Buying Short Sale Issues

[Victor N.]

Trying to purchase a short sale for the first time. This is a single family house that I'm hoping to live in. Current owner is an investor and was trying to flip the house but "ran out of money". The property is in foreclosure and the law date is July 7, 2020 ( the property is in CT where all foreclosures closed cases  law days were all automatically pushed to July 7 by the state due to Covid 19).

Owner owes more than current value and stopped working on property about 11-12 months ago. Still a lot of work left to be done but all the major ticket items were taken care of. Floors, paint, kitchen cabinets ( no counters), baths etc... well about a month or so ago, after the owner had finally accepted our offer, someone broke into the house and stole all the kitchen and bathroom cabinets. Neighbors called Police  and insurance adjuster came out. I do not have any additional info about the police or the adjuster.

We made an offer back in February and after about 2 months of waiting, the owner finally accepted our offer, which I think was the highest, and signed our contract ( there were multiple offers mostly from other investors). Now we were waiting for the bank to approve the short sale when I discovered that the owner accepted a second offer about 3 weeks after ours. The price is 10k higher than our offer. He hired an attorney to represent him and the new buyer. The attorney filed an appearance in court with their sale contract looking to extend the law date which was in June. They were looking to extend the law day to October but the court simply pushed the day to July 7, which is the date the state uses for all prior closed cases. This is a strict foreclosure because there's no equity.

The listing agent is also our agent. She was a tremendous help until this point but now it doesn't look like she can do much more with the current situation even though she said she is in contact with a bank representative regarding the short sale. The new offer was made via a different agent ( a buyer's agent). 

I contacted the attorney representing the owner and the other buyer to let her know that we have a contact signed by the owner which is dated prior to the new contract. All she said was that she was not aware of another contract and will talk to her client. I never heard back from her.

My fear is that their attorney is working with the bank to get their offer accepted and undercut me. The listing agent is no much help. So my question is, what can I do? What are my options? Does it matter that I have an accepted offer prior to the new one? Im currently searching for an attorney to figure out my options but hope you guys might have some insight to share.

[Lumi Ispas]

@Victor N., the way the short sales work, only one offer can be sent to the bank at all times. If a new offer is sent the process starts all over again. It seems to be that the seller had sent to the bank the 2nd offer and not yours, so you have two issues. First of all the bank is negotiating an offer that's 10K over yours, so even if you win in court and your contract is sent to the bank, now the bank is aware that someone else is willing to pay 10K more than you and will simply deny your offer. The only way you'll win is if the 2nd buyer will withdraw their offer voluntarily and the seller's attorney will explain that the buyer was not a serious buyer. 

Talk to your attorney, however, it looks to me that your only options are limited. You can go after the seller for breach of contract, still, if he's going through a short-sale, how much money does he have? What will you actually gain? And if the property is going through foreclosure and the date is so close, what's the chance of you winning before the property was either sold to the 2nd buyer or was foreclosed on?

I will say cut your loses and look for another project and next time you get a signed contract, make sure you have your own agent, don't do dual agency, as the listing agent has allegiance to the seller, not to you, and after delivering earnest money, make sure that property is removed from the market as active and that the contract is sent to the bank immediately.  

When you invest you need a really good team: a broker that understands the process and always hire an attorney for your transaction, that $500 per transaction will be some of your best spent money along with the inspector you hire!