Failed short sales take heavy toll
Letter to the Editor
By Inman News, Friday, May 8, 2009.Re: 'Seeking closure on short-sale holdups' (May 7)
Dear Editor:
Finally, this huge problem is being looked at and openly discussed. What is taking so long? Because of the lack of lender cooperation we have lost billions of dollars in property values, caused additional unemployment, strain on local tax revenues and more homes going into foreclosure.
There are billions of dollars' worth of short-sale contracts sitting in lender offices, for properties they are foreclosing on. We are being told by the lenders that they do not care if the property is going in foreclosure because they are insured. What insanity is going on? Lenders turn down short-sale contracts and sell properties eight months later for 40 percent to 50 percent less.
This is the No. 1 issue that needs to be addressed: Stop foreclosure by accepting short sales. I had a $305,000 offer from a ready and willing tenant on one of my short-sale listings and after 10 months of utter insane runarounds, she bought an REO (bank-owned) property in the same neighborhood that was 1,000 square feet larger for $235,000.
My property is now on the market for $199,000 and we are getting $150,000 offers. I can give you numerous examples like these that tell you what insanity is going on out there.
We need standards to streamline this process. I wrote to our Florida governor, and to the National Association of Realtors (on this issue).
Selling properties as an REO and/or at auction is killing the market. We are competing against these properties with our short-sale offers and the banks undercut our higher-priced properties, forcing the short-sale offers to be overpriced.
We, the taxpayers, are handing (banks) money so they can perpetuate the problem. They are taking billions of dollars on one side, and on the other side they are throwing billions of dollars out the window, ruining the home prices, the economy, and bringing the entire country down.
These institutions brought us into this mess and now they are not helping to get us out of this mess. The TARP (Troubled Asset Relief Program) money should be used to hire out-of-work mortgage and financial people to get the short sales ramped up and cleaned up. The REOs and auctions should be put on hold indefinitely to stop the further erosion of home values -- successful short sales can clean up the excess inventory and be much more beneficial to the country.
Gitta Urbainczyk
Broker associate
Lake Mary, Fla.
***
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Submitted by henry b. nathan on May 8, 2009 - 3:33am.
I completely agree. A few months ago, I placed an offer for a client. It was a short sale listed at $239,000. The offer was for $199,000. In 4 months, we never got an offer. The listing broker just kept calling the bank without any sign of progress. One day, the listing was taken off from this broker, the property was given to another broker as a REO, and it was sold for $ 155,000. The listing broker, who had put a lot of work in the short sale, and me as the cooperating agent, were just stunned. It is not only a loss of money for the bank which aside from your TARP-related consideration, I couldn't care less, but the stupidity of the whole situation and also the suspicion of foul play that I couldn't get off my mind.
You are right, the whole system is corrupt. The banks, through the concentration of the banking industry during the last couple of decades, are now dinosaurs whose only purpose seems to be to enrich their boards of directors and their circle of "experts".
Henry B. Nathan
Realtor in Hallandale, Florda
Submitted by Cory Maguire on May 8, 2009 - 3:36am.
Gitta,
Excellent clarity and absolutely right-on commentary about the banks gross mishandling of short sale properties. As you have stated, they're not connecting the dots and consequently massive amounts are being left on the table resulting in continued rapid decline to property values. Enough! Let's bring this truth to their Board Rooms showing in real time, real dollars the overwhelming value of working with short sales.
Cory Maguire
Principal, The Realty Network Group
Sebastopol, CA
Submitted by Robert A. Hulme on May 8, 2009 - 3:49am.
The same thing is happening on a regular basis here in Utah. The good thing about the present system is that my buyers and making some unbelievable deals and putting themselves in a great position for the future.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
Loan Officer
Mortgage Xpress
www.WeberCountyRealEstate.ws
www.DavisCountyRealEstate.us
Submitted by Tim Burrell on May 8, 2009 - 4:34am.
You are exactly right! I had a short sale where we sent in a complete package in May, it was rejected in July with no counter offer to give us a price to get the buyer to aim at, but we got the same buyer to quickly raise his price by $5,000. Instead of responding rapidly, the file was closed, and the delay process started all over again. When the bank wanted more money in the response in late November, the buyer bought a better house in the same neighborhood for less money, as the market (this one was California) had declined much more. When you consider that the buying couple was pregnant with their first child when they made their first offer, and the child was not only born but learning to sit up when they bought the other house, you can understand how this delay affects a family trying to buy a short sale. To be fair, I have noticed an improvement in the processing time by lenders, but there is still a long way to go.
