The Last House I Didn’t Buy …

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The house I didn't buyI know, I know. Who writes about houses they didn’t buy?

But wow — this house was quite the non-purchase.

First of all, “house” isn’t the right term. It’s a 4-plex, a single structure subdivided into four units. It’s in the heart of Midtown, Atlanta — a hip, pedestrian-friendly neighborhood packed with martini bars, yoga studios and dog parks. And it was priced at a clearance-blowout markdown.

The seller had paid too much for the property during the bubble. Now she was upside-down, cashflow negative and needed to “short sell.” Sound familiar?

We went under contract at $185,000. In my world, that story should end with: “… and then we closed the deal.” Call me old-fashioned, but I don’t go under contract casually.

But the buyer and seller weren’t the only parties involved. The lender needed to approve the short sale. Here’s where things took a turn for the worse …

How a Good Deal Went Bad

As background: In a “short sale,” the lender accepts less than he’s owed. For example: if the outstanding mortgage balance is $300,000 and the short-sale would only pay off $250,000, the lender must take a $50,000 loss.

Many lenders will agree to this, since the alternative — foreclosure — would net them an even smaller sum. But before they nod “yes” in agreement, they drag the process out with paperwork, red tape and general inertia.

We went under contract for the house in November. SIX MONTHS passed by. Fall gave way to winter, which turned to spring. Thanksgiving dinners morphed into St. Patrick’s Day drinks. Newborns became infants. Puppies grew into full-fledged dogs.  (I whiled away the time brainstorming strange analogies).

By early April, we seemed to be getting close. The bank was requesting redundant paperwork more frequently. (That’s a sign they’ve finally dug your file out of the heap). I was gearing up for another round of repairs and beginning to chat with property managers.

But one morning, the listing agent (who represents the seller) received an unexpected phone call. Here’s my dramatized interpretation of this conversation:

Caller: Hi, I’m the owner of the 4-plex.

Agent: No, you’re not.

Caller: Yes, I am.

Agent: But I represent the owner.

Caller: Not anymore!

Agent: Well, this is awkward.

The Right Hand Doesn’t Know What the Left Hand is Doing

Apparently, while one division of the bank was processing the short sale, an entirely different division was processing the foreclosure.

And while the short sale division was dragging their heels, the foreclosure division put the house up for auction.

We were under a legally-binding contract to buy the house … until another investor snagged it on the courthouse steps. I don’t know what he paid, but I’m guessing it’s less than $185,000.

I know what you’re thinking: “Shouldn’t the bank tell the owner before they foreclose?” Short answer: Yes. Long answer: Go ahead, sue ‘em. See how far you get.

Actually, that’s what the seller is doing. She hired an attorney and filed a “wrongful foreclosure” action. In the meantime, though, she’s paying $250 an hour in legal fees. And nothing changes the fact that someone else bought the property and feels that he’s entitled to keep it.

Whew. What a mess.

So it’s back to the drawing board. I’m still looking for another rental property. But this time around, I’ll be avoiding short sales.

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Editor’s Note: Post updated May 10, 2013

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33 Responses to “The Last House I Didn’t Buy …”

  1. writing2reality
    16. Apr, 2013 at 10:53 pm #

    Yikes! What a major pain in the rear! Hopefully you will be able to find something else! From what I have read things in Atlanta have been heating up pretty heavily over the last year. Has this impacted you as you’ve been on hold for the last six months?

    • Afford Anything
      16. Apr, 2013 at 10:57 pm #

      @writing2reality — Things in Atlanta have been heating up since 2010. I’d say the deals now AND the deals through most of 2012, especially the latter half, are super-competitive. There’s low inventory and high prices, and people who bought in 2010 are “flipping” now for a handsome profit.

      Someone asked me the other day how real estate could have bounced back so quickly. My reply: the Dow Jones MORE THAN DOUBLED between 2009 and today. In comparison, real estate’s recovery has been much slower.

      Another reason why it pays to be a contrarian!

  2. eemusings
    16. Apr, 2013 at 11:02 pm #

    That’s … ridiculous. Bureaucracy at its worst.

  3. Nick Bartlett
    17. Apr, 2013 at 7:59 am #

    That’s terrible! I’ve heard of this happening elsewhere, so I don’t think it’s uncommon. The process of buying a house is ridiculous… there are too many people involved with too many rules and laws. My first duplex was a short sale and it took 8 months to close. As you said, they bank was requesting redundant paperwork – I sent them the same paperwork every 2-3 months because the old ones “expired”. My most recent purchase was a bank owned property and the selling bank wanted it closed in 30 days. I did everything that was asked of me immediately, but it was the underwriter on my end that dragged her feet and was absolutely horrible. We tried to close every Friday for six straight weeks and each Friday morning I’d hear that she needed some paper signed and that it would have to be delayed. In the end, we closed in three months and I paid $825 in per diem fees because of this underwriter.

    I have three rental properties and so far the most difficult and stressful part has been purchasing them.

