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Short sale nightmares?

We put in an offer on a short sale home just under a month ago, the owners accepted but they had an 80/20 loan so we hired a lawyer to get the two banks to agree on her offer. Last our real estate agent talked to the banks, lawyer and other real estate agent it looked as if the banks were going to accept our offer (this was wed. or thurs. I believe) but on saturday I searched the house to see if there were any updates on remax or any of the other sites and came across a foreclosure notice in our local paper for July 11 that was just entered friday. Is it possible for them to go to auction and try and get more than our offer behind our backs? Obviously we know now but could that have been their original plan or would that be against the terms of the agreement?? One things for sure, we will never attempt another short sale purchase! Goyo- With short sales, the home owners make a deal with the banks before they are foreclosed on. They are the true owners, they put the house up on the market, they pick the best offer and then the banks must agree with it. You can't just make an offer to the banks. Teran- I think you may be right here. Our real estate agent actually doesn't seem to worried and the lawyer posted a bunch of other foreclosures the same day-- probably just taking care of the paperwork in case our offer falls through. On the bright side, at least now we know we'll have a solid answer before then!

Public Comments

1. The problem with real estate right now is that it isn't worth what people owe on it and so they are trying everything they can to get rid of it. On the other hand, the banks (or other note holders) are trying their best to get top dollar without foreclosing, even if it means just getting the amount owed on it. The problem with a foreclosure is that when the house forecloses and sells, whatever the difference between the selling price and the balance owed, is still the responsibility of the buyer of record at the time the house foreclosed. But the problem with this is that if they weren't paying for the house in the first place, then they probably aren't going to pay the remaining balance after the foreclosure sale either. So the bank (or note holder) had the quandry of "should I short sale it or foreclose". The answer is usually given by whether the short sale with bring enough to pay off the loan or if a foreclosure auction would pay it, or if neither will and they just have to get the highest price they can. In your case, they probably tried the short sale, but after all the costs with two banks involved, the note holder bank decided that foreclosure was their best option. And if they had already served the proper notices leading up to it, then they can decide to foreclose at any time after the notice time as long as they haven't signed any contracts for another buy/sell on the property. To answer your question, I'm sure that it probably was their intention, but if they could have done better in the short sale, they were willing to go that route. Since they didn't seem to think they were going to, they went ahead with the planned foreclosure. Edit: One thing I forgot to mention concerns the owner of the home. You say the "owners" agreed to the sale, but they had an 80/20 loan. That means there was still a note holder for the loan, and they are the true owners. You should have gone straight from talking to the "tenants", to meet with the bank (note holder) and presented the offer to them. That way you would know exactly what the status of the home was and not got caught by surprise. If you find another home and want to try the short sale again, make sure to talk to the real owner before getting your hopes up on a plan. Final note: If they still owed money on the house, then they are not the owners, the bank is. And if they were the true owners, why would they have to talk to the bank at all and have them agree on anything? The "homeowners" might have had a large amount of equity in that house, but until the loan is paid and the deed transferred, they don't own anything! How on earth could a bank foreclose on a property that is owned by someone else? They can't - they are the owners and that gives them the legal right to foreclose on a property where the loan is in default.
2. No bank will stop the foreclosure process just because the owner is attempting a short sale especially if they feel they can get the more money from foreclosure sale. That is a judgment call on the part of the bank. The bank does not know what the amount of money the short sale will generate until a solid offer comes in. With 2 banks involved the situation is worse because the second mortgage holder does not want to give up the possibility of a recovery. It makes for a big mess. Good luck!
3. The lender filed the papers for foreclosure because it's time for it. If you don't follow through with your purchase, they will foreclose upon the house. If instead, they waited to see if the sale was going to go through...and then it didn't, that would have been another month wasted in waiting to get the house. If on July 10th, it still looks to the lender that the short sale is going to go through, they can remove the house from the auction list. It's not their "intention" to foreclose on the house. It's their intention to get the most possible for the house. Edit - The situation you describe here is something that can happen on any short sale house. A short sale means that the lender is willing to take less than what is owed to them. The only reason they do this is because the seller is behind in payments and foreclosure is imminent. Short sales often get dragged on for a while because the lender is trying to decide which is better - the offer that a buyer and the seller agreed to, or the amount they think they'll get at the courthouse steps, or what they'll net if they keep it and then list it - with an 80/20, the third option is probably the best for the 80% holder, because at the 20 gets erased once it's foreclosed upon.
4. normally for a lender to take a short sell it has to already be foreclosed on and gone to auction at he courthouse where the bank buys it and proceeds from there..if you are seeing it in the paper doesn't mean they are trying to get more. they are just following a process..normal foreclosure rates where i live are about 60 cents on the dollar right now.