Don't believe the attorney when they say,"A Bankruptcy WON'T interfere with the sale of Real Estate!"

By
Real Estate Agent with RE/MAX Professional Associates

 

Will a Bankruptcy interfere with a Real Estate Sale?


I had a closing this week!!!  One would think I would be very happy.  Well actually I am very happy for my sellers as this was a short sale, and it helped her move on with her life on her road to recovering financial health.  I am happy for the buyers that waited a long time (much longer than needed) to purchase this house.

That is where my story begins~

”my comment Much Longer Than It Needed to Be!” 

frustrated

I met a seller that had a cute little cape that she bought in 2008.  Life’s events had made her feel as though she needed to sell it.  We evaluated the market, and decided to try to sell it just slightly below what she paid and avoid a Short Sale.  As time passed, and the economy and housing market continued to decline, it became obvious that she would need to do a short sale.  In the mean time she ran into other financial difficulties and felt she needed to seek legal advice about bankruptcy.  She was assured that filing bankruptcy would not affect the short sale process.  All my training told me it would.  I called the bankruptcy attorney to confirm, and she was insulted with the question, and assured me that it would not affect the short sale, and to go ahead and list and market the house.  It was determined that we had time, no foreclosure date was set, so in November we started my Short Sale marketing campaign to sell the house in 3-6 months.  By the beginning of February (3 months into the Short Sale marketing campaign) we received a good offer and started the process of submitting all the paperwork to Bay view (the servicer) for short sale consideration.  Approximately 4 weeks later we were notified that we were in the final stages of the short sale, and the file was being submitted to the investor for final review.  A day later I received a phone call from the negotiator indicating that they were holding the file because they discovered the borrower had filed bankruptcy and the property could not convey without permission from the bankruptcy count.  They were looking for a Release of Stay.  They recommended the bankruptcy attorney request one from the court.

When I contacted the attorney she refused to do it because she felt we would have total discharge in 3-4 weeks, and to get a release would take too much of her time.  When I reminded her that she said the bankruptcy would not interfere with the sale of the house, her comment was,”I didn’t think you would sell it so fast”.  Long story short, the bank filed for the stay, however it came just days before the discharge.  This was approximately 6 weeks after the negotiator was ready to approve the file. 

In Mid May I was in receipt of the Release of Stay, and immediately forwarded it off to the negotiator, but by this time they had closed the file, and all the documents were old.  We had to start again.  I collected all the updated paperwork from the seller (new bank statements, paystubs, hardship letter, 2 year tax return, refreshed purchase and sale, 3 sold comps, and a new HUD created by the seller’s bankruptcy attorney).  We resubmitted a new file (lucky the buyer was willing to wait), had another BPO and were on to the finish line.  At the end of July, we received our final approval for short sale.  This approval included the full asked for commission for the 2 agents involved, and an above market value fee for the attorney.  The approval letter gave us 45 days to close.  Perfect, buyer would have time to get financing.

Buyers financing began, which involved a second appraisal.  1 week into this process both buyers’ jobs were in question as their company was on strike.  Financing became complicated, however by the end of August, the company went back to work, and the amazing Mortgage Broker was able to get a clear to close in just days.  The closing package went to the buyer’s attorney and she produced a new HUD and submitted it to the seller’s bank for final approval.  Later that day, I received a nasty call from the Bankruptcy attorney telling me that the agents had to take $2500 less in commission, and she was cutting her fee by $1000.  (Her fee was now only 2 times the going rate of a seller side closing).  I asked her how that could be as the seller side cost were already approved, and no changes could be made or it would hold up the short sale.  Once again she treated me like I was an idiot and didn’t know what I was talking about.  I asked to see the new HUD and it was forwarded to me.  Within seconds I could tell the difference was the closing cost credit, which was part of the original agreement, and the Bankruptcy attorney neglected to put it on the first approved HUD.  This error meant the whole file needed to be reviewed by the investor and approved again.  Again when I questioned the attorney, she was baffled how that happened.  I called the negotiator, explained that the buyer only had the closing package until the end of the week and begged for a rush. No one had communicated that to her.  She put a rush on it, and got the final approval in 48 hours.

