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.
Editor’s Note: Post updated May 10, 2013