Not Cat Bar

Short Sale and Time Line

We bought our first home in 1990. At that time, Gainesville, Va., was an old, semi-rural community with a couple of new subdivisions off of the town's major north-south road. Our home took a couple of months to be built and when we finally moved in, there were still a few empty lots on our street.

Our street ended in a cul-de-sac with a blocked and unused turn-off just before the end. Consequently, there was next to no traffic on the street, and the neighborhood kids could ride their bikes or play on the road without having to worry about getting run over by speeding cars.

This changed while our son was in high school. The land after the turn-off was sold, and a few hundred homes were erected. Our street became the access to this new community. Traffic on our street was never the same. What used to be a 25 MPH zone where people drove at 25 or less turned into a 25 MPH zone where 35 is the norm and often drivers will do 50 while paying more attention to their phones than the possibility of hitting a pedestrian or pet.

Yeah, it bugs me, but maybe we've just been here too long. We've been talking about getting out of this neighborhood for a while, but we finally decided that "now was the time." In 2010, we paid off the mortgage on our home. This was more than half the amount of the original selling price of the home, but you know how that works. The banks have you first pay the compounded interest off with very little of your monthly payment going to the principal. In the last years of the loan, you pay down the principal. What a racket.

Any way, we decided that with the resale value of our home now lower than we'd seen it in years, we'd try renting the place out for a few years before we tried to sell it. Maybe the market would turn around and we'd get some of the money back that we'd put into it. We didn't want to make two payments (current home and new home), so we paid it off early.

We started looking for a new home in mid-October 2010 in the small town of Summerduck, Va. The first thing we noticed is that pictures of real estate lie. The pictures in the ad looked like as it might be a decent place to fix up, but actually it was a horrible ramshackle home on a lousy piece of property. Who would have guessed? The agent who advertised the home on Craigslist was acting as a buyer's agent for this property. He would later become out realtor. He showed us the place, then followed us out and showed us a pretty nice home in Jeffersonton, Va. That was one of the better homes we saw in the beginning of our home search. Unfortunately, our furniture (the rather large, new entertainment center in particular) wouldn't fit in the family or living rooms. That wouldn't do.

The following Saturday we saw a few more. All told, we must have looked at 30 with our realtor, another 20 by ourselves (mostly outside only), and countless hundreds of listings. Some were close to what we wanted, but all failed in some way. Nice land and not so nice home or nice home and too close to neighbors or no place for all my tools, which was my must have item. Dated master bathrooms or kitchens usually turned Susie off immediately. Our agent sent us listings a few times each week, but we also watched Craigslist and a couple other sites.

Sometime in April 2011, we saw a listing for a big brick place in Catlett, Va. Compared to the other homes in our price range, this place was big. Almost twice the square footage of most of the homes we'd seen. When the ad first ran there was only one photo of the outside in the listing. It looked like the yard was a bit overgrown, but the house looked pretty nice. (Remember that pictures lie.) At 6,100 square feet plus another 1,700 in the basement, it was pretty spacious. For the first few weeks, we passed on looking at it because it was a bit over our budget. It was also a short sale and we figured that there had to be something wrong with it to be listed at such a relatively low price. There was just too much home for what they were asking. As a few weeks passed, the price dropped a bit. We decided to take a look at it.

It was mid-week and seeing as it was a short sale, we figured that the home would be empty. We called the listing agent and asked if we could stop by to look at the outside. Normally we'd just drive by and check it out unannounced, but after checking Google maps, it appeared that this home couldn't be seen from the road due to the long driveway. If it was nice, we'd make an appointment with our agent to see the interior and walk the land. We told her that we were already working with an agent. This is important to remember to do so that there is no misunderstanding about who is representing you. She got back to us quickly and said that not only could we see the outside, but that the owner would show us through the home.

We met the owner and hit it off with her immediately. She and her two young children took us on a tour of the home and told us the history of the place. She told us of everything that she knew that was in need of attention. She loaned Susie a coat and took us on a grand tour of the property. About 1/3 of the property is cleared and the rest is densely wooded. We took a trail through trees to a small creek that runs through the western side of the property. Quite a nice hike. Quite a nice piece of property. We wanted it. It needed lots of work to get it back in A1 condition, but it's a grand home.

Nothing seems to happen quickly in a short sale. However, if you have the time, it can be done. In our experience, the price that the home sells for seems to be dictated more by how much is owed on the property than the actual market value of the home. If there is a second mortgage or additional loan against the home, expect the price to go up. The bank will want to get back as much of that money as it can.

In our case, there were two loans against the home. Unfortunately, we didn't find this out until after we put a contract on the home. We still don't know how we didn't find out about this. We had planned to look at two homes that day and we were dissuaded from even looking at the other short sale home as our realtor said that there were two loans on that property. One would gather that this meant that was only one on the house we eventually bought, but that wasn't the case. In retrospect, we should have made sure, but at that point we took everything our realtor told us as fact.

