Painful House Closing…

[jimmy1977]

Hi

I have been reading this blog for the last couple of years,thought I will get some thoughts from the folks here on a situation we are facing with a house purchase.

We finally made a move this year found a property that we liked that was within our price range and in our preferred neighborhood, We put in an offer on a property and got accepted. When we started the process of for this property we found the user was delinquent on their taxes for the last year and mortgage for the last few months. We were informed by the escrow company and the seller’s agent that the property was not in short sale or foreclosure. We were informed the proceeds of the sale would help pay off the delinquent taxes and balance to the bank.

Since we got this guarantee we proceeded to get the -house- appraised, inspected and our loan approved. We were getting ready to close this week, now the seller’s bank will not provide the payoff documentation to escrow. This is holding up the closing. I am not sure what we can do about this, the escrow and the seller’s have contacted the bank with no avail.

Has anybody been in a similar situation. I am getting a bit anxious because we have our rate locked for another week and would like to close asap. Has anybody been in a similar situation and do you have any timeline on how long the bank might take to resolve this with the seller.

p.s. I don’t understand the bank’s stance, they are getting their money, Why prolong this for the seller?

Thanks in advance for your thoughts.

[HLS]

I don’t think that you are being told the facts.
This doesn’t make sense.
If it is not a foreclosure, and the seller doesn’t have a crazy loan, then the seller doesn’t have a ‘bank’.
They have a LOAN SERVICER, (which may happen to be a bank)
I have NEVER heard of a loan servicer that will not provide a payoff statement.

[urbanrealtor]

[quote=HLS]I don’t think that you are being told the facts.
This doesn’t make sense.
If it is not a foreclosure, and the seller doesn’t have a crazy loan, then the seller doesn’t have a ‘bank’.
They have a LOAN SERVICER, (which may happen to be a bank)
I have NEVER heard of a loan servicer that will not provide a payoff statement.[/quote]
I agree in that there is probably more here than meets the eye.
However, I am less skeptical than Sheldon.
It sounds as if the owner is in distress (unable to pay) with positive equity (he owes less than the market value).
Your mention of unpaid taxes is why I say that.
In those situations, the banks sometimes (though not always) fast track it for foreclosure (even in violation of the TD or state law).
If that is the case, the bureaucratic mess on the lending end may add considerable time to the process.
Also, lots of servicers sell non-performing notes.
As an example: If chase is selling the mortgage to Wells recovery as a non-performing note at a discount, then there may be a crazy period of confusion as nobody knows who actually owns the paper or what department is in charge when you ask for a payoff.
I have seen that before.

My 2 bits

[curiousmind]

Does wisdom perhaps appear on the earth as a raven which is inspired by the smell of carrion?

You’ll have to Google a source yourself.

[jimmy1977]

Hi

Thanks for all your comments. We finally heard back from the seller’s agent the escrow has the payoff document The catch now is the seller has to bring money to the table to make this deal work. (Which I am not sure if they have, because of unpaid loans/tax liens etc).

The unfortunate thing for us our great loan rate (3.63%) ends next week and it is it is 90$ per day to hold it. The sellers agent tells us they are working with the bank so that they can walk away from this deal without making any money as long as they don’t have to bring any money to the table. The extra money is supposed to cover legal fees and interest for the unpaid mortgage for the last few months. I still haven’t seen this in writing, The agent reports it maybe 15 days to resolve this with the bank, but I am skeptical this will be case.

I am wondering if it a good time to cut my losses (I have spent for the appraisal and home inspection – not sure if we will recover this). I am hoping our good faith money is returned, I am also wondering if we can ask them to repay us for the appraisal and home inspection if we decide to walk away from this deal.

Thanks again let me know your thoughts.

[bearishgurl]

jimmy, the listing you placed a “successful” (lol) offer on should have been advertised as a short sale from the get go, and thus, required no earnest money deposit. In essence, you are purchasing a “short sale” from the lending institution because your “seller” has no authority to sell, due to negative equity. Your agent should have been more proactive in finding out out the true status of the encumbrances before you spent money satisfying your contingencies, IMHO.

For example, it is easy to see online whether a SD County property owner is delinquent on their taxes … or not, BEFORE one even places an offer.

https://www.sdctreastax.com/ebpp3/(5mbsnv551yqju2i24yc5qmrv)/Start.aspx

Because your agent did you this HUGE disservice, I would drop them like a hot potato after I received my earnest money check back due to specific performance issues, mainly to do with the fact that seller’s can’t perform before your rate lock expires, and, in any case, “sellers” have no authority to convey the property.

