Love in the Time of Foreclosure

How we AVOIDED foreclosure

(This post was written & posted on Friday, July 10, 2009)

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Now that we are miles away from Los Angeles, the house and the thought of foreclosure, I finally have the mental space to connect the dots a bit more than I have regarding HOW we actually sold the house.

Several readers have written to ask how we were able to sell the house and avoid foreclosure and I realized that I've been writing more about the EXPERIENCE of everything than the FACTS. So here it is. The FACTS (and story) of how we AVOIDED the F word:

TERMITES Killed Our First Deal

At the beginning of April, we had two submitted offers on our house. Submitted meaning we had received two offers from two separate parties and submitted them both to Countrywide for approval. This is what happens in a short sale. You then wait for the bank to choose an offer to approve. Or not. We had no idea how long this would take. On April 27, Countrywide accepted one of the short sale offers on our house. The offer was for $690,000. Remember, our original list price was $875,000 then we lowered it to $799,000 (the price we paid for the house) and then to $749,000 (short sale territory.)

Countrywide accepting the offer was a great step forward, but we still had to wait for approval from National City (our second.) We got that on May 5th. At that point, we had an accepted short sale offer that was contingent, of course, on the property inspection. We were set to close on May 19, 2009. Prior to the buyer's inspection we had a termite guy come out to do our own inspection. He quoted us $600 in repairs. But when the buyer did their inspection, the report came back with $9,000 in damage! That's quite a difference. With this new report in hand, our guy came back and refuted each point.

"That's old damage," he'd say. "That water mark is old. There's no leak now. That's from before." Each point, refuted. Hmmm... Why such an enormous discrepancy? Well, we still don't know. All we know is that the $9,000 termite report was enough for the buyer to walk.

In a normal real estate transaction (i.e. a non-short sale) the seller is the one who covers those costs. And often it's a point of negotiation. But since this was a short sale, the house was being sold "AS IS" and it was incumbent on the buyer to cover those costs. Not the seller. Not the bank. The buyer. Out of pocket. Prior to close. Most people's cash is tied up in the down payment and most people don't have $9,000 lying around for termite repairs. That's what happened. They walked. We have our own theories about the report. But it's all conjecture and I won't go into that here.

The bottom line is that termites killed our first deal. Which meant? House back on market. Foreclosure still pending. Days click away on us.

WHY the words "Bank Approved Short Sale" are so sexy

With the house back on the market and the words "Bank Approved Short Sale" in the MLS listing, we got a frenzy of showings. We did two more open houses and had close to a hundred more people come through the house. It was interesting to see what had changed in 9 months. You could see a shift in attitude. Back in August or September, the words "Short Sale" were a plague on a house. In April, however, they represented opportunity. A DEAL. Add "Bank Approved" and you've got a buyer's wet dream. Especially on a house like ours. What it meant was this: They could get a house worth $940,000 (the price we paid for it plus the amount we invested in upgrades) for $690,000 and they wouldn't have to wonder if the bank would approve that offer. It was already approved. As long as their offer was the strongest, this dream house could be theirs.

WHAT makes a strong offer?
-Highest offer
-Most $ down
-Shortest escrow period (the bank wanted no more than 30 days)
-ZERO contingencies on the buyer's end

Less than a month after losing our first deal, we had several offers that submitted to the bank and several parties who really wanted our house. The first one came in on May 8th! That was only a few DAYS after losing the first buyer! A few days! We were feeling good. Phew. Relief. Right? Wrong. Why? Because of this. The bank was still trying to foreclose on our house. Why would they do that? The offers were all above the accepted short sale price. If they accepted that one, they'd certainly accept one of these new and better offers, right? AND there's no way they'd get $700,000 at auction. Nevertheless, the auction date had been set. For June 9, 2009 at 10:30 AM.

But why? Because things take time. They hadn't yet approved any of the new offers. And without an APPROVED short sale offer, the foreclosure remains on the books.

HOW we forestalled our foreclosure

A lot of kicking and screaming on my part. Well, basically I drove everyone crazy until it happened. I've mentioned this before... that we were working with two agents. Both wonderful. Chris Carlson from Keller Williams Studio City (who sold our condo in two days above list price and sold us the house) and Jody Margolis from his office who was brought in as the short sale expert. Jody's expertise was in communicating with the banks. She's the one who told me how to speed things along by getting in communication with someone in the Office of the President at Countrywide. It was because of her that I went on my rampage to get a hold of someone there. And that helped SO MUCH.

