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Updated over 8 years ago, 05/26/2016
Wells Fargo short sale negotiation - help!
We bid $166k cash on a Wells Fargo short sale property in January. Bank came back today with a counter of $175k (which includes $10k relocation for seller). We want the property but want to counter the smallest amount that would get this done. Short sale experts - all advice and suggestions are welcome! Thanks
@Shefali R. It's a tough situation with no easy answer. The most plausible way in getting the property in my opinion without letting the approval letter expire is to give consent to let them stay there for 3 months which has obvious risks. Without the sellers on board getting the deal done is going to be a nightmare or simply impossible. Rent backs are typically not okay when a property is short sold unless if a non profit purchases the property. You're basically allowing them more than adequate time to "relocate" from the home. Is there any wiggle room on when they will move? Can you negotiate them down to a month or 45 days?
thanks @Brett Goldsmith - they have serious (real) medical issues and need 3 months of treatment to resolve. After much reflection and realization that we need to not have deal fever, we have decided to decline the request.
We are proposing to them to request Wells Fargo to extend the closing date on serious medical grounds (we know there is a slim chance). Else we are prepared to let the deal go.
Questions: 1. in your experience, does Wells Fargo ever extend closing dates if both seller and buyer agree to a guaranteed closing on that future date? 2. if we lose the deal and it comes back on market, will we be allowed to submit our offer again (would the bank hold current non closing against us).
Thanks
As a casual observer of this saga, I am happy that you declined. I hope you don't lose the deal, but they don't want to lose the deal either. The only other option I would have offered would be if they pay full market rent and sign a waver against any lawsuits.
@Jesse Chunn - the unit would rent in the market for ~$2,300 pm and they are willing to pay ~$1,500 pm - even if they were to come up, they will still be atleast $500 below market.
what do you mean by waiver against any lawsuits. thanks.
As tenants they have rights and you as the landlord have obligations. So I mean they waive any claims against you as a landlord and any rights to "squat" while you try to get rid of them when the three months is up. And as for what they are "willing" to pay, as far as I am concerned that is irrelevant. It is a question of what you are willing to rent for. You have a right to charge whatever rent you want, and it is only fair and equitable that you, while doing them a favor, get fair market value at a minimum, unless you decide to do it out of the kindness of your heart. You are in essence paying an additional $2400 for the property ($2400 is what you lose compared to market rates over 3 months). Of course, I am a negotiator in the business world outside of real estate, negotiating with the Walmarts and Targets of the world (the toughest negotiators on the planet) where I am up against heartless opponents, so I may be a little more hard nosed than most other people, AND I might lose your deal. You are there and you know how badly you want the deal and have a feel for what they will tolerate, so trust your gut. I did really like your comment that you don't want to have "deal fever". That alone tells me you have your head on straight. Every time something changes you have to reassess your positon and make sure the deal is still good.
@Jesse Chunn thanks!
Yes I think we are prepared to let this one go - there will be other deals.
Originally posted by @Shefali R.:
@Ibrahim Hughes thanks - great point - will call my attorney today and check paperwork re HUD and explore escrow option. We prefer to close once they vacate and only concern is does deal fall apart because bank doesn't extend date of closing by 3 months. This is our first short sale so we don't know how banks think of such extensions.
Property is in Newark - in university heights.
Yeah bank likely won't extend that long. Maybe 1 or 2 extensions. But that's a risk to rely on the extensions as anything on the bank's side (i.e. switch servicers, sell the loan etc.) or the tenant's side (file BK, etc.) can derail the deal.
thanks @Ibrahim Hughes.
Our deal was meant to be a cash one. What kind of reasons in your experience work when asking the bank for an extension.
Thanks!
Usually a title issue. We did have to use the "buyer is still arranging their financing " excuse. 1 extension is almost automatic. 2nd is harder and I wouldn't count on a 3rd at all.
@Ibrahim Hughes thanks!
since we cant use the financing excuse we are likely going to be in a tough spot. the extension required is 3 months from the closing date indicated by the bank.
Very strange that they holding the approval letter hostage. Its best to get the owners out, they have too much emotional attachment to the house. If you can afford to give them 3 months rent for an apartment down the street, that may be a better option. So that you can get them out.
It pays to pay sometimes, less headache.
@Ryan Lee thanks. They have now given us the approval letter. when we held firm, they have come up with a higher rent (still below market) and offered the relocation $10k in escrow (similar to what @Ibrahim Hughes had suggested before).
we are considering a) 3 month rental agreement with automatic rent escalation if period extends, b) $10k escrow and c) agreement to be supported by guarantor in good standing. lets see where that goes. through it all, we are prepared to walk away if it comes to that.
good job. I think after the 3 month lease ends and they're still there, the rent escalation should kick in and the rent should start coming out of the escrow. that way they start feeling it and are pressured to move out.
I also like Ryans idea of getting them another apartment if possible.
Thanks @Ibrahim Hughes. Hopefully it works out - and if it doesn't, atleast we learnt something from the process.
Their situation is sad as the husband is recently paralyzed due to an accident (which is why short sale was allowed) and is under local treatment. They can't relocate out of this specific house yet as that causes an undue burden.
try reaching out to investors that have an apartment that's ADA friendly.
No problem, then you give them the option that you will pay the 3 months for them moving into that place.
@Shefali R. In short sales all parties are required to sign a "short sale affidavit." In that affidavit, it indicates that there are no financial arrangements that are outside of the sales contract. The brokers have to sign (and notarize) this affidavit too, along with principals to the transaction. If you have a rent back situation, that is a financial arrangement, and that CAN be considered bank fraud. Below market rent is even more of a risk, because it can be considered enticement. The Seller cannot financially benefit beyond the incentive pay, period. Wells Fargo requires this affidavit, so does HAFA.
