Short Sale & Bankruptcy – What do YOU think?
August 27, 2010
We value your opinion, reader so we would love to hear what you think about this:
I was at an office meeting this week and one of the agents described the following scenario in one of his short sale escrows — true story. The agent was representing the seller of a home which was in escrow as a short sale that had been approved by the seller and the bank which held the note. The buyer was approved and ready to close on the house when about 3 days from closing the sellers filed bankruptcy. The sale was frozen which means that the buyer can’t buy and the seller can’t sell and, of course, the agents cannot collect their commissions on the deal that they put together.
The question from the agent at the meeting was should they file to become one of the vendors that the bankruptcy court orders paid? My answer was yes, of course. The agent had provided the service that was contracted for. He had brought a bonafide offer that was approved by the seller and their bank. The agent did what was contracted for — so he should be paid. What do you think?
Also, I was wondering what you might think of this scenario in general. The seller was able to stay in this house without making a mortgage payment for about 1 year. Now that the situation has changed and they have filed bankruptcy, more than likely they will be able to stay in the house for another 6-12 months without paying a mortgage. Yes, the bankruptcy will destroy the sellers’ credit but not paying your mortgage for a year probably had a similar affect on the credit too.
If someone out there has an opinion on either of these issues, I would like to hear it.
Kappy,
Why wasn’t the agent more in tune with the mood or plans of the sellers? When they file bankruptcy, they have changed the game. They have removed their home from their hands to the court’s hands.
The agent as an unsecured “creditor” will probably get almost nothing and has to show up at the bankruptcy hearing to “file” or represent his claim. Is it worth his time & trouble to get his commission? The agent will have to decide that.
It is said that the agent worked as hard as he had to and probably feels like the homeowners stabbed him. Communication has to be there throughout this emotional process.
Thanks for your comment Faye. I understand your comment about being more in tune but wonder how that can be achieved when the sellers were not being totally open either. Communication is a 2 way street. Yes, I realize that the “creditor” will probably get almost nothing but I also think that going through the process will be an education to the agent as well as another experience to put under his belt. Thanks again for your comment.
For the seller to file so abruptly, I wonder was their an impending foreclosure date looming, regardless of the sale. Communication with the seller was critical to find out these things. Another scenario could have been where the seller would have had a deficient judgement after the short sale. By filing bankruptcy, they are able to rid themselves of the house debt totally. In the future, a listing agent, when negotiating a short sale, must get the bank to accept a “payment in full without pursuit of any deficiency judgment” clause in the contract to prevent a potential bankruptcy and to avoid a future judgement for the sellers.