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I am currently under a short sale contract to buy a house from a seller in Las Vegas. We initially signed the deal back on May 14, but the deal has not closed yet and we have extended the deal several times already.
Two months ago, the seller moved out of the home and left it unoccupied. Concurrently, my lease at an apartment complex was ending and I needed a place to stay. The seller and I agreed on a deal which would allow me to move in and perform upkeep on the house in addition to paying rent to her for a reasonable rate. We signed a rental addendum to the short sale and I have now been in the house for about two months.
Approximately one month ago, I was informed by my realtor that the seller is refusing to sign a form necessary for the bank to proceed with the sale. Now, the sellers agent, my agent, and I believe the deal is going to fall apart. Our current contract extension ends on Dec 1. I was advised by my realtor to stop paying rent, and he notified her realtor of the same. Even though she was told all this, she still refuses to proceed with the sale.
My realtor has told me that I will be able to stay in the house until the bank forcloses on it without paying rent because the seller is in breach of contract. While I agree with his assessment, I am nervous and don't want to face negative repercussions to my credit or have to deal with legal issues if he is wrong. Is there anything I can do to protect myself in this situation or anything that I should be doing already?
My realtor has told me that I will be able to stay in the house until the bank forcloses on it without paying rent because the seller is in breach of contract.
Your realtor is a moron.
You paying rent and the contract to sell the house are two different things. The seller still owns the house and if you stop paying rent they can evict you and sue you for back rent. And a judge will side with the seller and you will have to pay. As long as the house is in the sellers name, they have legal rights.
The sale of the house is a completely separate legal issue. You can sue the seller for specific performance. Which is a court order which requires a party to perform a specific act, usually what is stated in a contract and force the seller to sign the paperwork.
If you wait for the bank to foreclose, they will evict you and place the house for sale or auction. There is a very small possibility they will allow you to stay and pay whatever rent they demand. The deal you had with the seller for a short sale means nothing to the new owner, the bank.
If it were me, I would pay a lawyer $50 to write a simple letter stating your intention to sue, seek damages, etc, if the seller does not go through with the sale. Maybe it will change the seller's mind, maybe not.
I think beyond the above situation you've mentioned, you're in a bigger pickle of a situation. Short sales have to be arm's length transactions. By becoming a tenant in the property, you're no longer an arm's length away. I doubt the short sale will be approved in your current situation. You cannot lie on your loan documents. You must state that the property is your current residence. The seller's bank will have you sign a document stating it's an arm's length, and if you sign that, you're committing mortgage fraud there as well.
Generally agree with the above feedback, however, your obligation to continue paying rent may depend on what your rental addendum requires. Does it specifically say you can withhold rent under certain circumstances? If not clear to you, then suggest you review with an attorney. But moving into the house was a big mistake as FalconheadWest indicated.
As an experienced home buyer who has owned 7 properties and different types of real estate in 4 different states (i.e., co-op, condo, fee simple townhome, manufactured home, land-lease, short sale, foreclosure) I have 2 words for anyone considering a short sale---STAY AWAY!!! Unless, that is, you're an investor or someone considering it as a second property. Unless you have the patience of a saint, unlimited time to invest, have a lot of money and a very high threshold for stress, and don't mind being jerked around by a bank that could care less about you, about ethics, or about fairness.
When a short sale tempts you with a very low price tag, it is often only the price put on it by the seller's realtor to attract offers and a potential "bidding war". Once the bank gets your offer, even if it's full price with no contingencies, they will most likely have a professional appraisal done on the property. If the appraisal comes in significantly higher, THAT'S THE PRICE THEY WILL DEMAND! The original contract you sign with the homeowner is WORTHLESS. It only signifies that the seller personally is OK with the agreed upon price initially. It DOES NOT mean that you will get the house for that low price that tempted you. So now you have wasted months waiting for bank approval thinking you were getting some sort of bargain. Yet, you may wind up paying as much or more than you would have paid on a traditional sale with none of the BS involved.
And if you really still want the house even after the bank comes back with that high asking price, don't expect to negotiate a lower price or ask for any closing costs, and don't expect the seller to pay for any repairs or damages you may be saddled with if you have it professionally inspected. Remember---the bank is taking a "SHORT". They are still losing money because the seller owes more money on their mortgage than they can afford to continue paying, and the seller(s) cannot sell the house themselves because the house is not worth the price they would have to demand in order to pay off their mortgage.
Trust me, folks, IT IS NOT WORTH IT!!!
Last edited by Mec4U; 11-29-2012 at 11:09 AM..
Reason: typo
I agree with the above advice and I'm not convinced that the seller is in breach. At least out here the seller gets to agree to the terms of the short sale. If the lender requires the seller to contribute they can refuse. So in order to say the seller is truly in breach you'd need to say what form they are refusing to sign. If it is the short sale approval letter and documents, it might be that they aren't okay with the terms outlined by the bank.
Last edited by Silverfall; 11-29-2012 at 12:03 PM..
Why would you move before the seller's bank approved the short sale? So many things can go wrong like above post mentioned.
We are 7months in a short sale purchase and we are getting close to have a final approval but I'm not going to do anything until seller's bank send the written approval with a closing date.
I think beyond the above situation you've mentioned, you're in a bigger pickle of a situation. Short sales have to be arm's length transactions. By becoming a tenant in the property, you're no longer an arm's length away. I doubt the short sale will be approved in your current situation. You cannot lie on your loan documents. You must state that the property is your current residence. The seller's bank will have you sign a document stating it's an arm's length, and if you sign that, you're committing mortgage fraud there as well.
Looks like you just need to move on.
Becoming a tenant does not mean it is no longer an arm's-length transaction.
HUD's definition:
An arm’s length transaction is characterized by the following (1) the absence of a relation between the buyer and seller; (2) a selling price and other conditions that would prevail in an open market environment; (3) transaction costs paid by the seller that are considered both reasonable and customary for the market in which the property is located; and (4) the adherence to ethical standards of conduct by all parties involved in the HECM short sale transaction, including the borrowers (or the estate), mortgagees and appraisers.”
Becoming a tenant does not mean it is no longer an arm's-length transaction.
HUD's definition:
An arm’s length transaction is characterized by the following (1) the absence of a relation between the buyer and seller;
The relation between buyer and seller is Landlord and tenant. This doesn't have to mean a family relation. And HUD can have one interpretation, yet the lenders have an overlay interpretation. I've never seen a landlord/tenant situation get approved.
Despite all the hoopla, what is the form the seller is refusing to sign?
I would talk to the listing agent and see exactly where the disconnect is.
Yes, you could simply be dealing with a scumbag seller that doesn't care about their credit (if it goes to foreclosure) and has been making money off you in the meantime.
But, I've done hundreds of short sales and if the Listing agent is not on top of their game, much can be lost on the seller and the deal can be ruined.
I would listen to a lot of the advise above, but first and foremost find out WHAT docs need to be signed to close, specifically WHY NOW the seller doesn't want to participate, and what the real story is beyond that?
Then, you need to review your Lease addendum and the landlord/tenant laws in your state as they relate to homes in foreclosure.
Enlist the agent to do his/her job and get the seller back on track, otherwise you will have to formulate an exit strategy out of the rental and never look back.
Good luck.
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