The closing is off, now what?

September 25, 2008 12:49 PM

Help. My house closing, scheduled for tomorrow, has been indefinitely postponed since the seller's second mortgage is not going to be paid in full. I don't know what to do even though yes, I already talked to a lawyer.

I have had a contract to buy this house since the end of July. I am buying the house for cash due to a recent unexpected inheritance when my mother suddenly died a month ago. The original contract was based on my ability to secure financing and it is for about 8 grand less than the original asking price for the house.

The seller, who is going into bankruptcy, has apparently got two mortgages on the house. The contracted price is not enough to pay off both her mortgages and she has not yet gotten a letter from the second mortgage company agreeing to the short sale. I found out about all this three hours ago and I just got off the phone with my cousin, who is a local real estate lawyer.

I have to be out of my rental house by next Saturday, October 4. I am also in the process of cleaning out my mother's house and moving my 80 year old aunt with vascular dementia into my new house. The moving trucks are coming on Tuesday to both houses. The electricity and water have been turned on at the new house. Everything is packed. A friend of mine, a contractor from Baltimore, is even now driving down here because the original plan was to take the next five days to do some necessary - mostly aesthetic, but still - repairs to the house before I moved in. We were going to start with ripping up the horrible carpet and sanding the wood floors underneath before the furniture got moved in.

The real estate agent has gotten the seller to agree to something called a Possession Before Closing contract which means that I could proceed to move my stuff into the house but a) it's only good for seven days, although it can then be extended week by week if necessary and b) it stipulates that I cannot make any changes at all to the house while I'm living there. As in any: apparently, anything I do could be considered damage to her property. This contract is specific about even my animals (2 dogs and a cat) being in the house.

My cousin the lawyer says this is going on all over the country and mortgage companies are inundated and the the only option I have would be to try to get my landlord to extend my lease another month and stay here. That might be possible but unfortunately my aunt's situation is not as easily fixed, since she cannot stay where she is: my mother's house must be vacated by Tuesday, October 1. I don't have room for my aunt in this house and the general situation of boxes and chaos wouldn't be good for her at all anyway.

He also says not to make any changes to the house at all. That is going to make everything insanely more difficult, since it means construction going on while we're living there and that will be difficult for my aunt. If I can even get my contracting friend who I trust to stick around to do this work for me, and since I promised him work, I feel bound to pay him at least something for all his trouble already. Also, yes, this would be wrong, but, what if I do rip up the carpet and then the sale falls through? If she sues me for damage to her property (actually, it's a total improvement, good god) then can I counter sue her for breach of contract?

So what do I do? Do I move into the house knowing that it could all fall through and I'll have to move out again with little or no notice? Is it likely that the mortgage company is going to agree to this short sale and release the lien on the house? It will go into foreclosure if they don't, so you'd think it would be in their best interest to do that but will they? Do I move all my stuff into storage and put my aunt into a hotel and farm my son out to his sister and stay at a friends? Do I try to get my landlord to extend my lease another month? Should I give up on this house and start looking for another one? I'm freaking out and I don't know what to do. Has anybody been in this situation before?

posted by mygothlaundry to home & garden (22 comments total)

First of all this is a really tough situation, and I'm really sorry that it's happening to you. Keep in mind that it's only temporary though, and even if things are a little crazy right now, eventually everything will work out.

Also, yes, this would be wrong, but, what if I do rip up the carpet and then the sale falls through? If she sues me for damage to her property (actually, it's a total improvement, good god) then can I counter sue her for breach of contract?

You really need to talk to a lawyer for this, but I strongly suggest not doing it. You don't own the house until closing, so you don't have the right to damage the house, even if you won't end up being sued over it. I was in the opposite position (the seller damaged the house after closing) and it's not a fun situation. In the worst case you'll have to live with the carpet for a while and fix it later when things calm down.

Is it likely that the mortgage company is going to agree to this short sale and release the lien on the house? It will go into foreclosure if they don't, so you'd think it would be in their best interest to do that but will they?

