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Selling a Sacramento Home as a Short Sale After Bankruptcy
There is only one way to sell an underwater home in Sacramento after a bankruptcy has been discharged and finally dismissed, and that method is through a short sale. Doing a short sale after bankruptcy is a greater challenge than doing a short sale before bankruptcy. A short sale after bankruptcy is not a slam dunk, like your lawyer might have promised (lawyers don’t sell homes nor typically negotiate short sales). Sometimes, people think these abandoned homes are great bargains, but generally the banks still insist on receiving market value, and market value is subjective — especially when the home sits in ruins as compared to the surrounding homes and the bank won’t take that condition into consideration when determining value.
See, that’s the thing. People erroneously believe that a bank cares about the condition of a home, and that belief is a foolish assumption. Yes, it makes logical sense that a bank would care, so I understand why you might have formed that assumption because to presume otherwise goes against all that is sane and objective, but let’s remember, we’re talking about our financial banking institutions in the United States. Let’s get real. Banks don’t care.
I closed yesterday another Sacramento home as a short sale after bankruptcy. Bankruptcy does not release the home from the seller’s name. That title and mortgage lien(s) remain. I’m not sure why homeowners sometimes do not understand that they still need to get rid of the house after bankruptcy is over, and that the house is generally not very desirable at that point. Squatters break in. Water leaks develop. Mold can happen. Stuff breaks. And it’s generally been vacant for 6 months to a couple of years, depending on how long the bankruptcy took, and lawyers don’t enjoy a reputation for fast service.
After a home has been discharged in a bankruptcy, the lenders cannot ask a seller for financial records such as bank statements, tax returns and payroll stubs. However, that did not stop Bank of America nor Green Tree from demanding those documents, even after I informed them they are quite possibly breaking federal law. Sometimes, you have to decide on which hill you want to die, and the sellers did not want to die on the paperwork hill, so they submitted the demanded paperwork in protest.
Service Link, representing Bank of America, managed to mangle the HUD 12 ways from Sunday. We submitted various adaptions and argued and argued until Service Link finally accepted the fact that certain customary expenses are seller-paid fees in a short sale transaction. You can’t really blame them because these third-party vendors work on short sales in many other states and customs vary, although it doesn’t explain why they operate unsupervised.
Later, Green Tree came back just prior to closing and insisted that the sellers sign a letter stating they do not have to submit their paperwork because this was a short sale after bankruptcy. Of course, by then it was water under the bridge, and I honestly don’t know how this company stays in business, apart from the Peter Principle that plagues many corporate entities. Oh, wait, I hear Green Tree is under investigation by the FTC.
Fortunately, I managed to sidestep a big fight with Green Tree on the payoff. That’s another thing people don’t understand after a bankruptcy, they think the banks will rollover because the liens are worthless. I’m telling ya the banks won’t. They fully realize the fresh start sellers still require the bank’s cooperation.
Then, several months into the short sale, Bank of America — as has been its policy lately with these underwater mortgages — elected to sell the mortgage to another company, in this case, Bayview. Just as Bank of America was ready to issue the approval, whammo, it forced us to start the process over with Bayview. Did I mention I only get paid once and I get paid the same whether it’s a short sale or a regular equity sale?
Bayview then conducted its own BPO and decided the price needed to be about $25,000 higher, which it may as well have offered to burn down the house, that demand made about as much sense. Part of the “price valuations” is they have often little to do with actual value and are more about how much the bank needs to net. This is akin to a seller telling me she needs to sell at $500,000 because she needs the cash when her home is worth $300,000. Her needs in that case are not relevant and completely unobtainable.
The demand for a higher price from Bayview happened right after thugs broke into the garage, and they also swiped the AC unit, including the lockbox off the front door, along with the front door handle. There was no compensation to the buyer for that, of course, and that was a delicate situation to overcome.
The good news is we closed escrow yesterday, about 6 months after I listed this home. This was actually a fairly fast short sale after a bankruptcy. The types of problems I’ve shared with you concerning bankruptcy and short sales are very common as well. If you need an agent to sell your home after a bankruptcy, you should call your Sacramento short sale agent Elizabeth Weintraub at 916 233 6759. There is no reason to list your home until the bankruptcy has been fully completed. An order to discharge does not count; you need the case closed.
Two Sacramento Homes Closed on Tuesday
As good fortune has it, I managed to close two more escrows yesterday, which resulted in another two Sacramento homes closed. I’m on a streak this week. One closing was a home in Land Park, a cottage in Upper Land Park. We weren’t too certain that the buyers were closing when they signed the purchase contract. I’m not sure what the hesitation was about, but when I have that gut feeling, I listen to it. The sellers had made a deal with the buyers that we would not change the status in MLS from active to pending until the buyers removed their inspection contingencies. They had already been there and done that when a previous buyer had developed cold feet a few days into escrow. So, we left the listing as active, pending rescission, for a few weeks.
The strangest thing happens when a buyer spots pending rescission as a status modifier on an active listing. It’s like a switch goes off in their heads. Like, maybe they ate Chinese food and an hour later are starving. They might not ever want to look at this home, but the minute they see somebody else might want it, they are desperate to buy it, and it doesn’t seem to matter what it is or where it is located. As a result, we had a decent back-up offer within days, just in case the existing offer went sideways.
