Could this possibly happen? Are Short Sales now becoming Long Sales? In this case the escrow closed, buyer moved into his new home and 30 days after that, he received a visit from a Realtor who told him to move out because the bank had acquired the property via a trustee sale.
Once escrow has closed, the issues of the prior owner cannot affect the new buyer of the property. After all, a title insurance company is responsible for the transfer of a clear title to the new owner, and the only lien should be the new mortgage that the buyer acquired in order to buy the property. Every property sold with any type of financing is required to have title insurance.
In a typical transaction when a borrower stops making payments, a Notice of default (NOD) is recorded 90 days after missing the first payment. A Notice of Trustee Sale (NTS) is recorded 90 days after that. In the meantime, the seller can opt to sell the property if the bank approves what is called a short sale, meaning that the total amount of the mortgage owned against the property is going to be short of the full amount. A short sale can only be initiated when there is an offer on the property.
When there are two or more lenders, like in this particular case, they negotiate an agreement between them, based on how much money from the proceeds each will take in order to sign off the lien and allow the property to sell to a new buyer. During this time, however, the trustee might schedule the sale of the property using the powers granted by the Note and Deed of Trust.
When lenders are negotiating an offer, they postpone the Trustee Sale in order to allow the short sale to happen. The trustee sale can be postponed many times. When a short sale is finally approved and the escrow closes, then the trustee sale is canceled completely. It is the banks responsibility to notify the trustee that the sale has occurred. It appears that in this particular case, the bank failed on this critical last step.
A recording of the new deed should signal the end of the entire transaction, sellers move out of the house, new buyer takes possession and a new lender becomes the only lien holder. In most cases that is the entire process. No matter what happened before, if the bank accepted a short pay off and the new buyer bought the property, no other procedures should happen for many years to come, and it will be up to the new buyer and lender to do whatever they want, a process entirely independent of the the prior sale.
In this unusual case in Fremont, California, the bank approved the short sale, signed the closing documents, got paid and then conducted the trustee sale anyway ... and become the new owner of the property it just sold. As a matter of fact, the lender send the check back to the title insurance company 30 days after escrow closed and ask to have the sale rescinded. Title company send the check back saying it cannot do that. Meanwhile the title of the property still shows Indymac as the new owner, in other words, it shows as an REO. How can this happen?
No matter how I look at this situation, there is no way that a Realtor or a Home Buyer can see this coming, or prevent it from happening. Escrow closed in December 2009, Trustee Sale happened on January 2010, it is mid March 2010 and we still have no resolution to this problem, the title company says they are negotiating with the bank and that the issue will be resolved soon...
Needless to say, the new buyer is not happy at all, he is receiving visitors that look at the property as an REO and think it will be available for sale. This particular buyer looked at over 50 properties, wrote 27 offers and after almost a year, he moved into his new place... I wonder when he is going to start truly enjoying his new home.
Antonio & Alexia Cardenas
"The Realtors In Motion"
CRS, GRI, E-Pro Certified. SFR (Short Sales, Forclosure Resource) Serving the east shores of the San Francisco Bay, Alameda county: specially the following cities: Castro Valley, San Leandro, San Lorenzo, Hayward, Oakland, Pleasanton & Dublin.
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