Common short-sale hang-ups

Getting lender approval takes patience

By Bernice Ross, Thursday, May 21, 2009.

DEAR BERNICE: I have submitted five short-sale offers in the last month and haven't gotten an answer on any of them. What do I need to do to get these agents to do their jobs? --Jim D.

DEAR JIM: Without knowing the particulars for each of your offers, it's hard to tell if the agents are doing their jobs or if the problem is elsewhere. When a bank takes less than the loan balance on a property, there are a number of complex steps they must take before they can approve a short-sale offer. This approval process can take as long as six to 12 months.

The example below from Tim Burrell, a Realtor and an attorney who works with short sales in California and North Carolina, illustrates why short sales are so difficult:

"I recently closed a short sale on a property in California. Lender A, the holder of the first and second trust deeds (instruments that secure the mortgage debt), told me that our application had a good chance of being approved. Lender B held the third trust deed on the property. Even though I inquired regularly about the status of the short-sale application, Lender A didn't respond for several months. We later discovered that part of the delay was due to a dispute between Lender A and Lender B. Lender B demanded that they receive part of the sale proceeds. If not, they would refuse to sign off on the short sale.

"When Lender A refused to pay Lender B, Lender B decided to stall. Despite having copies from the title company showing when each lender recorded their respective liens against the property, Lender B claimed their lien was filed prior to Lender A's second trust deed lien. That dispute took a month to resolve.

"Lender A decided to start foreclosure on both the first and the second trust deeds. In a foreclosure, if the holder of the first or second trust deed forecloses, the third trust deed holder receives nothing. It would also prevent the short sale.

"To resolve the issue, Lender A finally agreed to a small payment to Lender B. Lender B demanded 10 times that amount. Both lenders refused to yield. At this point, we had been under contract for six months. We proposed a payoff five times the size that Lender A proposed. Most of the money would come from the Realtors' commissions.

"Lender B told us that they would recommend our proposal for approval. With the short sale looming and only two days before we were supposed to close, Lender B again demanded 10 times the payoff. The Realtors cut their commission again and closed the transaction.

"Buyers don't understand why many competent agents avoid short-sale properties. On this sale, I successfully stalled the foreclosure sale three times, negotiated short payments on the second and third loan, negotiated a discount payoff on a fourth judgment lien, handled the transition of Lender A being sold to another lending institution, and kept my young buyer and four Realtors working together. My compensation was slightly above the minimum wage." ...CONTINUED

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Submitted by Lenn Harley on May 21, 2009 - 2:24pm.

I have also found that agents not experienced with short sales often write contracts with deadlines for the seller/bank to respond or provide loan approval letters from unrecognized mortgage companies or brokers.

Lenn Harley
Broker
Homefinders.com
http://www.homefinders.com