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Sal Aranda: Little room for emotions when short sales get rough

By Sal Aranda

Posted: May 26, 2011 1:55 a.m.
Updated: May 26, 2011 1:55 a.m.
 

The email from a reader and would-be homebuyer was loaded with questions and summed up his frustration. It offered insight into an ongoing issue haunting the local housing market, jammed an exclamation point after each query: Blackmail? Extortion? Or bait and switch?

As it turned out it was none of these scenarios, yet who would blame Curt Beck for thinking the lenders were up to something wicked?

Beck and his wife, who are both Santa Clarita residents, spent months searching for a home when they originally saw a house listed for $479,000 in October 2010.

The listing reappeared in February 2011 with a new list price of $399,000. And a month later, the home price was reduced to $374,000. The lower price quickly attracted a buyer, and a purchase appeared imminent — when the prospective buyer lost his job, and the purchase deal fell apart.

When the house resurfaced on the market, Beck jumped at the opportunity, agreeing to pay full price to take the house in its current condition with zero contingencies.

Three lenders held the notes on the property totaling $500,000, and all three were willing to proceed with a short sale — where a lower sales price is accepted than what is owed on the house.

“They would not pay for any inspections, septic, termite, etc., and any needed repairs were on our own dime,” Beck said.
“We gave them all of our particulars about our finances, showing that we were willing and able to buy this property.”
Everyone was optimistic, and the purchase seemed likely, yet a short while later, the lender came forward with a counter offer.

“This seemed odd,” Beck said, “as we had already agreed to all of their conditions. Turns out, they increased the price. Now, they wanted $400,000 — $26,000 more!”

This was not an instance like in other short sales, when multiple buyers were vying for the house, bidding up the price above list price. Beck’s was the lone offer.

And this is where his frustration boiled over into anger, a reasonable response to an all-too-common occurrence in this market.

“Why didn’t they say that when they listed it?” Beck asked. “We hear about how the banks aren’t able to sell their houses, and how hard it is to buy a short-sale house.”

“Well, here is one more reason why,” Beck said. “Back to my original question — would you call this blackmail?

Extortion? Or, bait and switch? Maybe it was plain old greed. It may not be illegal, but it definitely is not right.”

There was absolutely nothing illegal with what the lenders did, since there was no final, signed purchase agreement.

A home purchase is a negotiation, and either side can ask for whatever it wants until everyone signs on the proverbial dotted line. In some instances, the bank making the offer merely services the loan, while the final decision is made by whoever holds the actual note. But that’s not what happened here.

Was it fair? Was it right? Not in my view. Yet, I’ve seen it happen too many times to weep over the fairness or righteousness of such a short-sighted maneuver. In too many cases, the lender’s action simply drives the buyer away, which is a preposterous outcome in a market where more than 21 percent of homeowners owe more than their home is currently worth.

Why in God’s name would a lender let payments lapse, which triggers foreclosure, before they even talk to an owner when, instead, it could be sold and the payments keep coming?

By foreclosing, they lose a bundle of money. Negotiating to keep owners in a home or selling via short sale limits their losses and yields immeasurable benefits for the local community.

The problem has been so widespread that the California Association of Realtors has been pressing lenders and regulators to end the delays and clean up the short-sale process, especially with so many people facing financial problems.

No one can blame lenders for trying to minimize losses; any reasonable individual would attempt to do the same. Yet most people would side with Beck: If the banks wanted $400,000, list it at that price rather than mess around a solid buyer.

Luckily, for the lenders, Beck and his wife didn’t walk away. From my experience, many people would have fled in a huff, insulted at the effort to grab a few more dollars. But experienced real estate agents know that there’s little room for emotions when negotiations get rough.

Instead, Beck countered at $385,000, and, as of Monday, the purchase seemed likely to proceed, although he said there was yet another problem that was holding up the close of escrow.

“There’s a problem with the septic tank, which I guess is my problem,” Beck said. “The septic cannot be certified. It kind of looks like someone was trying to disguise that fact. Not sure who, if anybody. Once I know for sure, I will let you know.”

Sal Aranda is president of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. Send comments via email to DavidW@srar.com.
This column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.

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