But the offer didn’t go sideways. The buyers removed their contingencies and we closed, just like clockwork. The sellers are ecstatic and so are the buyers.
In the second escrow, well, what can I say? It was an Elk Grove short sale that had emerged from bankruptcy. It was a short sale that should have closed last year. We received a perfect offer, after a few others blew up, and our new buyer was willing to mow the lawn, turn on the utilities, and even replace the electrical meter and A/C unit, which had been swiped. The only problem was we could not close because we did not have the final discharge from a previous bankruptcy. The bankruptcy was discharged two years ago, but it was never closed out in the court.
How much of a problem can that be? Huge.
The lawyer told us it would take 30 days. Every month, she was hopeful the file would close out. Except it did not close out. We finally tracked down the Trustee of the Court to get the straight scoop. The trustee had to send out notices, wait 3 months for checks to clear, along with a bunch of other court-related stuff. It took us 8 long months to close out the bankruptcy, which had already been discharged. If a lawyer tells you a bankruptcy will close out in 30 days, you might want to get a second opinion, just sayin.
The buyer was a trooper. He really wanted this house. So, did a bunch of other people who continually wrote and called and begged to be a back-up offer. We’ll pay cash, they cried. We’ll wash your car for a year. No, not really, but that was the unspoken sentiment. I waited for the chocolate-covered strawberries to arrive at my office, along with a bottle of champagne, but it never came.
I’m pretty lucky, when our buyers go into escrow, they tend to stay there.
Every Sacramento real estate closing is different. That’s what makes this business so much fun and exciting. Some closings you pull out your hair. Some, you don’t. But at least these two Sacramento homes closed without any further drama.
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Bankruptcy and Short Sales in Sacramento
The number of Sacramento short sales in bankruptcy seem to be declining since passage of SB 458, which amended California Civil Code 580 by adding paragraph E. This all-important piece of legislation passed in July of 2011 and, ever since then, banks that agree to a short sale must release a seller from liability, providing the seller did not commit fraud and the property involved was 1 to 4 units. This piece of legislation pretty much eliminated the need for many upside-down sellers to file a bankruptcy over a hard-money loan, providing the banks were agreeable to the short sale and there weren’t any other debts the sellers needed to discharge or rework.
Of course, if lawyers told you that, they wouldn’t get paid to do a bankruptcy. I don’t know of any lawyer who specializes in bankruptcy who would tell a person in debt not to file bankruptcy, but that’s not to say they don’t exist. It’s no different than asking a real estate agent if one should sell a home. I’m telling you that, and I am a Sacramento real estate agent. The answer is gonna be yes. Most of the time. For example, I am not a financial planner. Neither is your bankruptcy lawyer. If a person wants financial advice, a person should ask a financial advisor, an individual with no skin in the game — not a guy who works for American Express or a woman employed by State Farm Insurance — ask an independent advisor.
But people continue to rely on the advice of those in professions who get paid when the answer is yes, hell yes, do it.
There are basically 3 ways to deal with filing bankruptcy while contemplating a short sale. First, know that filing bankruptcy does not relieve a person of title to the property. A person will still own that property and need to deal with the sale of the home in some manner — the easiest most likely is a short sale. Here are 3 things an underwater seller on the brink of bankruptcy can consider:
- Short sale the home before filing bankruptcy
- Short sale the home during bankruptcy
- Short sale the home after bankruptcy
They are all difficult but #1 is generally a bit easier. It’s also the one in the middle that can cause complications and should be avoided because it can’t close, plus sellers would have to pay extra to the lawyer and they generally won’t. For starters, the short sale bank will probably not agree to a short sale unless the Trustee of the bankruptcy either sells the property or releases the property from the bankruptcy. Did you know that the Trustee can get paid a fee for selling a short sale? Yes, in some situations, a Trustee can receive $15,000, all the way up to $50,000-plus, depending on the sales price of the property. Do you know who pays that fee? The buyer.
It’s a premium paid by the buyer. Do you know any buyers who want to pay another $15,000 to $50,000 on top of market value? I don’t, but I suppose they are on the loose. These deals have to be cash, too. That requirement limits buyers as well. Doesn’t bode too well for the seller who just wants the property sold and gone.
I have a handful of homes in bankruptcy right now in which I represent the seller, as a Sacramento short sale agent. The short sale banks require written authorization from the sellers’ lawyer to do the short sale. In one bankruptcy short sale, the discharge was ordered in November of 2011. We are still waiting for the final discharge — 16 months and counting. The sellers’ lawyer promised the release would take 21 days in early February and she expected receipt on March 1. We are still waiting. Escrows are on hold. The short sale approvals are on hold. We are lucky we chose steadfast buyers. I hear lawyers are promising 4-month turnarounds, but I’m not seeing that promise materializing on this end of the business.
It might be better to either do a short sale before filing bankruptcy or after the bankruptcy has been discharged. Trying to short sale in the middle of a bankruptcy appears ripe with problems. But I’m not a lawyer, and I can’t give legal advice. That’s what the bankruptcy lawyers are for.
If you’re considering filing a Chapter 7 or a Chapter 13, make sure you thoroughly understand your options by consulting with a bankruptcy lawyer. For some, once the property is disposed of through a short sale, there might not be enough debts to qualify for a bankruptcy.