On the final final settlement statement that the short selling bank has to approve a few days before closing, you cannot (that I have experienced) indicate a holdback (in escrow) of the Seller's incentive pay, you also cannot charge rent to the homeowner to be deducted from the incentive pay. The only possible deduction from incentive pay, is existing liens or judgments against the Seller that need to be paid to enable clear title.
It is ridiculous that the Agent is holding you hostage with a rent back that I presume was not part of your original agreement. He needs to have a copy of the approval, because he needs to look over the terms of the approval and confirm that they are in alignment with the settlement statement indicating price and all fees the bank will pay. I have never just said "great, you got the approval in the mail, good news!" No no no. An approval is very detailed a Seller will not be able to tell if the final numbers align with the existing settlement statement detailing all fees because they never see that document.
Your attorney is going to make suggestions about a holdback, about charging the rent in escrow out of the incentive pay, but although that advice is good, it is not applicable in a HAFA short sale. I would not waste the money on the attorney for advice on that aspect.
Have the Broker get a copy of the approval and the affidavit, because the affidavit should make the Broker nervous about him being involved in this rent back idea. If you are going to spend money on an attorney, I would take the affidavit to him and ask him if you would be committing fraud with the rent back situation that the Broker (more likely, his client) is suggesting. This information you can take to the Broker, so he understands.
Have the broker check with the negotiator, to me he sounds inexperienced and needs to be told how they work. Have the broker check to see if the incentive pay can be applied to the 3 months of rent. Also, have him ask if you can collect $2000 from the incentive pay as a security deposit as protection to ensure they will vacate in 3 months time. Tell him you want these charges to appear on the settlement statement, you do not want to hide any of these arrangements from Wells Fargo. The Broker needs to tell the negotiator that the Seller wants to pay below market rent. Once that Broker hears from the negotiator about this idea, might drop it. If he then suggests the rent and the security deposit are handled outside of escrow, I would ask him if he is seriously promoting his clients defraud the bank AND the government?
A short sale is always subject to the Seller's review of the terms of the Banks short sale approval, so they can weasel out of any contract. You need to make sure the Broker understands a new approval does not just transfer to the next Buyer, process begins from the start. This is true with Wells Faro, and with HAFA. That Broker will have to obtain a new offer and update all Sellers financials and resubmit. Unless he likes to work for no pay, he will appreciate how much work moving to the new buyer would be. Additionally, the new buyer will likely have a loan, which also restricts rent backs.
Will be interested to hear the results.
@Shefali R. Glad to hear it was helpful! I have closed many short sales, and I find a lot of people need help with the details. Even Brokers that take short sale listings have to learn the rules by experience, so they are not naturally fluid in how things work, and come up with these ideas that might work in a traditional transaction.
Here is a copy of the Wells Fargo short sale affidavit, so you don't have to remain in suspense. =) http://www.shortsalesinct.com/banks/wellsfargo/wel...
I forgot that even escrow has to sign that it is an arms length transaction.
Update - we at at impasse and have not agreed to current owner terms - however one of our friends who has more experience is interested in taking this on. He has proposed that he can fund the purchase and we can simultaneously transfer ownership of our LLC. I am not looking to make money on this deal but don't mind helping our friend in getting access to this investment.
Have any of you done this on a short sale transaction? @Kim Knox, @Ibrahim Hughes what are your thoughts. Thanks!
when you say "we" have not agreed to "current owner terms", what are we talking about? Sorry don't have much time to go back through the thread but could you give us a quick recap of where you are with the situation now and what seems to be the impasse?
@Ibrahim Hughes of course - I should have done that in my earlier post. Recap:
1. Wells Fargo HAFA short sale - we are in contract to buy with closing date in June (via our llc)
2. Owner occupied - owner wants to stay on in property after closing for 3 months and wants to do below market rent - wont escrow $10 k relocation
3. We don't feel comfortable with this risk - our friend does
4. Friend proposing that he funds the acquisition via our llc and we simultaneously transfer the llc ownership to him at closing
5.i am happy to do this but want to make sure it is no risk to us (we are not looking to make money on this so transfer will be at cost)
Thanks!
@Shefali Raina Changing the LLC ownership name is something you need to contact an attorney about. It is just a sneaky way to transfer ownership, without transferring title. I have heard of people trying this before, but I do not know how it results for them. A Realtor cannot answer the question of whether than would be considered fraud, but I would not want to be involved, I can tell you that much.
Refer to the link I posted in my earlier response with the Wells Fargo short Arm's Length Affidavit, it tells you the answers to your rent back situation, and the Seller maintaining occupancy. http://www.shortsalesinct.com/banks/wellsfargo/wel...
My interpretation of your risk in your current situation. YOU are the one who signs this affidavit. YOU are, not your friend, YOU are the signer for the current LLC. YOU would be making agreement to transfer the LLC after YOU know the terms of the affidavit YOU signed and had notarized. YOU had to provide your articles of org to prove YOUR ability to sign on behalf of the LLC, both to the Title Company, and to the Short Selling Bank. They have copies of it without your friend as a signer when you initiated the sale. YOU are absolutely at risk, your friend might not be, as he could say he was not aware of the terms of the short sale you signed to purchase the asset that belongs to the LLC.
I don't get involved in this kind of risk even if I stand to make a lot of money, I certainly am unwilling to participate for free. It makes no cents =)