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Short Sale Snafus

I am trying to sell my home in a short sale, but the buyer seems to be stringing me along. Should I file bankruptcy?

I purchased a condo with my girlfriend (who later turned into my wife in 2007) back in 2006. We lived together in it until August of 2008. I left her and the condo due to difficulties in the marriage. I wanted to sell the condo, she was not ready to do that... so she agreed to continue payments on the condo while I lived on my own in my apt. Sometime in Q1 of 2009, she found that she could no longer keep up with the mortgage and HOA dues. She asked for my help and I paid the mortgage for two months to avoid problems with the bank. Eventually, she decided that she didn't want to continue paying on the condo and wanted out of it too. The market crashed and our mortgage was way too much for what the condo would sell for on the market, so we proceeded with a short sale. After about 3 months, we found a buyer and the process began. After a bunch of issues with the HOA and the lenders, the buyer was then asked to put in more money towards the short sale. They bailed out and we found another buyer in a few weeks. The original buyer then came back and said that they would continue with the short sale. Since the deal was already approved with our lenders, we allowed the first buyer to continue with us. $5000 in a promissory note was created to release the lean and waive the rest of the loan for the first lender. $6300 in a certified check was generated for the second lender to release lien and waive the rest of the loan. The property was supposed to be closed on at the end of April, but the buyer "wasn't available" due to the fact that they didn't have time to go to the HOA for the entrance interview. Their lawyer "was also not available" because he had a court case and he is a solo lawyer. The property was then supposed to be closed on at the end of May, but I haven't heard back from my short sale lawyer, nor my realtor regarding the sale and if it actually occurred (still pending today 06/02/2010). My question is now this: I have the idea that the buyer may have been stringing us along the entire time to stall the short sale in order to force the bank to foreclose on it... this way they can buy it at auction for a cheaper price. Is this legal? Furthermore, due to the situation I have explained... is there anything I can do to protect myself, separate myself from the situation, etc... before I decide to just go down the road to Bankruptcy? Also, if this all falls apart and goes to foreclosure auction, I am supposed to get my $6300 back and the $5000 promissory note is basically null and void right? Any and all information and advice is more than appreciated. Thanks.

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Bill's Answer
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In my first- and second-hand observations of short sales, I have concluded they are messy, chaotic, and subject to arbitrary whims of bank negotiators, bank legal departments, buyers, and sellers. Senior executives at banks should be horrified at the inefficiency and waste in their short sale departments.

Rarely will short sales close quickly, and only the most optimistic person (or the insane) will estimate when a short sale will conclude.

It is impossible for me to read the minds of your buyer to determine the motivations of his or her actions. If they are dragging their feet with an expectation that they will be able to swoop in and buy the property in a foreclosure for a song, that is certainly a possibility. However, they are under contract now. If they allow the contract to lapse and still want the house, they will face competition from other potential buyers if the house is auctioned or sold REO. If you can prove this malevolent intent, they have given you a cause of action to sue for breach of contract. Therefore, it is certainly possible for the buyer to be dragging their feet deliberately, but their strategy is fraught with peril if they love your house.

Regarding bankruptcy, assuming you qualify, you can file Chapter 7 to remove the liability for the mortgage. However, short sale is a much more favorable outcome.

Regarding the promissory note, ask an attorney in your state to review your contract with the loan servicer. It would be folly for me to comment on a contract I have not read.

I hope this information helps you Find. Learn & Save.

Best,

Bill

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