There was great team work between the agents, mortgage broker, buyers attorney, buyer and seller, however the seller's bankruptcy attorney created a lot of need for the rest of the team to be exceptional.

So to recap the point of this blog:

A bankruptcy attorney is not a Real Estate Attorney

If a bankruptcy attorney tells you the bankruptcy will not interfere with the sale, don’t believe them.

Review all HUDs, and learn where closing cost credits go.

If you feel a consumer has been harmed, do something about it. ~ In my case, the errors of this bankruptcy attorney could financially harm the seller.  At a minimum I will report her to the Board of bar overseers, so she is more careful when representing other clients.

close

Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Jirius Isaac 09/05/2011 12:02 PM
  2. Gene Riemenschneider 09/10/2011 10:27 PM
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Rainer
295,058
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Kimo's Lifestyle Solutions

Interesting post and luckily for the BK attorney, who might have caused financial damages to his/her client if the transaction didn't close. A lesson about dealing with attorneys is to get everything in writing. Good job!

Sep 05, 2011 02:22 PM #34
Rainmaker
140,299
Liane Thomas - Corona & Riverside Real Estate
The Jet Team, Allison James Estates & Homes - Corona, CA
Bringing you Home!

Thank God she hired you. Most agents would have given up or changed careers in the time it took you to close this one. Congrats for a job well done.

Sep 05, 2011 02:31 PM #35
Rainmaker
128,117
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

I wonder when I'm going to be able to hear stories like this and I'm going to say that I'm not suprised.

Sep 05, 2011 03:02 PM #36
Rainmaker
253,229
Jim McCormack
Reliant Realty - Nashville Short Sale & Foreclosure Help - Murfreesboro, TN
Nashville Short Sale REALTOR - Stop Foreclosure

Good work in closing the short sale.

Sep 05, 2011 03:16 PM #37
Ambassador
674,891
Karen Crowson
Alain Pinel Realtors, Pleasanton, CA - Livermore, CA
Livermore Wine Country Homes

All goes back to that education piece. Attorneys go to years of school and getting a real estate license is relatively easy. This person just assumed she was smarter than you are.  Big mistake. You know your stuff like a lot of agents to.  I'd follow through with the complaint if I was you, and take her down a peg or two.  She won't treat anyone else so rudely after that.

Sep 05, 2011 03:19 PM #38
Rainer
72,727
Rocky Dole
West USA Realty Revelation - Maricopa, AZ

I have always thought the best thing to do is to have the discussion with your client before accepting them as a client so that they will know what can affect a short sale.  One of the things I would tell them is that a bankruptcy can affect a short sale.  I would have tried to get them to at least postpone the bankruptcy until after COE.

Sep 05, 2011 04:38 PM #39
Rainmaker
693,747
Kay Van Kampen
RE/MAX Broker, RE/MAX Solutions - Springfield, MO
RealtorĀ®, Springfield Mo Real Estate

Pam, what a nightmare.  You are a true "die hard"!  If sellers in your area are looking for a great real estate agent, they better be calling you.  Way to go!

Sep 05, 2011 07:46 PM #40
Rainer
84,544
Kathy Strader
Memorial Staged Homes - Houston, TX
ASP

You're smart and classy.  Excellent!

Sep 05, 2011 09:37 PM #41
Anonymous
Lynn Semer

I hear ya on this one!  I just had a similar deal in the beginning of the year.  PLEASE do report that Attorney - we can not practice Law - They should not be able to practice Real Estate!  LOL   When I ran into this the last time, the question to be asked was.... Do you Specialize in Real Estate Law as well as Bankruptcy? When the answer was "no" the attitude changed!  :-)

Sep 05, 2011 10:37 PM #42
Rainmaker
114,211
Pam Crawford
RE/MAX Professional Associates - Spencer, MA
Owner-RE/MAX Prof. Assoc.,MBA, CDPE, CRS, ABR

Lynn,

I love your question.  I hope I don't run into this again, but if I do, I will ask that question.

