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Short End of the Short Sale

Don’t let this happen to you. Just three hours before a homeowner could have closed on a short sale on her home, the bank foreclosed. The seller in this case lost three buyers over two years due to slow response from her mortgage lenders. And when it came to the fourth buyer, the second lien holder (Chase Bank) demanded more money on this loan, and it held up the process just long enough for the first lender to foreclose.

Unfortunately, this story is not unusual. Six years into the ongoing foreclosure crises, sometimes banks still can’t seem to organize their inner-workings and that of the millions of home loans they service. This is an example of what can happen if you don’t work with an experienced short sale attorney to protect your rights and negotiate the best deal for you.

Refresher: What is a Short Sale

A short sale is when homeowners sells their home for less than they owe on it but they are forgiven from paying the difference between the sale price and the amount they owe on the loan. A short sale is a common way to avoid foreclosure. It has benefits for the lender because they get their money up front and they don’t have to go to the expense of foreclosing and then taking back the property. It also has protections for the seller and is less destructive on their credit report.

What Can Go Wrong

While not incredibly common, it is possible to have a lender foreclose while you are going through a loan modification or even if a short sale is in progress. Contact one of our real estate attorneys to avoid the following debacle. Ms. Knight and her husband bought a home in 2005 for $432,000. This was as close to the height of the

market as possible. They took out a $64,800 loan to cover the down payment and $345,500 for their primary mortgage, both with Chase Bank. In February 2010, Knight’s husband died suddenly of pancreatic cancer. Her income was cut by two-thirds. She decided to try a short sale. In August 2010, Chase sold the servicing rights on its first mortgage to a company called Seterus.

A Good Sale Gone Wrong

During the next two years, Knight accepted offers from three buyers, but watched each one grow impatient and drop out of the race while they were kept waiting for approvals from the banks. Seterus’ asset manager also accepted the offer. Apparently, one part of the Seterus bank didn’t inform the foreclosure department that it was agreeing through a short sale. The second mortgage holder, Chase Bank, refused to approve the sale without an agreement to receive $10,000 on their loan.

Everyone involved—the seller, the buyers, the first mortgage holder—all agreed to chip in some money to reach the $10,000 so the sale could go through. The seller even got a letter from Seterus promising that her foreclosure would be delayed in order to give the buyers enough time to get their financing approved.

But the part of Seterus responsible for foreclosure didn’t seem to get notice of the letter or the impending short sale closing. On Aug. 23, Knight got a Notice of Trustee Sale that her house would be sold in a foreclosure auction. The buyers, the seller and the buyers’ real estate agents tried, to no avail, to call the sale off.

Even though the sale would have closed by noon that day, it was sold at a foreclosure. The house didn’t even sell at the auction; the bank took it back. Everyone loses.

No Short Sale – Hard Repercussions

The buyers lost money and time when the short sale failed, not to mention the loss of a house they thought would be theirs in a few hours. Now, Ms. Knight, the seller, is in much tougher predicaments. She owes Chase $50,000 under the second mortgage, and that debt would have been wiped out in a short sale.

The case is a tragic reminder of the complexities involved in these situations. It is imperative not to go it alone. In our area, seek out the help of our New Jersey short sale attorney for the guidance you need.

Serious Issues Require Serious Counsel