    • Afford Anything
      18. Apr, 2013 at 10:24 am #

      @Nick — OMG, I know exactly what you mean about sending them the same paperwork every 2-3 months because the old ones “expired.” Here’s a post I wrote about having to pay for multiple appraisals:

      http://affordanything.com/2012/04/18/our-house-shot-up-100000-in-value/

    • Jack
      03. Feb, 2014 at 9:44 am #

      Nick, at the end of the day it’s all a story. You’re right about conflicting personalities, rules, laws, decisions to be made but this is the life we’ve chosen. You’ve heard that line before. It translates into your digging in and welcoming the objections, look for them for they help to keep the competition away. Learn to overcome your own sense of fairness by making phone calls or sending faxes every other day. The written communication sent via fax is scanned by banks into their files so it will be shared and seen by others, not avoided like an email. Send the email as well. At all times be amiable, nice, develop relationships, sympathetic, be the guy in locker room encouraging a half time comeback but keep moving toward the goal line. Don’t worry about them loving you, your family already does. Lastly, help them to look good, help them to make the deal and be ready to start getting the inside track.

  4. Mrs. Pop @ Planting Our Pennies
    17. Apr, 2013 at 9:38 am #

    Sorry to hear that the short sale didn’t go through, though I can’t say I’m too surprised. Realtors are starting to say they have better luck getting them to close, but for a while few would touch those deals with a 10-foot-pole because they weren’t worth the months of trouble and hassle.

    • Afford Anything
      18. Apr, 2013 at 10:21 am #

      @Mrs. Pop — Yep, I’m entering the “avoid short sales” camp. My first rental property was purchased as a short sale, and the process was flawless and easy. This experience, of course, is the polar opposite.

    • Jack
      03. Feb, 2014 at 10:07 am #

      Mrs. Pop, The brokers are a tool and should be dealt with accordingly. Be prepared to use different methods depending on the property you seek using different tactics for the sparkler you see your family in and the rental unit to shore up a retirement plan. Only invest in rental property you steal or is so sterling it will rent in any market. Brokers are fearful of being cut out of a transaction and often stand in the way of making a deal happen. The rules they profess are meant to keep them in the vanguard. It’s your money and their commission with each being important as the decimal point moves. Don’t look for luck or hope in real estate, go after good deals. Brokers often scoop up the great ones so get over the lovey, kissy let’s us share recipes kind of relationships brokers often attempt to develop. You already have a holiday card file and don’t need to pay for a friend unless they work for you and earn your trust. Use the broker, they are your shield, they present the low offer you make protecting you from the tirade of an irate seller. Were you to learn of their lost job, foreclosure, divorce, or illness your good heart may blind you to pay more than you want. Let the broker listen to the stories and keep true to your objective. Everyone has a role get to learn the one that makes you successful.

  5. Little House
    17. Apr, 2013 at 9:50 am #

    I’m thinking the moral here is avoid short sales! I’ve heard they are nightmares for a buyer. This only confirms it.

    • Jack
      03. Feb, 2014 at 10:11 am #

      Little House, Short sales may be your best friend. Take hold of your finances and the reason you are looking to buy into the real estate market… remember, at the closing you become a seller (eventually) so no-one is truly a buyer. The short sale may give you the margin you need to make a profit, and should you choose to live there enjoy the lower mortgage payment.

  6. Mark Ferguson
    17. Apr, 2013 at 11:16 am #

    I think the old owner is wasting time and money trying to sue the bank. The foreclosure process is different in every state, but I am sure they have to publish the foreclosure sale date and send notices to the seller. That is usually considered proper notification by the state for a foreclosure.
    The bank is under no obligation to approve a short sale. It is up to them if it makes sense to foreclose or take a lesser amount. True it can be frustrating when they send it to sale during a short sale, but the listing agent should be paying attention to the foreclosure sale date and keeping in contact with the bank to make sure everyo9ne is on the same page. It doesn’t hurt if the buyer’s agent is paying attention as well to make sure the seller and their agent know the dates and are on top of it all.
    I have bought a few short sales and never spend any money or start anything until you have written approval from the bank that they will accept the short pay. I don’t do any inspections or loan work until it is approved. There is no guarantee the bank will approve it at my offer price or at all.

    I love how sellers feel they should get a house for free when they don’t make their payments and let it go through foreclosure.

    • Afford Anything
      18. Apr, 2013 at 10:19 am #

      @Mark — The old owner is claiming that she didn’t receive proper notification. That’s the grounds for her suit. (I doubt it’ll work out in her favor, but hey, it’s her choice to pursue it.)

      I would never, ever spend a dime on inspections prior to short sale approval. That would be premature. There’s no official “deal” until the short sale gets approved — only a contract that keeps other bidders out of the running.