Always hope for the best but assume the worst. Even in non-short-sale situations there is always a chance that something will go wrong at closing and the deal will fall through. Try to figure out if the closing will happen soon and plan for that, but also have a backup plan in case it becomes obvious that the deal isn't going to work out and you have to start over with a different house. In the meantime definitely find out a way to get a temporary living situation for everyone, whether that means extending your lease or finding some other arrangement.
posted by burnmp3s at 1:14 PM on September 25, 2008

Goodness, this sounds so stressful, I'm really sorry you have to deal with this. In terms of emergency management, the most important thing would be to make sure your aunt has a safe place to stay. Can you call around some nursing homes to ask whether she can stay for a month or two? It would be expensive I'm guessing but less scary than being alone in a hotel. If she can stay in a nursing home for a month or two, the next step would be getting a stable place where you could stay for the corresponding period of time. After that, it all becomes less scary and, although really annoying, it would be manageable.
posted by hazyjane at 1:17 PM on September 25, 2008

Do I try to get my landlord to extend my lease another month?

It might be worth checking to see whether, given local and state law, you actually need to extend your lease or you can simply not move out if needs be and pay for any extra days as you move out.
posted by ROU_Xenophobe at 1:23 PM on September 25, 2008

This is a mess and I don't have experience or advice, except to say that even the most normal of closings are stressful and prone to last minute changes. And you have options. You've discovered them and thought them through. It probably feels like the last thing you want are options right now, but you do have them. Does your landlord have another tennant lined up? Could you ask for a pro-rata extension for up to one month as a first approach?
posted by rainbaby at 1:26 PM on September 25, 2008

Wow. I've not been in this situation. But I'll try to help anyway. If I were you, I'd try to look at my options, and discard "optimal" scenarios for "good enough."

Your current lease: Explain to your landlord what's up and find out whether it is even possible to extend your lease, just in case.

Your mom's house. Who set the Oct 1 date? Is it at all flexible, given this unexpected and totally screwed-up mess that is not your fault?

Your aunt. It looks like you're not going to get an optimal situation here, period. All options are going to be difficult for her. Just keep her safe and stay calm and do the best you can. My first thought is that even if you don't really have room for her, it would be better for you to stick close to her than put her in a completely unfamiliar environment. The work on the new house will be harder with her there, but not impossible.

Moving. Talk more with your real estate agent. Make sure they know the entirety of your situation. Why on earth did your agent and the seller's agent set a closing date without all of the mortgage approvals in place?! ! The possession before contract thing makes me nervous.

Contractor and planned improvements. Don't do any work on the house until this goes through. Pay the contractor for fuel and feed him, so at least he's not out extra money beyond lost work. Find out what his schedule is like and how flexible he can be. The promise for work still holds, the timing will just likely need to change. This is not an unusual thing for a contractor.

Securing the mortgage to the new place. See Moving, above. Add a few exclamation points.
posted by desuetude at 1:30 PM on September 25, 2008

Oh, and call in favors wherever you can. I don't know you personally, so I don't know how much stubborn pride you've got about this sort of thing. (Me, personally, I've got the stubborn pride, and would rather do favors than ask for them any day!) But this is an unusual and unfair situation -- exactly the time for you to find out who can help you and what they can do.
posted by desuetude at 1:36 PM on September 25, 2008

Extending your lease is tricky since you don't yet know when you'll be free to move out. If the landlord doesn't already have someone with a signed lease, there shouldn't be a problem with you converting to a month-to-month tenancy. In fact, this will be good news for the landlord, who will now get a few months more rent out of you before having to rent it again. Assuming your landlord is reasonable and isn't likely to give you 30 days' notice before you have things sorted out, that is.

I'm no expert on closings but I suspect that you should as of today expect better than 50/50 odds you will be able to sort things out in the next week or two. If it goes on longer, those odds decline and you should start looking again. It really depends on how much of the loss the bank and seller are willing to eat.

You can always bump up your offer a bit to help things out. Not a lot -- and maybe not immediately, so you don't appear desperate -- but just as a kind of back-end earnest money. Cash to one of the parties has been known to do the trick. People always like cash.
posted by dhartung at 1:42 PM on September 25, 2008

Someone who has worked with this mortgage company in this situation is more likely to know what they would do.

If it looks like it might be a while, you might consider getting a different house. Taking possession before closing does not mean that you will be able to close on this house, and you may have to move again on short notice. Of course, this depends on a lot of specifics such as where you and others would live in the meantime, and how much you like this house. It looks like some problems will be there no matter what you do (pets not with you, friend coming in, where aunt will live when work being done/waiting for house), so you can eliminate these from the factors you are considering.

