Short sales and LLC’s

Tell me if you’ve heard this one – buyer puts in an offer on short sale, lender takes too long to make a decision, buyer walks. Common, right?

New offer comes in, lender sees error in old ways and moves more efficiently to ensure we don’t lose this buyer, right?

Nope. Only this time, the problem wasn’t the speed (or lack thereof) of their decision, but the decision itself. They would not accept the offer, because it was from an LLC and if they can’t identify every member of the investment group, along with a detailed family history from each proving they share no familial, business or friendly relationship with the borrowers, the lender will not accept the offer.

While I certainly understand not wanting to sell to someone who would then sell the home back to the original borrower at a significant discount, let’s be realistic – there are too many homes on the market with too few buyers. If David Smith wants to purchase a home from David Smith Jr., I disagree with the banks logic, but I get why they wouldn’t want that particular sale to go through. However to deny a legitimate business entity – one who was willing to sign all the necessary arms length addenda confirming that no relationship exists between them and the buyers, without having to reveal any names of it’s investors – is going to far.

Worse, the lender shared the following logic: “If we allow the sale to go through to the investor and not an actual person, what happens if they default on the new mortgage? Who do we pursue?”

Yes, this is seriously what they said.

Let’s forget for a moment that this was a CASH offer. For starters, the business tax ID number we were required to provide has an actual human attached to it. Even if it didn’t, what difference does it make? Once the borrowers lender receives the money at closing, that’s it! The buyer could default the next day and it would have absolutely zero impact on the borrowers lender.

But again, it was a CASH offer.

We submitted another offer soon after from a “traditional” buyer, for less money. If this offer is accepted, it will be one more decision from a lender that leaves us shaking our heads. Prices are going to keep dropping for several more years, so short sales will be with us for some time to come. I wonder how long it was take before lenders realize that making decisions based on the assumption that everyone is out to screw them, will cost them far more money than simply making the smartest business decision…