A popular theme in the responses we have received to our request for feedback
from the foreclosure front has been the confusion, delays,
and inflexibility on the part of mortgage servicers in handling "short
sales."
Short sales are requests to discharge mortgages when a third party is willing
to purchase the property for an amount "short" of the total owed on the mortgage.
Complaints about the short sale process came in from homeowners who had offers
to purchase their distressed properties, from investors, or from real estate
agents who were hoping to put together short sale deals. Most of the letters
mentioned specific lenders/servicers as responsible for their problems; however,
given our longstanding aversion to litigation we have purged all names. Suffice
it to say that most of the usual suspects were targeted.
Nearly everyone remarked on the perceived inflexibility of lenders
on price and the amount of time, paperwork, and aggravation involved in getting
a short sale approved - or even rejected.
A reader and Realtor' from Utah commented on both aspects. Saying that
he specializes in both listing and buying short sales for his own portfolio,
he stated "Since I started about 2 years ago I have never had my cash
offer to the bank accepted in less than three months; 11 months is the longest
I had to wait." He went on to say that lenders have been slow to realize
that property values are falling. One property he has listed for $75,000 has
an appraisal for $78,000 with $60,000 being the best offer he has received so
far. The lender holds a note for $110,000 and they have postponed the foreclosure
auction three times yet "they are refusing to accept the fact that the
property is worth half of what they lent on it."
A Nevada correspondent - and judging from his email address also a real estate
agent - wrote, "I have found trying to close a deal via a short sale gets bogged
down with lawyers. It seems they only care about their fees and billable hours
rather than helping resolve this mess. Some type of streamlining would certainly
help. It seems that the banks are still asleep at the wheel.
It is very discouraging."
Another real estate agent in the Bay Area of California said he recently had
a "ready, willing, and able buyer to purchase a property as a 'short
sale.' The home had been on the market for months prior to our bid. It
took three months for the lender to get back to me and my client and then only
to notify us that our offer was declined. The lender felt they could get more
money later, (after the property was foreclosed). One month after the foreclosure
the property was back on the market for the exact amount of our original bid
four months earlier."
Loss mitigation departments are where workout and short sale proposals and
decisions are processed for the banks and for mortgage servicers. Another real
estate agent, who did not list his home base, wrote the following:
"Our experience is that the loss mitigators are so backed
up and take so long to do anything (60 days in the case of (one lender) to even
begin the process) that homeowners are being hurt terribly. Even if the homeowner
is proactive and hires a real estate agent who has experience in short sales,
the likelihood of the sale being successful has very little to do with the actual
offer being received. No real estate agent has the time to spend a couple hours
a day on the phone trying to push the bank to a decision. Some banks are even
putting up barriers to communicating with the mitigators like refusing to transfer
calls to them unless the mitigator requested the call. It is a real catch-22
because the mitigators don't have time to actually call anyone.
"In the end this hurts everyone. The homeowner loses their home to foreclosure
and irreparably damages their credit. The real estate agent does a ton of work
but doesn't end up getting paid, and the banks are stuck with owned real
estate that will inevitably sell below any offer they received pre-foreclosure.
From Georgia: "I called (major servicer) last month to present
an offer from my company to purchase a nearly new home in the Savannah area.
We had a signed purchase and sale and were guiding an unschooled homeowner through
preparing a complicated package of financial info for the lender. We asked for
a short delay in the foreclosure that we had been told was scheduled for less
than a week later. Not only was the servicer totally wrong about the date of
the sheriffs sale, the she insisted that her company never, ever granted postponements
unless a deal was approved and that only a completed package would be reviewed
for approval
"We deal with short sales all of the time and we have never known a major lender
to refuse to allow a little time for a deal - without even knowing the sale
amount - to come together."
Quite a different take on the short-sale situation, however, came from a reader
who is in the business of loss mitigation and has "been assisting home owners
and commercial property owners to short sale their properties nation wide."
He sees the banks as being a little victimized themselves as
more and more investors look to profit from the current mortgage mess.
"We have been doing this for 17 years and have seen a dramatic change in the
way banks work. Their slow ability to respond to short sellers is of great concern.
Banks are simply unable to respond to the very large number of individuals trying
to resolve their defaults. In our opinion the large number of "so called" investors
and short sellers who try to flip or double close and make a hefty margin creates
tremendous delays on the already burdened loss
mitigation departments. Banks are much better equipped now-a-days to recognize
these "investors" and in most cases these deals won't fly but the "traffic,"
with short sellers calling and sending offer packages to lenders affects the
possibility that what we call honest short sales will be completed efficiently.
We do short sales for fair market price; a far better solution for both borrowers
and lenders who can receive much more for their defaulting loan. Our success
rate remains very high but we have to be selective about who we help. Certain
banks are simply unable to process the short sales. We have seen many buyers
losing patience.
"Another issue is that banks are slow to understand that the
markets are moving down. In many cases they stick with appraisals based on six-month
old comparables and don't take into account that a property they are not willing
to sell for fair market value will end up on their books and will become a big
financial burden.
"There is no doubt that REO
(real estate owned) portfolios are much larger than they have to be. If
banks don't hire and train more loss mitigation specialists their losses
will be staggering. Usually a short sale takes 2-4 months to complete
but we have seen cases that lasted 8 months even with a good offer and a willing
buyer."
In part three of this series we will tell you what we are hearing about that
old advice to "be proactive, contact your lender."
We would love to hear from you if you'd like to share your story.