Maybe we can get the lenders attention if there are enough examples presented by the short sale community. Please go to www.ShortSalesR.us and post your story. Then, maybe we can get in touch with the Mortgage Bankers Association or other trade groups to present this information and try to get the message across.
If you have any other way to get the lenders attention to this problem, please make a suggestion on www.CreateAShortSale.com. All the work we do on short sales could be much more effective in getting out of our current financial situation if the time for review was less.
Thank you for the article.
Tim Burrell
www.ShortSalesR.us
www.CreateAShortSale.com
Submitted by Paul Howard on May 8, 2009 - 4:47am.
The author said:
"We are being told by the lenders that they do not care if the property is going in foreclosure because they are insured."
In those cases where the lender would receive more from insurance (PMI exists for this purpose) why would they accept a short sale offer that would preclude payment based on PMI. What documentation must they show to receive the insurance payment and why don't they simply tell anyone who makes an offer what they will receive from insurance?
In fact, how likely are they to receive the payment even if there is PMI. There are several layers to the issue and not all of them are obvious.
Paul Howard, Broker
NJHomeBuyer.com Realty
Cherry Hill NJ 08002
Submitted by Jon Boyd on May 8, 2009 - 5:29am.
The frustrations expressed above are shared by many of us in the industry.
The bottom line is that this behavior is not in the best interest or the company or its stockholders.
When corporations do stupid things they should be allowed to suffer or go out of business. This is what capitalism is all about. This is why capitalism is so efficient.
If lenders continue to behave this way their stockholders should revolt or they should be allowed to fail.
Jon Boyd
Broker/Manager
The Home Buyer's Agent of Ann Arbor, Inc.
1908 W. Stadium Blvd. Ann Arbor, MI 48103
http://buyersagentannarbor.com
Submitted by Rob Aubrey on May 8, 2009 - 5:33am.
I see banks arguing over a commission and then foreclose and get less.
We are talking about the same people that gave a loan to an unqualified buyer in the first place. Why does this seem a surprise?
The best thing a bank can do is hire agents to work their loss mitigation, the way some banks hired agents to be their asset managers.
Having desk jockeys with "C" & "S" behavior styles is their bottleneck.
Submitted by john bruce on May 8, 2009 - 6:40am.
I'm curious why anyone would think banks should eat shortages when the homeowner's have resources. Defaults are built into the pricing of the investors. So if a bank denies a short sale after investigating the homeowner's financial situation, they have deemed the homeowner able to pay for the house the homeowner would likely gladly keep (in most instances) if it had gone UP in value.
The real problem is agents are listing houses for folks who are not financially distressed creating a backlog of work for the loss mitigation departments at the banks. This results in some bonafide short sale candidates' files not getting to the top of the pile in time to avoid foreclosure. As for many of the rest, they've abdicated their responsibility to adhere to the terms and conditions of their mortgages/deeds of trust. They deserve to have their credit blemished and often don't deserve to have another shot at home ownership. Or credit cards. Or car loans. And when they do, who do you think pays for the risk involved? The answer is YOU in the pricing you pay for the same products.
If agents would QUALIFY their prospective sellers and suggest "stay put and make your payments because you have to live somewhere" to those who are not good candidates for a short sale, inventory levels would drop and the values would come back. The banks could look at applications for short sales in a timely fashion, and approve the homeowner's for a short sale BEFORE marketing the homes. The "short sale" would not be stigmatized because a buyer would get a quick decision based on the merits of their offer (price and terms), and homes would sell for "retail."
In my area, short sales are listed (and occassionally selling) for LESS than foreclosed homes because motivated prospects can't wait several weeks to hear their offer has not been accepted.
I believe the best policy for real estate professionals is to focus on motivated prospects with money. Harder to find - yes. But we all must remember real estate sales is a PROSPECTING business. The benefit is you'll also settle transactions and get paid. It sure beats writing 10 offers and "hoping" one will go to settlement. That's a 10% chance of getting paid after "earning" the commission.
But I suppose "short sale experts" who farm the negotiating out to a third party who further stomps on the banks proceeds would disagree with me. After all, they've bellied up to go to class to learn to be an "expert" so they can further devalue the real property in their market while increasing the odds they'll get paid - at everyone else's expense, including their own if they own real estate in the same market.....
