Buyers offer on an “approved” short sale is processed and when the wires arrive at escrow the sale is closed, funded and recorded. Buyers are celebrating and happy.
However, in the background the bank either rejects the wire or trustee is unaware of this close and continues with the Foreclosure process & Trustee Sale! If the property is NOT sold in an auction, bank gets on title. The property at this point becomes and REO. And the bank at this point initiate the eviction proceedings for the unsuspecting NEW homeowner!
It sounds absurd, but this has happened more than once or twice! And to make matters even worse, the NEW home owner has to take the bank to court to rescind the Foreclosure and prove that they are the legitimate owners of the home when they acquired the property at the Foreclosure Auction (Trustee Sale in California).
According to her, some Banks have claimed that the Short Sale was only verbally approved…. etc…… . and it gets really messy. I personally met a San Jose homeowner in June 2011 who was shocked that his Short Sale purchase in which was recorded on March 2nd; was still scheduled to be auctioned off on the March 11th!!
So, Short Sale buyers be warned and make sure you are working with qualified Short Sale Agents who understand distressed property markets and REOs.