Trying to be Responsible

My mother is short selling her house. As she was looking at her finances last year, she came to the realization that once she retires at the end of this summer, she would not be able to afford her mortgage payment. Being the responsible person she is, my mother started working almost a year ago with a real estate agent, an attorney, and the banks (she has two banks, one holds the primary mortgage and the other the equity loan) in order to get a short sale approved, and hopefully completed, before she ever had to miss a payment.

Note: I do not think the decisions that lead my mother to buying this house at the time she did and at the price she did were among the smartest financial decisions she has made in her life (and she knows this), but I also understand the reasons behind those decisions, and the purpose of this post is not to debate what she could or should have done, but simply to talk about one experience in short selling.

Everything is a Process

My mother started working with her real estate agent to get the house in near perfect condition while she was still negotiating with the banks, to get them to agree to a short sale. It is harder to get them to agree to this when you are not behind on your payments, and it took close to 4 months from when she started the process to when the banks both finally agreed on what they would take for the house.

My mother lives inNorthern Nevada. To say there is a glut in the housing market is an understatement. So her house, which is absolutely lovely, which she has had resided, landscaped, and put tons of work in went on the market in late fall. And it sat, and sat. Finally, spring came, and with spring an offer.

The signed paperwork from the buyer arrived in early April. But then the banks had to do their own appraisals, and once again, even though they had already agreed to a price, before the house even went on the market, had to approve the short sell.

And Then Things Got Squirrely

My mother shares an account with my brother. It just made all sorts of things easier while he was living inAustralia. During this review period, my brother received a significant payout from his former company- a direct deposit of $10,000.

The very next day, the bank holding the second mortgage came back and told my mother that now they would not approve a short sale unless she paid them an additional $10,000.

Sadly, the attorney she was working with told her this was not uncommon- something the banks do to get more of their money back. My mother countered with an offer of $5,000. It was accepted.

We breathed a sigh of relief, except we shouldn’t have. The paperwork came for my mother to sign that stipulated the $5,000 payoff. And in it, the secondary mortgage holder had also changed what percentage of the sale price they wanted to take. This does not necessarily effect my mother, but it does directly take money from the bank that holds the primary mortgage.

This screws over my mother because she now can’t sign this paperwork without violating the agreement she has signed with the primary mortgage holder. (Please note that both banks were involved in the original negotiation as to sale price and what each would accept. They had agreed together on percentages.) So now everything has to go back to the attorney, who needs to talk to both banks, and try to get a new agreement or get the secondary mortgage holder to go back to the original agreement with the extra $5,000 paid out by my mother.

What About the Buyers

While the signed offer came in, it apparently had some sort of escape clause in it. I don’t exactly what it was, but given how the banks apparently like to try and mess with short sales, it’s probably a smart thing for anyone looking to buy a short sale property to have in their contract.

The buyers are still looking at other houses. They have not found anything they like as much as my mom’s house for the price, but until both banks sign off on the offer and the percentages, nothing is final. They buyers could walk away at any time.

All About the Benjamins

So the next time you’re wondering about why it takes a short sale so long to close, it is because of this- even though the banks have to agree to a short sale before the property can even be put on the market, they are not actually legally held to anything until they sign the offer from the buyer.

I cannot blame the banks for trying to get as much of their money back as possible. But I can blame them for their tactics. Monitoring bank accounts and suddenly asking for cash up front or trying to change the terms at the last possible second may not legally be blackmail, but it certainly feels that way to the seller. And the sad part is, you would think, with all the lawsuits specifically regarding banking tactics, they might learn something. But they haven’t. It’s all about maximizing the money they can get from this one person, right now, with a belief that there will never be consequences.

Except that there are.

What Happens Next

My mother is ready to move out in a few weeks. She doesn’t intend to make a June mortgage payment, but will hand the keys over to the bank. She feels she has done everything she could in order to be above board and get the banks as much money as she could. And now she feels like she’s being blackmailed. She’s done.

Will this hurt her credit? Sure. But she doesn’t intend to buy another house, or another car. She already has all the credit cards she wants. And she’s retiring from the state, so there’s no plans of going back to work. Her credit will be hurt, but she won’t feel it.

And maybe, just maybe, once the monthly payments are no longer coming in, the banks might actually be willing to take the money they have been offered.