House #39: The Rent-Back House

September 8, 2012 · 5 comments

This post was supposed to be about the most recent project we got under contract, but now it looks like the deal may not go through…

The house is on the same street as The H2O House and was listed as a short sale just a few weeks ago. We put in an offer sight-unseen, as we know the neighborhood and the floorplan of the house. Surprisingly, the bank came back very quickly and approved a sale price just $2000 more than our offer. We offered low, so the counter-offer price was still great.

We got all the docs over the closing attorney, and because the lender was requiring us to hold the property for 4 months before reselling it, we offered to allow the owners to rent it back for 2 of those months (the bank’s approval letter gives them the right to rent the house back for up to 90 days). The owners agreed, and everyone was happy…the plan was to close this upcoming week.

Then, the closing attorneys pulled title. Turns out the owners actually have a second mortgage (the they didn’t tell the listing agent about) and a tax lien. The tax lien is small, but the second mortgage for $30K is a major issue. The owners are claiming that the second mortgage was “written off” by the bank, which is why they didn’t mention it, but regardless, until it either gets wiped off the title or negotiated as part of the short sale, we can’t move forward.

I’m hoping that the sellers can get this taken care and that we can still move forward with the purchase of this house, but this could be a long drawn-out process. The interesting part is that the second mortgage is owned by the same lender that has the first mortgage, so it’s even more surprising that this just slipped through the cracks.

I guess we’ll see what happens…

5 responses to “House #39: The Rent-Back House”

  1. Kristine-CA says:

    Hi J. To be fair to the owners, it’s possible they really don’t understand the situation with the 2nd mortgage. Some borrowers get letters from lenders when they default and during the collection process that threaten to “charge off” the debt. It’s supposed to scare them about a possible hit to their credit score and make them pay up. But I’ve talked to more than one borrower, including some who were investors, who think “charge off” means the debt is dead. As for the tax lien: again, some borrowers simply don’t know how their personal debts affect title of their property.

    Hope it gets worked out soon for both you and the sellers!

  2. J Scott says:

    Hey Kristine,

    I’m pretty sure this is the case in this situation (and didn’t mean to imply we still think the sellers were lying). When we first heard about the second mortgage, we assumed that the sellers purposefully didn’t mention it to the agent, but once we heard that the sellers thought it was “written off,” it made sense that they probably really didn’t know.

    Still very weird that IndyMac (who owns both the first and the second) didn’t catch this…but I guess their short sale department probably doesn’t have anything to do with their lending department.

  3. kevin says:

    i just had this happen to myself with second lien issues. I had a short sale property under contract. We knew from prelim title search from title company there was 2 liens with the same bank. They submitted short sale approval and got said approval but it was not for both mortgages. Apparently you need to specifically apply for approval for both liens at the same time (even if held with the same bank). These 2 mortgages were even created at the exact same time. I’m told that one of them can be sold off to another servicer at one point in time, leading a seller to think they are same bank, only to find out they are not and now separated. If they are same bank still, supposedly there is more communication but this doesn’t guarantee that it would quickly and easily approve both short sales on both mortgages. The reason is they could be held by different departments, which might or might not cooperate. Gotta love shorts…. Btw, I totally didnt get my property i had under contract because the original approval gave 30 days to close, and the second approval (if it ever came) would not have came in time, forcing us to get re-approved for the first, ending in a hot mess that I didnt want to proceed with…

  4. J Scott says:

    Hey Kevin,

    Sorry to hear about your situation. I wouldn’t be surprised if mine ends up the exact same way…unfortunately… 🙁

  5. Kristine-CA says:

    Seems that 2nds really can complicate a short sale, and not just because the 2nd won’t discount. I’m working a short pay with a lender who originated and still owns both the first and the second. 2nd was a cash out refi, not a heloc.. Took me a dozen calls to figure out what department has each loan. Turns out they are both in “BK depts.” but the first is being handled by a BK dept. in IL and the second is being handled by a BK dept in a mystery location where all the customer service people have Hindi or Urdu accents. Neither dept. knows the other loan exists. Good times.

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