If you are paying cash and buying from someone that doesn´t need to run things by their mortgage company you should be able to close quickly, possibly in as little as two weeks (depending on practices in your area). It´s common (but ask your lawyer!) for you to be no longer bound by the first contract if closing does not happen when the contract says it will. Don´t sign anything extending the closing date until you decide if you want to be free from waiting to hear from the mortgage company.

If your aunt´s situation is such that she needs round the clock care, start looking now for a place she would be able to stay temporarily, maybe a nursing home or in a handicap accessible hotel room/suite with a private caregiver.

Moving trucks? Sounds like you might be having to move some things directly to a storage unit. Check pods.com for an alternative to this.
posted by yohko at 2:04 PM on September 25, 2008

Condolences on the death of your mother.
I work at a law firm and a couple of times in the last few of weeks in situations like this the mortgage company offers to let the sale go thru if the buyer ups their price by a thousand or two. They then write off the rest, but feel they've gotten something - or at least the person at the mortage company can show their boss they've done their duty.
Everything always happens in a big flurry in the 24 hours before the closing when everyone is over a barrel.
This is very stressful and I wish you the best.
posted by readery at 2:05 PM on September 25, 2008

As for making changes -- can you somehow get the seller to hire you or your friend to make some of the changes you were wanting? Definitely check with relevant lawyers first, but this seems like a way around the stipulation that you not make changes. There might be some footwork involved, as if the seller were wanting to make changes during the closing process, but if the seller's sufficiently motivated, it could work. The seller could pay a token amount or the actual amount -- your lawyer might have an idea about this.

And there is a chance that the whole thing could fall through, so look around for another house. Otherwise, yes, that bank would be in a stronger negotiating position than you might wish.
posted by amtho at 2:27 PM on September 25, 2008

MGL, how much does the seller still owe on the second mortgage? Is it a small enough amount that you could cover it from your inheritance, then have your attorney prepare some kind of agreement with the seller for at least partial repayment over time?
posted by netbros at 2:52 PM on September 25, 2008

The real estate agent has gotten the seller to agree to something called a Possession Before Closing contract

Your real estate agent - the buyer's agent in this case - screwed up, royally. You should have been informed of the risks of a short sale. If this sale falls through, you should - at minimum - ask the real estate broker (the person in charge of the real estate office) to assign you a different buyer's agent - the one you have doesn't deserve a 3% commission from any house you might end up buying. And you should consider negotiating a cancelation of your contract with the real estate company (that they will be the exclusive buyer's agent) in exchange for you not filing a lawsuit (or a formal complaint) against them. (By the way, I really, really hope that you had a buyer's agent, rather than having the same agent represent both the seller and you, the buyer - "dual agency". Because dual agency means this wasn't just sheer incompetence, but that the agent actively caused this to happen in order to try to lock you - the buyer - into a position where you would pay more in order to actually take possession. And he/she would get a 6% commission from a situation that most buyers wouldn't get involved in if they were fully informed of the risks.)

You have a lot of potential leverage here - your real estate agent should be taking as much as possible off your shoulders (for example, continuing to follow up with the bank holding the second mortgage, or even negotiating directly, within the parameters you give). And it's not unreasonable for you to ask that the agent reimburse you - from his/her commission - for out of pocket expenses such as whatever you pay the contractor for travel costs. (If there is dual agency involved here, then the agent should be willing to reimburse you *lots* of money in exchange for you not asking to have his/her license taken away.)
posted by WestCoaster at 6:59 PM on September 25, 2008

Is it a small enough amount that you could cover it from your inheritance, then have your attorney prepare some kind of agreement with the seller for at least partial repayment over time?

The seller is going into bankruptcy, therefore they are unlikely to be making these payments.
posted by yohko at 7:30 PM on September 25, 2008

Well, for the record, I've now talked to two lawyers. They advised me NOT to do the possession before closing thing, because if the deal then falls through, I'm doubly screwed. I'm going to sit tight - I talked to my landlord and he's going to let me stay another month and I figured out a way to sort of fudge and manage to keep my aunt where she is for the time being at least - give the seller a 2 week deadline to get their shit together and see what happens. This is going to cost me a small fortune and, because the seller is in such financial difficulties, suing her or demanding that she drop the price on the house, which would ordinarily be possible at this point, since she's in breach of contract, isn't really feasible. This whole thing has been totally horrible.

