In 2012, buyer Maurion Rease, put in an offer to purchase his first piece of Real Estate in Alameda County; Oakland, California. This property is a short sale. It is a 4 unit building that the seller was losing. James Ward, Exit Real Estate Group, represents Mr. Rease, the buyer. The seller was represented by Embassy Realty. The short sale was approved a few months later for $595,000. However, the seller was approached by a scammer, who told her that she could sue Bank of America and not have to sell her property; that Bank of America would forgive the entire mortgage, and she would be free and clear. The seller then proceeded to back out of the sale. Maurion Rease was left with no choice, but to sue the seller for specific performance. Upon initiating the law suit and speaking with his Real Estate Broker, James Ward, who at that time was in real estate for 25 years, told him that it would be necessary to name Bank of America in the law suit. When Mr. Rease spoke to his attorney about that fact, his attorney stated that the broker was incorrect about his assertion. So Maurion Rease decided to take his lawyers recommendation, not his broker’s. A lawsuit was initiated and Mr. Rease won the suit for specific performance; which meant the seller HAD to sell the property to him.
At that time, after two years, even though Bank of America was the holder of the mortgage, the loan was being serviced by Green Tree Servicing.
When broker Ward went to Green Tree Servicing, they indicated that they did not have to cooperate as they were not a party to the initial lawsuit. Mr. Rease was then back at square one. He had a judgment for $595,000 against the seller. However the short sale lender, which ultimately was Bank of America, and serviced by Green Tree, was not going to cooperate with the short sale. Mr. Rease then, with his attorney, would now sue the Bank and try to get the short sale done with his judgement. This back & forth took another two years. When the Bank and Mr. Rease’s attorney made an informal agreement to settle, the loan was then being serviced by Ditech. Then the buyer and his agent tried negotiating the short sale with Ditech. It was at this point that the seller stopped cooperating and the court hired a court appointed receiver to perform receivership services on behalf of the seller. Shortly thereafter the agent with Embassy Realty is no longer able to be reached by any means of communication. Then the loan was transferred again to Bayview Loan Servicing. After some negotiation, Mr. Rease finally decided to pay closer to the banks asking price; which at this time was $950,000. Henceforth, a short sale which was approved with Bank of America for $595,000; the buyer now had to pay almost 1 million dollars. The whole process took over six years. Along that time numerous submittals to mortgage lenders, court confirmation, death of the initial listing agent, several law suits, title and escrow cancelation and is just now complete. EXIT Real Estate Group, a franchise of EXIT Realty International, has stuck with the client all that time, and had submitted the short sale application over 10 times.
So we have a burning question here, what is the correct answer? Should the lawyer have named Bank of America in the law suit initially? Or, as the lawyer indicated, was there no reason to do that as Bank of America was not a party to the short sale?
Broker James Ward argues, “That Bank of America was a party to the short sale and a short sale is not a short sale unless the bank approves of the sale. Therefore, the attorney would’ve had to name Bank of America in the initial lawsuit and perhaps the bank could’ve stipulated to the sale.”
“You do not have specific performance without the banks approval”, barked Ward. This is a legal question, and we would love to have feedback from real estate investors, agents, and lawyers. Please respond. Let us know what you think.
In the story above, which way should this have been done? A seller backs out of a transaction in a short sale after the short sale is approved by the bank and buyer sues for specific performance. Should the Bank that approved of the short sale have been named in the initial lawsuit? Or should the buyer have only sued the seller for specific performance? Inquiring minds want to know. . .