Tuesday, January 22, 2013

The Short Sale

This is a test of the feature that can send an email to people when my blog is updated. We will see if it works.

We agreed with the Seller of a house in Virginia Beach on September 20. We first expected to close on November 20, before Thanksgiving. But we just didn’t know about the “short-sale” process.

Coming from the “old days” in the financial business, the term short sale has a completely different meaning, referring to the action of selling a security that you currently do not own expecting to buy it at a later date, presumably hoping for a lower price to “cover” the short sale.

In the current real estate market, the short sale refers to the sale of real estate where the sale price will not be adequate to pay all the liens on the property leaving a “deficiency” as the funds come up “short.” It is really an agreement among the parties to avoid foreclosure that would generate additional costs for all the parties and result in less money going to the lien holders in the end. We don’t know who the lien holders were, for sure, in this one, but we know the bank was involved, we believe there was an insurer like Fannie Mae and we know there were some others, like the Home Owner’s Association that had not been paid.

When you involve institutions and bureaucracies, like banks and Fannie Mae, it is sort of begging to get inefficiency and delays. They can’t get a drink of water without looking it up in the rule book first, so reasonable actions take a long time to work their way through. On top of it, there are conflicts.

For example, their “proposal to sell” stated that the property was being offered “as is” which means that they had no interest in fixing anything or replacing anything. Well, I have no interest in paying too much, but sometimes I do, and my clients (selling businesses) uniformly tell me they will not carry back any debt…but they do because it makes sense. In this case, we offered a fair price for the house, accepted the “as is” qualification and we were off to the races, expecting to take a little longer, but close in a reasonable, 60-day time frame.

Upon inspection, however, we decided to make a further assessment by a firm that was qualified to inspect EIFS, Exterior Insulation Finishing Systems. The stuff looks like stucco, but is a sandwich of all kinds of materials, including plastic insulation (something like Styrofoam) and synthetic coatings. The problem occurs when the doofus homeowner allows moisture to get behind the system, which is not porous. This creates rot and mold. Sure enough, there was moisture in several spots.

We told them we were not going to close, even sent a formal notice of termination. Regardless of the “as is” clause, we were out. Unless they fixed the EIFS. Their alternative at that point was to see if they could get a lender to provide a mortgage to a buyer under the conditions that the house probably had mold (not likely), to sell to a “cash buyer” (significantly lower price), or to work with us. They decided to work with us, and they fixed the EIFS.

We will see, but it is scheduled for 2:00 this afternoon. Hope to actually have more clothes than could fit into a couple of suitcases. We have learned that we can exist with the stuff that fits into a Hyundai plus us and a dog, but it is pretty inconvenient. We have been in this situation since the end of July. Pioneers we are not!

Keeping fingers crossed.


  1. Bob, Good luck on the closing. The whole process sounds nightmarish.

    I did receive the post by email. Unlike people who receive mine by email, I decided to come to the actual blog to leave my comment. :-)

  2. Thanks for the good wishes. Glad the system worked, this will be better.

    Your comment about the process being nightmarish is interesting in that it was more like the old story about the frog and hot water. If you throw the frog in hot water, he will immediately jump out. If, however, you put the frog in a pan of cold water and heat it to boiling, the frog will just sit there and cook to death. Whether that story is true or not, it illustrates this whole thing. If we had been told that we could not close until January 22, over 120 days, we would have jumped out, but as it was, it was a slow cooking.

    And thanks for the comment on the blog. You are my trusted correspondent.

  3. It appears that we closed. Seems the bank is still twiddling or fiddling or whatever they do these days, but we paid money, obligated ourselves for a lot more (I will be 97 when it pays off) and now have the keys.

    I think it is from your collective good wishes because our efforts had been fruitless, heretofore. Thanks.