By Ilyce Glink and Samuel J. Tamkin
A couple of weeks ago, we received a letter from a homeowner who was at her wits' end.
She wanted to buy a home as a short sale in Michigan. She made an offer that went nowhere and the house ultimately went into foreclosure. She and her family moved into the home, only to be told by a law firm engaged on behalf of the servicer that Freddie Mac doesn't allow tenants to purchase occupied homes. She then contacted her congressional representative (which didn't seem to produce any results), and then us.
She wrote: "I have great credit and have been preapproved for the purchase. And I will gladly accept the home as is without our government having to spend one more dime of your money or mine. It seems so simple. Can you help point me in the right direction?"
After the story ran, we heard from Brad German, a spokesperson for Freddie Mac. He was concerned about what had happened in the case and offered to track it down for us.
Ilyce spoke to the homeowner and it turned out that in the three weeks since she had written to us, her offer had finally been negotiated through Freddie Mac's Home Steps program. But it had taken nearly a year from the time she first made an offer as a buyer to the time when her offer was being considered. She wanted to know why.
After deconstructing the timeline, a couple of things became clear: Communication about where homes are in the process of short sale and foreclosure is probably not as clear as it should be, and the right people aren't getting the right information in a timely manner. Moreover, the processes of short sales and foreclosures remain opaque, mired in legalities that aren't necessarily rooted in common sense.
Poor communication and an opaque process continue to confound borrowers, buyers, sellers, lenders and servicers alike. In the interests of helping shed a little sorely-needed light on the subject, German spent a couple of days digging in.
It turns out that a short sale couldn't happen on the property because the lender and investors couldn't come to an agreement with the actual owner of the property (who was not the person writing to us). In fact, that person went AWOL and no one could track him down.
"We were open to the short sale and reviewed the documents," German said, "But we couldn't find the seller to reach an agreement."
When the seller couldn't be reached, the property couldn't be sold. To clear the title, the property was scheduled for a foreclosure sale in January. In Michigan, there is a six-month redemption period (in some states there is no redemption period), in which the owner of the property has the opportunity to reclaim it from foreclosure.
German says that during the redemption period, Freddie Mac "goes dark," meaning the company has no contact with any buyers regarding the property. He admits that, up to the point that the property goes into foreclosure, all contact is with the owner of the property, which didn't happen since the owner was AWOL. Freddie Mac assumes the seller's broker is communicating information to the buyer's agent, who then communicates it to the buyer. That apparently didn't happen in this case.
Once the property was foreclosed on and went into redemption, and the six months were up (on July 9, in this case), a couple of things happened.
"We now had clear title and could move forward with the sale," German explained. At the same time, Freddie Mac had received an inquiry about the homeowner from Rep. Candice Miller (R-Mich.) and was starting to do research. "While we were processing the inquiry, we were also working with the buyer to explore other options."
The buyer had moved into the property when the prior owner was still around and had a lease that expired in May. At that point, she went into a month-to-month lease with Freddie Mac's Home Steps program.
"We regularly sell foreclosures to tenants through Home Steps, and I'm not sure why she was told otherwise. We also sell to investors who plan to rent out the property," German explained.
Once the property was in Freddie Mac's REO inventory, it was available to be sold. German said that once the company received proof of funds (which happened in early August), it provided the tenant/buyer with closing proceeds equal to 3 percent of the sales price toward closing costs and gave her $500 toward her choice of homeowner's warranty. The tenant/buyer is purchasing the home in "as is" condition.
When Ilyce called the tenant/buyer, she confirmed that the sale was on track even though the closing date hadn't yet been scheduled. German said that the tenant/buyer has a personal contact who she can call to make sure the closing does get scheduled. She is thrilled.
The story has some lessons for others who are either trying to purchase a short sale or a foreclosure from a lender's REO inventory.
To start, short sales are complicated because they involve multiple parties. "You have a buyer, seller, real estate agents, the lien holder, sometimes a mortgage insurer, the investor and lender. All of these parties have to come to the table and have to negotiate an acceptable sales price and terms," German noted.
If you're trying to buy a short sale, it can take 60 days or, as in this case, a whole lot longer. Staying with the program is key to a successful resolution.
"Buyers should stay in constant contact with servicer. If they are not getting traction with the servicer, and we own the loan, they can call us. And we can take a look and try to help," German advised. The best number to call is 800-424-5401. (Fannie Mae offers a similar service, call 800-7FANNIE.) You can also call HUD housing counselors 24/7 at 888-995-HOPE.
Home buyers who want to live in the property get a leg up on investors who want to rent it out with Freddie Mac's 15-day "first look" program.
"In the case of a tenant who has serious interest and capacity to purchase, they should be working closely with their real estate agent so once the property is in inventory and becomes available for sale, they can get the offer in as quickly as possible."
It's nice that in this case, the tenant/buyer will wind up closing on the property, even though the process stretched out a year. German tells buyers not to give up hope. "We want you to buy a house."
(Ilyce R. Glinkâs latest book is "Buy, Close, Move In!" If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce through her website, http://www.thinkglink.com.)Copyright © 2014, The Baltimore Sun