Sep 05, 2011 10:43 PM #43
Rainmaker
848,648
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
your real estate writer

Arrogance - it sure can mess things up. If the attorney hadn't been so sure that she knew all there was to know, the whole mess could have been avoided.

Congratulations on pulling this off. You were very fortunate that this transaction had only one stinker. Had any of the others shown the same disregard as the attorney, it could have turned out very differently.

Sep 06, 2011 01:26 AM #44
Rainer
83,111
Catherine Condon
Short Sales - Integrity Residential Brokerage - Pepperell, MA
Pepperell MA Homes - Middlesex County - Hillsborough County

Good information - thanks for sharing.  Not the first instance where I've heard the seller attorney screwed things up.

 

Sep 06, 2011 08:55 AM #45
Rainmaker
836,679
Lyn Sims
RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago - Schaumburg, IL
Schaumburg Homes

Good for you. We see negligence all the time & it's good to report it. I doubt they will make that mistake again but for this file, it's too late.

Sep 06, 2011 10:12 AM #46
Anonymous
Kary L. Krismer

What was needed wasn't a relief from stay (although title companies will often ask for that).  What was needed was an order of abandonment.  The obtaining of the discharge in X weeks wouldn't change that.  Until the case is actually closed, you need an order of abandonment.

 

Apparently you were not talking with a very good bankruptcy attorney.  That's basic bankruptcy law.

 

 

Sep 06, 2011 03:43 PM #47
Anonymous
Kary L. Krismer

What was needed wasn't a relief from stay (although title companies will often ask for that).  What was needed was an order of abandonment.  The obtaining of the discharge in X weeks wouldn't change that.  Until the case is actually closed, you need an order of abandonment.

 

Apparently you were not talking with a very good bankruptcy attorney.  That's basic bankruptcy law.

 

 

Sep 06, 2011 04:10 PM #48
Rainmaker
1,281,101
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

THe BK will screw it up bad.  Now a BK may be a good option for someone that wants to keep the home but needs to start fresh on the payments.

Sep 06, 2011 10:25 PM #49
Rainer
3,875
Kimberly Hopper - MD & DC Realtor
Exit Elite Realty - Bowie, MD
Your Source for Bank Owned & Short sale properties

Congrats Pam!! You have to be the professional and know a little about alot in this business to ensure that everyone is doing their part and challenge them if they aren't.  I hope your seller appreciates you because that could have ending very badly if you weren't as knowledgeable and proactive about it .

Sep 07, 2011 01:32 PM #50
Rainer
13,775
Alicia Stukes
Exit 1 Stop Realty - Bowie, MD
GRI, CDPE, Notary

Pam

Good for you....I have found in my own experience that bankruptcy attorneys can be very careless and many operate their businesses like used car salesman. 

Sep 08, 2011 11:52 AM #51
Rainmaker
131,925
Matt Robinson
Professional Investors Guild - Pensacola, FL
www.professionalinvestorsguild.com

Pam, great post...and great advice for short sale agents.  I've also had to deal with properties involved in bankruptcy and it no doubt slows the file and affects the sale.  We certainly tell sellers that they have to do what is in their best interests, but we recommend holding off on bankruptcy until after the short sale is complete. 

Feb 20, 2012 08:55 AM #52
Rainmaker
264,391
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

You earned your fee on that one. Good job. Aren't short sales fun!

Oct 05, 2012 10:28 PM #53
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Rainmaker
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Pam Crawford

Owner-RE/MAX Prof. Assoc.,MBA, CDPE, CRS, ABR
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