How a Sacramento Short Sale Goes to Foreclosure

The failure of a Sacramento short sale is often attributed to one party.

If a Sacramento short sale goes to foreclosure, odds are it is not the bank’s fault, like most people believe. When you spot that sign falling over in the yard of a short sale because that sign has been there for a year or longer, it’s probably not the bank that is keeping the sale from going through. Sure, there are situations in which banks swap out negotiators like flicking dead fleas off a dog, and that can delay the short sale process, but most of the time, it is not the bank.

The reason a Sacramento short sale goes to foreclosure is typically not the seller’s fault, either. Responsible sellers choose to do a short sale over a foreclosure because they want to do what is best for their family. I can think of zero situations in which a foreclosure beats a short sale for a homeowner. Foreclosures more severely affect credit ratings and hamper a person’s ability to buy another home.

Also, it is not the Sacramento short sale agent who is to blame, either. Although there are cases I’ve seen in which the seller was never qualified by the agent prior to taking the listing. Some agents think a short sale is easy: just list it, find a buyer and hire out a third-party negotiator, and magical fairy dust will get it closed — while that approach seems to be a recipe for disaster. If a seller has hired an experienced short sale agent who has closed hundreds of short sales, her short sale is likely to close.

So who is left in this scenario, you might ask? Out of the remaining parties to the transaction: title, escrow, buyer’s agent, mortgage lender and buyers, there are a few possible guilty individuals. Logic dictates we remove title and escrow because they carry zero culpability. That leaves us with a buyer’s agent, buyers and / or mortgage lender. Ultimately, however, it is the buyers who hire the mortgage lender and buyer’s agent, so I directly point the finger at the buyers and hope they don’t nip my nail polish like some rabid dog.

What are the buyers’ problems? They often can’t qualify for a loan, when the rubber meets the road, because their preapproval letters are meaningless. They don’t have the money, or they once had the money and spent it because they forgot they were buying a house. They have a foreclosure on their own record and can’t get a loan. Somebody lost a job. Or somebody never had a job to start with. They never really intended to buy the house. They found another property they like better, bailed and spaced out informing anyone.

Whatever. Nine times out of 10, when a short sale goes to foreclosure, it’s because of the buyers. The California Homeowner Bill of Rights law does not stop a foreclosure while a short sale is underway. Banks file a Notice of Default after a few months of non-payment and the process does not stop. The only way (prior to January of 2018) to stop a foreclosure is to receive a short sale approval letter. If the buyers can’t close, though, the short sale goes to foreclosure because there is generally not enough time left between the trustee’s auction and the new offer to prevent it.

This is why we put so much emphasis on the buyer’s agent committing and promising to not show any more homes to the buyer. This is why we call the mortgage lenders to verify they have run a credit report and taken a loan application before whipping out that letter. This is why we ask buyers to wait at least 90 days for approval, to deposit funds into escrow and to behave like a buyer should. Even so, ever so rarely, the buyers flake.

And it breaks my heart. I would not be surprised to see foreclosed-upon sellers take buyers to Sacramento Small Claims Court. To seek retribution. Especially if the sellers lose a $10,000 HAFA relocation allowance due to the buyers’ direct failure to perform. Small Claims Court allows $10,000 judgments, where judicial decisions can be based on extenuating circumstances.