In your case, the exception of the unpaid taxes on your preliminary title report which you were privy to early on after you opened escrow should have been a “red flag” to your agent to wait for complete lender approval before spending any time or money on this transaction.

If I were you, I would not spend $90 per day to keep my “lock” open on this flaky transaction as you describe it here. Anything can happen, including foreclosure documents being filed by a hired trustee simultaneous to your “sellers” trying to negotiate a “short payoff” with their servicer/lender. This should have been initated by their (incompetent) listing agent months ago.

Lesson learned: as a buyer, either YOU and/or your agent should be checking out sellers’ financial condition and writing your offers explicitly to protect YOU in whatever condition you find them to be in on properties you choose to make an offer on. It will save you a lot of wasted time and money.

[bearishgurl]

jimmy, the reason you will get your earnest money back is because this landmark case with a similar fact pattern to what you describe here set a precedent in CA in favor of the “buyers” who ended up actually selling their own home while in escrow to buy another home, thinking they were going to move into a home that the sellers had no authority to convey to them.

http://caselaw.findlaw.com/ca-court-of-appeal/1540488.html

It is cited as Holmes v. Summer (2010) 188 Cal.App.4th 1510 and is still good law.

Wait until one day after your rate lock expires and then formally ask for your earnest money check back. If seller’s agent hassles your agent over this, cite this case to his/her broker in a letter and you will get your check back, forthwith.

[jimmy1977]

Hi BearishGurl

Thank you very much for that explanation. We are going to follow your advice to the letter. We already called our agent and told her that we don’t want to proceed with this deal if they cannot close by tomorrow (seems highly unlikely).

I agree too bad I spent the money on an appraisal and home inspection, we were hoping that a 21 day closing would entice sellers to pick us over others in this market. My contract called out for completion of inspection within 7 days. The escrow company, the less said the better were highly incompetent they sent us the information for the wrong property twice, we received the report after 15 days, well after the completion of appraisal and inspection. Well thanks again for the detailed explanation with the links. in fact I did check the San Diego County Tax web site and reported to the agents (both ours and sellers) that they hadn’t paid their taxes for the last year. Their agent was surprised to find out about this – in hind sight this should’ve been my first red flag.

Thanks again really appreciate your insight in this matter, I will sleep better knowing I am not losing more money.

—
Jimmy

[njtosd]

I would think that since the seller was unable to close (as they were contractually obligated to do) they would be liable to you for the damage that you sustained. Unfortunately that would require you to sue them and they appear short of cash. BG is right – your agent should have found out a bit more about this, but I think the SELLER’S agent is even more culpable. Probably doesn’t rise to the level of an Error or Omission (which agents are insured for), but I would look into it.

[HLS]

Jimmy,
On whose advice did you agree to a 21 day closing when you still needed to navigate the loan process ?

[jimmy1977]

Hi HLS

We saw a couple of deals with this clause that beat us out when things earlier in the year. Our agent told us this might be a good distinguishing point in our bid.
Hence we put in the 21 day closing.

—
Jimmy

[jimmy1977]

Update on the situation

We heard back from the selling agent. They told us now the house is a short sell. But they claim the bank is ready to close within 14 days. I don’t trust this anymore – we are going to follow bearishgurl’s advice and jump out as soon as our rate lock expires.

[CA renter]

jimmy,

Just my 2 cents, but I’ve seen quite a few really good deals happen because buyers were willing to deal with a few odd issues during escrow. Might be a good idea to see where this goes, but see if they will pay for the rate lock extension.

[Coronita]

[quote=jimmy1977]Update on the situation

We heard back from the selling agent. They told us now the house is a short sell. But they claim the bank is ready to close within 14 days. I don’t trust this anymore – we are going to follow bearishgurl’s advice and jump out as soon as our rate lock expires.[/quote]

Hi Jimmy…. I just sent you a PM. Can you check it ?
Thanks.

[HLS]

[quote=jimmy1977]

We saw a couple of deals with this clause that beat us out earlier in the year. Our agent told us this might be a good distinguishing point in our bid.Hence we put in the 21 day closing. Jimmy[/quote]

WOW. Not something that I would ever tell anyone to do.
Way too stressful and unrealistic. It can even be difficult for an all cash buyer to close in 21 days.
Most components of the process are totally out of your control.
In the future,I would not suggest anything shorter than 30 days for both loan lock & closing, although it may be possible to close sooner.

Never agree to anything that you don’t understand 100% and don’t hesitate to get a 2nd opinion before you agree to something that you aren’t sure about.
Aggravation can often be avoided.

[Author]

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