offers so they can say they are covering the cost of inspection (which is often about that much). Asking them to reconsider is reasonable but may be have less merit than you realize (see below).

2: I feel that it was a bad idea to proceed with an escrow without lender approval. Currently there is not a regulation or rule (or really even a standard of practice I am aware of) on this, however, most short sale listing agents I have seen (myself included) will leave a property active until there is full bank approval. Again, sometimes the banks do not want to approve a short or for some reason cannot do so in a timely manner. If you have a deposit already in escrow, and you would not otherwise be using the money, then its not the end of the world. However, I think you should also be looking elsewhere as an alternative to an exercise in potential futility.

3: You should be consulting with other lending institutions and discussing the implications of the lock with the CU. If the lender takes 90 days to approve (a very real possibility) you may lose your lock or get a penalty for extending it.

Sorry to be a party pooper. I feel you should have information on this.

We are in escrow but our small good faith deposit has not been cashed and is not in the hands of the escrow agent. We have told that the escrow agent that we will not be proceeding until we get lender approval and the escrow agent agrees that this is fair. Whether this is possible is another thing and whether the bank agrees is another as well. So maybe technically we still aren't in escrow.

Speaking of termites, there is a nice little swarm in one room of this rental house. I wonder if I should tell the owner there are a bunch of funny little winged insects. I only hope they are not in my furniture - that would really suck. Hahahaha!

Hi Yellow -

Okay let's make sure we all agree on terminology. What you have submitted is an offer to purchase. It is not yet a contract unless it is accepted and confirmed by all parties. So until the seller and the lender agree to the terms of the offer, nobody has an obligation to pay for or do anything.

Now, if you have not reached the stage where there is universal acceptance by all parties then everything is still up for grabs. You can ask, they can counter, you guys can go back and forth. This is standard procedure for resale homes. HOWEVER...let's look at the practical nature of short sales.... this is where having an agent who has more experience with some short sales under thier belt is crucial.

Getting through the short sale process is a b-tch. The last thing you want to do, and I have said that ad nauseum, is to go back and forth with the negotiator. Each time you do that you may be costing yourselves weeks. Call me pessimistic but your rate lock will more then likely expire prior to this escrow closing. Good that it was no cost to you but it did involve them running a credit check on you which kind of sucks.

Okay so yeah what I am saying is that the way to go about short sales is to make an estimate of what you will need to rehab up front and put it in the purchase agreement. Total it all up and say buyers request a credit at close of escrow for $x for non recurring and recurring closing costs, repairs, and/or remediation. That way there is no renegotiation necessary. So yes in your purchase OFFER (notice I did not use the words contract) section 1 repairs may be covered. However, when the short sale negotiator sits down to see if they will accept the sale, they will look at the estimated HUD to see what they will net. They don't build in a few thousand bucks here or there for repairs or remediation. They look at the numbers and if they work then at that time they go, okay I will accept it. Let's roll. Similarly they may also come back and say we accept but will not pay for repairs or any remediation. You never know.

Okay so right now you have an offer submitted. Did the sellers accept your offer yet? Obviously the lender did not. Now if both the seller AND the lender accept the contract, and neither of them counters the section 1 request you made, then yes at THAT time, one of them is contractually obligated to pay that fee.

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As for the property being in escrow, from a practical nature indeed, that does benefit you as long as you did not give them a deposit. Why? Because they will not submit additional offers to the lender. Of course this is only true if the sellers actually accepted your offer contingent on lenders acceptance and they are not marketing the property.

Did the listing agent actually move the property into pending status on the MLS?

While an escrow may have been opened you technically do not have a contract in place yet so there is no obligation by either party to either party. I would agree with ur in the sense that if I was the listing agent I definitely would not have gone through the execise of opening escrow and I surely would not have moved the property into pending status.

Can one of you guys move up here and start handling short sales. There is an art to it, but every listing agent I have encountered knows almost nothing about it, it is terribly frustrating. I made an offer on a short sale last friday, realtor didn't get the paperwork done until Tuesday, the trustee sale is set for this Monday. She calls me today with a counter from the seller (not the bank) regarding some issues with window coverings, ceiling fans, light fixtures, shelves, etc. (all of which the resident wants to take and I had included in my offer). It was 1:45 p.m. today (friday)when she called, if it is an east coast bank it will be closed, on the west coast it is likely they are done for the day, the trustee sale is Monday morning. I was furious that the offer hadn't been submitted to hold off the sale and even doing it Wednesday would be dicey, but with 3 business hours left before the sale, it's a goner. We could have worked out some sort of cash side deal for the items in question but it's too late. I was going with shorts because they are often in turnkey condition but I am so done with the frustration, I'm going bank owned. It's not entirely the bank's fault, the realtors need to educate themselves on the process and not lower the price to market when there is only a week left before the sale after no offers in 6 months for pete's sake.