Submitted by alisa hagner on May 8, 2009 - 6:56am.
Same of these servicers for holding up the process and not making good on their promise to Pres. Bush to have answers in 45 days (calendar days or business days?)
Chase wants the short sale package in 10 page chunks.
Wells wants new authorization to discuss letters dated within 30 days.
CW/BofA wants 3-5 days notice to postpone a foreclosure sale. It depends on the investor.
All of these servicers eat paper. How many times do I have to fax in an auth letter or an 80 page package? Just to have my fees cut at the end.
So you want to pay me 4%, but it took you 5 months to get me an approval letter!
What's with - we paid first half taxes, so we need you to update the estimated HUD. Learn to add and subtract. Quit making me ask the title company to update an estimate and waste another 3 days in the process.
What's with 2nds holding up the process? Take something and lets go get this closed.
What's with servicers naming buyers - what do they care who buys the property as long as they get what they were offered.
Make it easy for people to do business with you and they will.
Submitted by Ted Jernigan on May 8, 2009 - 8:13pm.
I worked a short sale this year for a seller who knew he was in trouble when we started. He had more than $50,000 in credit card debt, but was almost current on his mortgage. I estimated that the shortage for the lender would have been less than $10,000 if we had closed in a month. Three months later the lender had run up penalties, interest, late fees and legal fees for a total of more than $25,000. The seller near the end of the sale almost walked away, but I encouraged him to hang in there, and we finally closed the deal. When the negotiator actually looked at the file and called me, we closed in less than seven days. Why the lender did not have someone expediting deals as simple as the one we brought him is beyond me. We could have been closed seven days after the package was submitted.
Ted Jernigan
Ebby Halliday REALTORS
McKinney, Texas 75071
Jernigan@ebby.com
972-489-6173
Submitted by Tim Burrell on May 9, 2009 - 4:53am.
There are a lot of misunderstandings about short sales. One of the comments above talks about lenders allowing short sales when the seller has the money to pay the rest that is due, i.e. the amount that the payment is "short". The review by the lender is designed to prevent that from happening. I can't say it never happens, but it shouldn't. The seller has to prove using financial statements, bank statement and pay stubs that they are in financial trouble, so that the short sale is the best choice available to the bank. The post makes a good point, if the seller does not qualify for the short sale, do not clog up the system with a proposal that will clearly be rejected. There are many people in financial trouble who qualify, so let them have the limited review time.
There are plenty of opportunities to learn about short sales so that we can avoid spreading misinformation. I have a blog at www.ShortSalesR.us that is a free education. I teach classes that are approved the our Real Estate Commission for continuing education credit. My book, Create A Short Sale, will be published shortly so you can read under 100 pages and know how to do it. There are many other sources to be educated in this field. So, learn about it and contribute to the effort to improve the real estate market and the financial situation.
However, the primary point of the main article is one of the biggest problems that needs to be addressed. The lenders have to develop a quicker system to review short sale applications, then the whole process will work much better.
Tim Burrell
www.CreateAShortSale.com
Submitted by chis eliopoulos on May 10, 2009 - 6:19am.
Why do the banks behave this way?Why do the politicians and regulators won't dare to regulate them? Witch chapter of economics is dictating that the creation of huge inventories from non performing institutions that need capital infusions helps an economy.To have the institutions that created the mess that we are in, in control of the process again (dictating terms in short sales and other aspects of a transaction) is INSANE.
Submitted by Suzanne Santos on May 10, 2009 - 7:28am.
I am a Broker here in Illinois, and all I do is List Foreclosure Properties.....This is also happening in Illinois...
All the Realtors that are trying to do Short sales are investing months & months of their time trying to get these so called short sales closed...It's not happening ! Maybe 1 in every 500 finally get closed and they are all VA properties........When you do a VA short sale, it is overseen by a VA rep..He is the one who deals with the Banks..........The rest of what we are hearing is Government smoke and Mirrors... Again, the bankers are not worried...They are making big buck salaries....AIG is getting money from the Government(us Taxpayers) to pay out 25% mortgage insurance on each foreclosure....There are no incentives to get these properties sold on a short sale......Where is the oversite?? ..... Does our President really know or care what the Bankers are doing ??
Submitted by Torrey Brothers on May 10, 2009 - 8:17am.