      My first short sale purchase sailed through quickly and smoothly. My second short sale was this one. :-)

  7. Quest
    18. Apr, 2013 at 12:29 am #

    One way to avoid this mess in the future: GOOGLE the address. This exact same scenario almost happened to me when I bought my current house. One division was handling a MLS listing with a realtor, another division had already employed an auction house to sell the house. The only way I found out about it was by googling the address – that’s how I found my house listed for much, much less with the auction house than what it was listed for with the realtor. Long story short, I ignored the realtor, made an offer through the auction house, was in escrow within 24 hours, owned the house 30 days later. Meanwhile, the realtor had garnered a stack of offers via the MLS listing and had NO IDEA about the auction …. until the lender told the realtor that a buyer had been found (me) and that the house was in escrow. Googling the address is the first thing I will always do from now on.

    • Afford Anything
      18. Apr, 2013 at 10:13 am #

      @Quest — This happened to you, too?! It’s crazy how common this seems to be. What a mess. You’d think the bank divisions would learn how to coordinate better ….

      • Jack
        03. Feb, 2014 at 10:25 am #

        I’m guessing many of you are familiar with the Gold Mining shows on the Discovery Channel. The analogy here is that in none of the many episode I’ve watched did the gold jump from the ground into the miner’s pocket bypassing the bucket. No way. The had to dig for it and that’s hard work like mining good deals. After reading the post left by others I’m certain there is a major vein of gold being overlooked. People. MLS listings are everywhere, foreclosure lists are published or certainly not secret, for sale signs are on lawns or buildings everywhere so keep an eye out for people. People that are down and out need no apology from you for making a low ball offer and it’s you that are saving them from the disaster they fear. How and where to find them is your job. Don’t be surprised to learn you passed one up this week and today is Monday.

  8. William Cowie
    18. Apr, 2013 at 8:51 am #

    Good story. And Quest, that’s a great heads-up! A few decades ago we lost our house to a short sale. It’s still on my bucket list to return the favor and be on the buying side of a killer deal… :)

  9. Kyle
    22. Apr, 2013 at 3:14 pm #

    So I take it your contract is void once the foreclosure went through? You don’t have any recourse?

    • Afford Anything
      23. Apr, 2013 at 12:59 pm #

      @Kyle – Yes, it is. The bank voided the short sale in order to process the foreclosure. So I’m out of the picture.

  10. Jim Jolliff
    22. Apr, 2013 at 10:44 pm #

    I short sold a 12K sq ft nightclub for $1.4M. Saved me $400K. And now 2 yrs later, it sold again and in trouble. Sometimes it better to take the loss and not go into foreclosure. By the way, I am also one of your students.

    • Jack
      03. Feb, 2014 at 10:38 am #

      If real estate is your business equip it with the proper tools. Hire a good attorney and accountant and don’t be afraid to pay their fee. Unless otherwise stated you are not paying them for a result that ends with you making the deal. They aren’t your partner and aren’t expected to share in expenses. Short sales, foreclosures, deeds in lieu of foreclosure may result in the creditor issuing you a 1099 resulting in a tax consequence to be dealt with. I cannot and will not explain it here and clearly state that nothing written on this post should be construed as legal advice. Hire an attorney and an accountant and learn how to proceed with knowledge of potential consequence. Saving professional fees is the business plan of someone willing to jump over quarters to pick up nickels. @Jim had two divergent forces at play… a nightclub business and the real property. While their success may be dependent each upon the other, when one tanks it’s not unusual that the other bottoms out as well. The big thing is that he remained in the game and is learning how to turn the next deal and others into a positive result. Good for you Jim.

  11. Darwin's Money
    22. Apr, 2013 at 10:47 pm #

    Oh, the house we didn’t buy. We were going to build. We had a nice plot of land picked out, were working with the builder on plans, etc. But as the housing market got worse, the bids we were getting for our house got worse while the new construction lots started to sell and we were losing leverage while their prices went up. We eventually saw the spread widening to the point where we had to be analytical and not emotionally attached and say enough’s enough. We walked. We stayed here, put in a swimming pool and are living happily ever after. I think

    • Afford Anything
      23. Apr, 2013 at 1:13 pm #

      @Darwin — Good! I’m glad you made a rational choice, not an emotional one. That’s tough to do with homes — and very tough to do with your primary residence. But it’s definitely the best approach.

  12. Cherleen @ My Personal Finance Journey
    23. Apr, 2013 at 5:46 am #

    I have heard a lot of horror stories about buying houses on short sale so I avoid them. It seems buying a foreclosed one is cheaper, faster, and more convenient.

    • Jack
      03. Feb, 2014 at 10:44 am #

      Cherleen, it’s all good if the deal is right. With a short sale you get to walk through the property, get a feel for prospective repairs and can plan your budget accordingly. You have a better idea what needs to done immediately and what can wait 5 years out. With a foreclosure you need to expect everything is needed included bitter people or vandals putting a bag of cement in the sewer. The idea is to avoid taking over the troubles of others. It’s all good if the price is right. Figure out what’s best for you understanding the capabilities and costs of the team that you will rely.

  13. Dominique Brown
    17. May, 2013 at 9:14 am #

    Wow… Now this is one of the craziest stories I’ve heard thus far.

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