I had been using waiting hawks advice on not being represented by a realtor and going with the listing agent or their buddy to get preferential treatment, but it's not panning out. I think an intelligent and experienced buyer's agent is the only way to navigate the current sea of idiots in this line of work.

Sorry for the rant, I'm a little dissapointed that I missed it, I really dug that pad.

sorry tg to far away. at least you can lament while watching football this weekend. Here is a little nugget... Even if you would have gotten the offer into the lender LAST Friday, it is unlikley that the trustee sale would still be postponed. I have seen it take a week just to get the damn fax into the lender. Some of them mysteriously don't receive things, lose things... etc... some are a bit more organized then others. It is a crap shoot.

Also even with experience in short sales I am at the mercy of the behavior of the listing agent. Some of these guys are so pathetic it is miserable. Some of the listing agents are okay but then they are dependent on the lender and that is just a black hole. In general EVERY buyer dealing with the short sale process gets bent over pretty bad. Months go by with no change of status and that really toys with peoples emotions. I still wouldn't give up on them, you just gotta take em for what they are.

Here are the facts of the deal to set everything straight (hopefully). By the way I really appreciate your help...

1. Offer was submitted to seller and seller signed and accepted offer.
2. Seller changed listing to pending and has not seen another offer since. I don't know why but they seem to like us...
3. Listing agents has been working with the lender since mid July to get them to accept the short sale.
4. On Sept 2 the listing agent submitted our original July dated seller-accepted contract to escrow agent (still no formal acceptance from lender).
5. On Sept 4 bank tells listing agent that they will not pay for termite repairs. We told our agent that this is not acceptable. Listing agent is now trying to get the bank to pay.

So SDRealtor you believe that we should have either offered 5-10K less knowing that there might be repairs needed or at least write in a credit into the contract in case of repairs? I never thought that this would matter over termite repairs because I thought it was completely required and non-negotiable. I thought other repairs were negotiable such as fixing some plumbing or broken fixtures, but not this. Wish us luck.

Even if all does not go well there are some nice places that have now dropped 25-50K in listing price in Escondido since July when we kind of stopped looking. I'm not so worried if we lose the deal but it would be nice if they ponied up the 5K and we could close it.

One factor you cite as reason to get on with this deal is that you have a loan rate lock.
But market rates have been falling nicely in recent weeks. So getting a new, even better interest rate in this or future deals is in your favor.

In real estate there really is no such thing as something being non negotiable. Right now the lender has countered that request you made. Again, you submitted an offer and you don't have a contract until all parties agree. I assume your realtor had you sign a short sale addendum which spells out these terms a bit more clearly.

Once more, in short sales and reo sales one should not expect the bank to pay for anything. They may and if they do it is a bonus but having expectations that they will leads to situations that mimic this. Your agent should have given you such advice ahead of time.

Similarly if a bank does give in, it is much easier to get a specific amount simply credited back to you. Open ended amounts of money do not sit well at all with negotiators who are forced to deliver bottom line HARD numbers to investors for approvals of liquidations.

So yes you pick a number based on an estimate and either lower the price by that much or ask for a credit but doing it all up front is best.

It is indeed a declining environment for the 10 year treasury so that is good news for you rate shopping wise. Don't fret over your rate lock. Also my advice would be to never lock a rate prior to lender acceptance in a short sale.

So based on what you said, you do not officially have a contract yet because the lender has pretty much given you a counter offer (at least verbally) which is they will accept all of your terms except paying for termite work. Note that this also implies that if you are expecting any money for repairs that there will be none unless you can talk the seller into it which in a short sale is unlikely.

Finally, your agent should have taken a good look at the estimated HUD that was delivered to the lender and checked with escrow to make sure there are no other tax defaults or liens that were not identified in that HUD. If the escrow company did not get a comprehensive title report from title to generate an accurate estimated HUD then you will get a nasty surprise prior to close of escrow where a deficiency will be identified and nobody will want to pay for it. Essentially the final HUD will be delivered to the lender and it will have deficiencies not identified in the estimated HUD and the negotiator will have to punt on the deal or someone else besides the lender will have to cover the deficiencies...not good.

There are alot of nice deals out there... not alot of great homes but alot of nice deals so yeah I agree that you could get some good deals elsewhere if you like. Next short sale offer you will have some good experience under your belt. You should be able to knock it out of the park!

TG
check your private mail for a message

lil sdr

Briefly:

SD and sd,
What are you finding to be the most beneficial behavior as a listing agent on shorts?

I know the usual caveat that are scant few standards of practice. I am just looking for ideas in addition to my own "carpet bomb" approach.

ur I am not sure what you mean by beneficial behavior. In reference to what? Dealing with the lender, the seller, or potential buyers?