Anyway, I was determined to forestall our foreclosure. Jody assured me that as long as we had a short sale offer, they wouldn't sell our house at auction. But as long as that date was listed in the public record, I could not breathe. And on May 21st when ReconTrust posted the Notice of Trustee's Sale on our garage door, I flipped. As I wrote here.

I didn't understand why it was still on the books. I was told that it was because they were still reviewing our file. Our negotiator said it was fine and not to worry, but that wasn't enough for me. I needed that date moved. On May 28th we received our approval letters on one of the offers and were officially (again) in escrow. The bank had chosen the strongest offer and accepted it. It so happens that it was the first offer put in after the last had fallen through. The buyers had been quite patient. They waited 20 days for that approval. Which seems like a long time. But, in most short sale situations it can be much longer. We finally got that postponement. On June 5th. Four days before the auction date. They moved it to July 28th at 10:30 AM. I could breathe. That was plenty of time.

May 21 - Notice of Trustee's Sale (June 9, 2009 at 10:30 AM) posted on our garage door.
May 28 - We entered escrow
June 5 - Four days before the scheduled auction date, we finally received our official postponement. The bank moved the date to July 28, 2009 at 10:30 AM - allowing enough time for us to close on this deal.

Phew. We breathed a sigh of relief. Then crossed our fingers that the termites wouldn't kill this deal too. By law, we are required to disclose all previous inspections to the buyers. So they were very much aware that there could be an issue with the termite report. And when they did the first report the news was better, but not much. The company they brought in had quoted them $6,000. Still too much. But they weren't going to walk. We were all determined to work this out. Like I said, they wanted the house.

We brought in a non-biased company that both Realtors agreed on. A company that doesn't do the repairs themselves. This company quoted $2,500. Much better. And they were able to address everything for that amount. When the buyers finally went ahead with the repairs & fumigation, they were able to get it done for $2,000. Thus, sealing the deal.

I felt like the buyers were extremely generous with us in terms of their patience and understanding. Because of the blog we've really been out there. Full disclosure. There's nothing to hide. They knew our situation. And they were very kind. They gave us a lot of room and did what they could to be logical and workable every step of the way.

And THAT'S how we avoided Foreclosure. Once we realized we'd never sell our house for enough to get us out of debt, our goal became to simply AVOID FORECLOSURE. Why? Why is short sale better? Well, it's better for us because it's less of an impact on our credit. It's better for the bank because they don't have to own and manage the property. Also, they usually get more money from a short sale than at auction. So that was our goal. Avoid Foreclosure. And we did.

It got close there for a minute or two. But we did it. Thanks to our Realtors and our persistence. It takes a lot of persistence. If you're facing foreclosure, fight it. How? Communicate. Communicate. Communicate. Ask questions. Call your Governor, your Representative, write letters. Anything you can think of. Just stay in action. And stay committed. That's our advice.

Would we buy a short sale?
Well, that's a loaded question. First of all, we can't buy ANYTHING right now. But if we could? Let's just put it this way. IF we were in the market for a house (and that's a big if,) YES, we would buy a short sale.

Why? Great deals are available through short sales, but not without some hassle along the way. And, that's probably a huge understatement. If you're a buyer, just be prepared for it. Some people might not be cut out for the amount of uncertainty inherent in a short sale transaction. In my mind, if you can handle the wait and the uncertainty and many variables, it's worth it for the deals you could land.

If you're an agent, please prepare your buyers for the wait and hassle of a short sale. They aren't neat and tidy. And the rules change from state to state, transaction to transaction.

A couple of months ago I interviewed some friends who recently bought a short sale for the blog. I wanted to convey the buyer's side of the foreclosure market. They had so many great stories to share and wonderful insight about the process of buying a home in this market. I haven't written that yet, obviously, because I just got so caught up with our own situation. I still plan on writing that article, though. Because I think it's really entertaining and enlightening and would provide value to LITTOF readers.

How many of you are in the market for a new home? Just curious. I'd love to know. Please, either write us at loveinthetimeofforeclosure@gmail.com or post a comment below. Thanks.

Realtors, buyers, sellers... do you have anything else to add, contribute, argue, question? Please do so in the comments. I think this could be really helpful to other people out there in a similar situation. Thanks!

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