I am reading over everyone's comments and it looks like most of the comments are made by Realtors. I am a Short Sale Expert and our company has a 90% acceptance rate. We partner with Realtors and negotiate short sales on behalf of the Realtor, Seller, and Buyer. Our services are free to sellers and Realtors. We are trained on how to negotiate with banks by professionals that use to work for banks as loss mitigators. Please visit my site here for more information on how you can partner with 1st Choice Loss Mit and recieve a full commission. www.help.managemyshortsale.com
Submitted by Meena Gujral on May 10, 2009 - 10:42am.
I am told that lenders would rather do a short sale than a foreclosure, but it certainly does not seem that way when you try to do it.
I have had a few short sales so can speak from experience. I lost a few buyers in the process and had to put the listings back on the market a few times, but after a lot of hard work and patience the properties sold at the short sale.
The real challenge is when there are two loans on the property. You start with the first lender. They do not respond quickly and in a declining market, the value of the home goes lower than the offer that was received. The lender wants to do 2-4 BPO's on the property. If the BPO comes higher the buyer backs out. The roller coaster starts again. You look for a new buyer, the buyer offers a price that the bank wants, the bank takes a while to look into this offer and finally approves it.
Now you are ready to negotiate with the second lender. They demand that the first lender pay them $10k. The first lender only agrees to $2000-$5000. You go back and forth for a month and the buyer backs out again just when you thought you had done it this time.
Agents are so put off by the whole process that they don't want to sell a short sale listing. And then there are agents that will list it but are not motivated enough to follow up with the lenders. They think that the lender said they will respond in a week so even when they don't hear back, they do not want to call the lender again and in a short sales situation, as an agent you need to call the lenders every day.
From all of this you can see the patience one needs in dealing with the challenges of a short sale. As so many of you have mentioned, it just does not make sense as to why the banks cannot get their act straight and help in making the short sales easier since it is a win-win situation for them, and the seller who can avoid a foreclosure and of course the agent and the overall market since the foreclosure properties are bringing the prices down.
Submitted by Robert Bass on May 10, 2009 - 12:01pm.
Gitta
After reading your letter I had to stand up and cheer as to how right on you were with your position. I often ask to where these lenders are with their free lunches and new loan programs to share with our clients. If they would spend a fraction of those old expense accounts on educating our industry, as to the end and outs of their peculiar institutions short sale system, we may stop the lender’s quiz and get some people into homes at fair market value. However, they left this education to 3rd party educators trying to make one program fit all intuitions. I am not complaining about the Short Sale Educators. I can see with the comments I review above the Banks didn’t even educate their own staff. This creates a sad state of affairs.
I do have to say not all Banks are taking this “head in the sand position”. Banner Bank and Bank of the Cascades in the Northwest are very progressive on using their TARP money to sincerely help it customers. It seems like other banks which I will not name are using the same money to hire their attorneys’ to go after own clients. I feel they enjoy eating their young. Naturally, these Banks with their traditional hardliner mindset create an atmosphere where everyone sufferers, the Banks, the Clients and the Tax Payers.
Submitted by Todd Covington on May 12, 2009 - 5:27pm.
The biggest problem happening in the world of shorts sales is a compromise between banks and the home owner. The banks says the home owner has assets and the home owners says they are broke. It's a large gray area. What I'm seeing is owners who actually need help. The problem is the bank will not help until they are so far into foreclosure they can't recover. It's a shame for some people who really need help.
Submitted by Veronica Hicks on May 14, 2009 - 2:59pm.
"Follow the Trail" The banks aren't losing money to allow the properties to sit. In fact it is just the opposite. Banks make their money on service fees while the investors and community homeowners suffer. Until Investors start asking these questions and step up and take legal action, the incompetence will continue. I have several shortsales for condos that are declining at a rate of $10K or more per month in California.
I firmly believe that if Timothy Geithner had to go out and physically buy a short sale, it would not take long to figure out where the taxpayer dollars are going. It is a discrace ..
"Fee Skimming" no different than rent skimming.
It is taking the industry down. Buyers are available .. it is just very frustrating.
Submitted by Teresa Boardman on May 16, 2009 - 10:10am.
I no longer show short sales to my buyers. The last time I wrote an offer on one was last November and it has been a year since I have represented a seller on one. I call them liar listings because the bank has the final say on the price which is not the same as the price in the MLS. Yes the last one I was involved it was handed by a person who works in an asset department of a bank who had 320 files on his desk. We need the short sales to work and they do stop foreclosures. I wish I could participate in this but I am in business to make money which means I have to sell something so I say no to short sales.