How can lender back out of deal, and where did deposit go?

Friday, January 11, 2008

Q: I put a bid on a home that was subject to a short sale early last month. I was told by my Realtor that it could take a little while before any decision would be made.

After calling my agent once a week for three weeks, he now tells me that the home went into foreclosure even though the seller wanted to sell the house, and I was told that my offer was gone.

The agent I was working with has now changed to a different real estate company. Somehow I feel that either my Realtor or the selling agent just wasn't aggressive enough in pursuing this deal. How can my offer just "be gone"? How can I still purchase the home? Do I ask for my earnest money back? Do I follow my original real estate agent to his new company? I am so very frustrated by this whole deal. I just don't think that it was handled well.

A: You certainly do have lots of issues with your attempted purchase of a home. But let's start with a little bit of understanding about the tempestuous real estate market that exists in most of the country today.

In some parts of the country, real estate values have come down significantly; homes are sitting on the market for months; mortgage lenders and home builders have gone out of business; and some homeowners are having problems keeping up with their mortgage payments.

The homeowner you were trying to buy a home from had probably not made a payment to his lender in many months. The owner was trying to get himself out of the mess and hired a real estate agent to sell the home. You found the home and you were willing to buy it. However, what you offered for the home was probably less than what the owner owed to the lender. The owner was short funds to sell the home. These circumstances gave rise to the "short sale."

But just because there is a deal on the table doesn't mean the lender is required to accept the short sale. The lender can take its chances, foreclose on the home and sue the owner for any deficiency in funds that the lender gets from the foreclosure.

There are newspaper reports of homeowners and other real estate practitioners attempting to get lenders on the phone for days at a time without success. Even if someone picks up the phone, it may take several tries to get through to the right person.

You deal may have fallen into this hole. Although we're not suggesting your agent did everything right, even the best agent might not have been able to do anything if he or she couldn't get through to the right person.

Unless you have other information about your agent and the seller's agent, you might want to cut them some slack. In this marketplace, they would have been delighted to have gotten everything together to make the sale.

Unfortunately, it didn't work out. Most likely, it wasn't that you weren't serviced properly but rather that market conditions didn't work out in your favor. Your offer wasn't really gone -- it just didn't go anywhere. The owner might have been willing to accept it but without the lender's agreement to the short sale, you would never have been able to buy the home.

The only apparent customer service flaw is that no one stayed in touch with you to let you know what was going on. That's a big problem, especially in today's market. Agents have to stay in touch with their clients during the offer and negotiation phase, so that everyone knows what's going on.  Numerous times this year, I have had to give my short sale clients an daily update report that told them I made no real progress that day.  I called for four weeks before we discussed moving on to another property or keep trying for another 4 weeks.

If you liked your agent, you can follow him to the new company he moved to. If you didn't like him or you don't feel he really gave you the proper level of customer service, you should find a new agent.

In any event, you should make a request for the return of your earnest money check. The agent you worked with should be willing to help you out with the return of the money. If he won't, then speak to the managing broker of the firm he worked for.