Thanks for all your help and suggestions.
posted by mygothlaundry at 8:08 AM on September 26, 2008

mygothlaundry, glad you've at least gotten everyone's living quarters stabilized for the time being. But I'm terribly curious, what on earth does your real estate agent have to say for his/herself?
posted by desuetude at 8:13 AM on September 26, 2008

My real estate agent is out of town for two weeks. Her boss was supposed to handle the closing and she's really dropped the ball on every level - the settlement lawyer didn't even hear that the closing was off until this morning. She's been little or no help at all and I'm very unhappy about that. That said, the seller's agent is also very much at fault. The whole thing is just a clusterfuck and I'm right in the middle of it.

Unfortunately, my agent is a friend of mine. Or was. Well. Probably is, but I have just gotten a hard and forceful lesson in why you shouldn't mix business and friendship.
posted by mygothlaundry at 8:50 AM on September 26, 2008

That sucks, mygothlaundry. Have you contacted another real estate agent and started looking for another house? I'd do that. If you find something else suitable, you could walk away from this deal on your own terms.
posted by crazycanuck at 8:56 AM on September 26, 2008

Agent's boss is now responsible for this mess, and he/she should get on the ball and try to fix it. If he/she passes the buck to the agent, serve it right back up. Boss was supposed to handle closing? Well, here it is. Handle it.

You were not wrong, and trusting your agent was not wrong (though yes, ouch, friendship.)
posted by desuetude at 9:32 AM on September 26, 2008

Wow, that is awful. When something similar happened to friends (they were the sellers and the agents hadn't checked the buyer's financial statement) the sales commission went into escrow while they sued the agents (they won too). Definitely push for your losses to be covered by the agents. If this house doesn't happen for you it is because there is another, better house for you. If it is meant to be then trust that it will be, but keep your paperwork in order for a lawsuit. Good luck!
posted by saucysault at 1:19 AM on September 27, 2008

Please keep us updated. This could happen to anyone.

A random suggestion. If this house falls through, you and your aunt are going to need new housing pretty soon. You might be able to find a house for rent, not sale, for less than you were going to pay for this house. That will tide you over for a year or two.

Considering the remodeling you were planning to do on the new house, that might be a lot easier than the current deal would have been. Good luck.
posted by JimN2TAW at 10:27 AM on September 27, 2008

Here is an update for anyone who might ever be interested - this is how it all worked out.
1. I got my landlord to give me another month in my rented house.
2. I got my mother's retirement community to agree to give my aunt another month.
3. I got my lawyer to write up a lease that the seller agreed to - my "rent" went into an escrow account to be used against eventual purchase of the house.
4. I moved into the house in mid October, about a month after the original closing was supposed to happen.
5. Both my agent and the seller's agent kept trying like crazy to arrange a short sale with the two banks involved. This wasn't a hugely short sale to begin with - like 5K short, no more - but the numbers of course kept changing.
6. I got two sets of foreclosure papers nailed on the door.
7. I got ready to buy the house at foreclosure auction.
8. I didn't do many home repairs or renovations; just the very basics - leaks, etc - and I kept all my receipts.
9. The first foreclosure was delayed.
10. The day before the second foreclosure auction was scheduled - last Wednesday, actually - the banks suddenly called my agent and said that okay, they would accept a short sale as long as it happened in the next 12 hours. Heaven and earth were moved and I became the actual formal owner of my house on January 28, almost 6 months to the day from when my contract went into effect.

So I'm happy in my house, although there would turn out to be more plumbing issues than I knew about and note, too that all of this was possible because I was buying the house for cash due to a recent and unexpected legacy. If I'd still been financing, the whole thing would have fallen through and I'd no doubt still be in my cold, rat infested rental even now, or maybe in another better rental, who knows? I'm glad it finally worked out but I could have done without the wild ride. Plus, who knows when I'll get around to the floors now?
posted by mygothlaundry at 12:44 PM on February 5

That is awesome, I am so happy for you. I hope your home is filled with love.
posted by saucysault at 4:18 PM on February 5