We made an offer on the home. We offered the full price that the owner was asking, but asked for $10k in closing cost assistance and asked that the owner or bank pay for the well and septic inspections. We figured that the counter offer would be less in our favor, but this was our starting offer. The owner made some small changes to the contract, and a week later we had a signed and ratified contract. With a normal sale, that's the end of it. You set up a closing date and you buy the home. For a short sale, this is only the first step. Once the owner has a ratified contract, they need to fill out some paperwork that states that they've encountered a hardship (in this case, the loss of a job) and request that the bank consider selling the property for less than the amount of the loans. That took the owner a week to do. The bank then decides if they're willing to do allow the short sale. Even though the owner had been paying the interest on the home loan for seven years, the interest doesn't enter into the equation. All that the bank looks at is the remaining total of the outstanding loans. If you've only been paying on the loan for seven years, the principal hasn't been paid down much. Remember that for the first 20 years of a 30-year fixed loan, you are paying more interest than principal and not gaining much equity. This is the best incentive I can think of for trying to make additional principal payments each month, even if it is only a couple hundred dollars.

Once the short sale paperwork and ratified contract are sent to the bank, you wait. If the person overseeing the short sale has a lot of them to process, you wait a long time. When they finally get around to looking at your offer and the short sale proposal, they decide on how much they want. The contract you have with the owner doesn't seem to have anything to do with this. After three weeks of waiting, we received the counter offer. The bank decided that they wanted $130,000.00 more than the full asking price we had a ratified contract at. WTF?

We have no clue where they came up with this amount. It was higher than any comparable property in the area, and that was for homes that were move-in ready. This home was not. You couldn't even safely get to the front door. The brick steps were falling apart due to poor mortar or something, and there were dozens of loose or missing bricks. Walking up the steps was taking your life in your hands. There were also numerous cosmetic issues with many parts of the home, including missing siding and some water damage. The home seemed to be structurally sound, but there was lots of work ahead for the new owner. The price that we offered was in line with the location and condition of the home.

When we got SunTrust's counter offer, we were heartbroken. We had already become emotionally attached to the home and were enjoying ourselves figuring out what we would need to do to make the place wonderful again. Oh well. Since the addition of $130k was more than we could comfortably afford without selling our current home and the home just wasn't worth the extra $130k, the sale wasn't going to happen. We figured that we had nothing to lose, so we composed a letter to the SunTrust adjuster stating why we thought the counter offer was out of line. The letter was professional. We didn't tell them to "Go soak your head in a bucket," but we did question their sanity. We also itemized and estimated the price for all of the work that we thought needed to be done to make the home move-in ready. We sent the letter off through our agent and prepared to start looking for another home. This time it wouldn't be a short sale and certainly not a short sale through SunTrust.

I have to interject here with some of my thoughts on short sales. The whole process seems to be broken. Why isn't the bank involved with setting the price for the property before the home is listed for sale? Why should a buyer have to make an offer--of the asking price, no less--and then be subjected to the bank jacking up the price and wanting to make more of a profit from the transaction? Since a short sale usually happens when the current owner sees that they will be unable to fulfill their payment obligations, it should be required that the owner and bank get together to decide on a price to ask for the home before listing it. If the home doesn't get any offers at the original price (as this one didn't), both parties should agree to drop the price until it sells. This is no different from selling a home without a short sale attached. The overriding thought here is to get the current owner out of the home and have the bank retain as much capital as possible without having to go to the next step, foreclosure. Foreclosure benefits neither the current owner nor the bank.

The bank is not the only party to lose money on a short sale. The owner who short sells their home still has some financial obligations. After the short sale goes through, the owner is held responsible to pay taxes on the difference between the amount owed and the amount the bank receives. In the case of our seller, this was a couple hundred thousand dollars that they are assessed taxes on.

This has been our one and only short sale. Thank goodness for that. It may be that other banks or other real estate listing agents follow a more sane approach, but from my research online, this is not the case. The web is filled with stories from real estate agents and customers as to how broken the short sale process is. With the amount of people who bought homes during the peak of the home market frenzy and now find themselves owing more money than their home is worth--even after putting 10 or 20% down--I think we will continue to see a lot of short sales being offered. If the banks want folks to buy these homes, they need to simplify the purchase process. You can't put them through four months of hell (like we've been through) and expect them to have anything but horror stories about the sale. But then again, the banks that were too big to fail (and failed) may be too big to care about this as well. With the amount of money a bank makes by financing a home, even at the current low rate of around 4%, which works out to about double the loan amount in 30 years, you'd think that selling the home would be more important than letting it sit idle waiting to be foreclosed on. Anyway, enough of my ranting. Here is the time line for the purchase of our new home.

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