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Short Sales - Why are banks so difficult to negotiate with?

Recently I've been really busy trying to negotiate some short sales. All of my short sales have a 1st and 2nd. I've done everything that I'm supposed to in the negotiations. I also continue to show the lenders the new listings that continue to come up and I can't get the lenders to budge. They're as bad as some of the sellers that demand a price they could've gotten when the market hit its peak. I do notice that as we get closer to the foreclosure sale that they do begin to open the lines of communication. The problem is that the buyers that were waiting around end up finding another home. On one transaction the lender will not approve a short sale or negotiate because the BPO came in really high but I know that they didn't factor in that the house was on a major street and the comparables were not. At a time like this when banks are looking for some type of liquidity I find it very difficult to understand their thinking when it comes to negotiating a short sale. In my opinion it seems that since banks were unsuccessful at getting into the real estate market last year when NAR lobbied hard against them, now they are taking a chance at building up their real estate inventory. I know I'm reaching here but what does everyone else think?

Posted by Mario Villagran, MBA, Realtor on 08/15/2007 11:48 PM

Comments (31)

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31 Comments on Short Sales - Why are banks so difficult to negotiate with?

AUG

2007

Money goes to where money comes from. Very simple principle. Not surprising in todays screwed up affairs.

Mario,

The lenders are dealing with a lot of short sales, pre-foreclosures, late payments, etc.. right now.. I would think it is more of a backlog since they certainly don't want to be holding onto real estate at this time.

Basically, there is no benefit for them to hold onto real estate... they have auditors and everybody else to answer to.

Hello Mario, I really do not know what the banks agenda's are. They say publicly that they do not want to foreclose but most of them sure do not act like it. I am convinced that there are things we will never know about most of them and their true intentions. Regards, DavidC

AUG

2007

Mario,

Had a recent radio guest - Kevin Mikrut - who did short sales in Vegas and is now in Wisconsin doing the same. He believes that some lenders really DO want your home and cites Countrywide as impossible to work with. He also pointed out that their recent partnerships/acquisitions prove this to be true.

And Kevin was good enough to do TWO shows on YHYM explaining himself. There are I's to dot and T's to cross beyond anyon'e imagination...

Nice blog - too much evidence points toward lenders contradicting themselves about foreclosure all the time.

I don't get it either. A foreclosure will usually cost the banks much more money, time and effort. They ought to be working hard to make a short sale happen.

Sandy

I answered your question on my Active Rain blog. Sandy, you'll see why the rules have changed

Mario,

Lenders have a lot to think about before they accept a short sale and a financial loss. Many years ago when I worked for Metropolitan Mortgage & Securities Company in Spokane, I remember that Banks who held an FHA insured loan could not just work out a short sale with us or accept a discount and release their deed of trust, BECAUSE they would not be entitled to the FHA insurance if they did.

I suspect today the rules have been evolving, and that the mortgage holders (whether the originator or a secondary) are up against insurance losses (caps on percentages they can recover from insurance) as well as their own in-house rules that attempt to manage the loss and their return on investment for their shareholders.

Add to all this an administrator on a salary who really could care less about one property in TX or WA that may go all the way to the Trustee's Sale. So they push it all to the 11th hour hoping (but with no personal interest) that things will work out to minimize their loss. http://www.FreeRealEstateLaw.com

Banks do not want a real estate inventory. But then neither do they want to lose money so right or wrong, delay is the name of the game.

Mario,

Brian Brady's response blog sums it up.

Gary,

I agree Brian Brady's response blog is very informational.

Based on some of these responses there's obviously some of us that have been really confused at the banks' intentions.

What I do know for sure is that if you can get the short sale approved the buyers are getting a great value.

Mention that your seller's are considering a BK (Bankruptcy) and the lenders ears perk up. A BK ties up the property longer than they want, leaving the lender with no control of their asset. Also, IF your sellers are willing to sign an UNSECURED note for all (or a portion) of the debt - in exchange for NOT receiving a 1099 Cancellation of Debt, it's a WIN-WIN situation. I suggest a 2% interest rate over 10 years. It's money the lender would otherwise never see again and it saves your seller's credit (so, maybe they can buy another home when housing prices drop back to a healthy level). Be sure to get it all in writing.

Barry,

I didn't even think about mentioning BK. Great suggestion. I'll give it a try.

banks like us to be organized. the hard part is getting the bank to assign the file to the workout dept. the banks like us to be knowledgeable and love it when we give them a complete packet that they can move on.

Matt,

I agree. My problem is that they have a complet packet and they sit and sit and sit on it. My packet makes sense and in one case the lender is only losing $40k which amounts to half. They only approved the short sale if they could net $56k which was a loss of $24k.

In this case it's the 2nd that has to approve because the 1st is covered. None of the banks in first position are willing to negotiate anything if it's in order to accomodate the 2nd. In the above case I feel that this house is going to net a lot less if this property goes into foreclosure.

AUG

2007

Mario, I have written extensively on Short Sales. My most recent one might be of help to you in understanding this situation. Short Sales - Who Wins and Who Loses?

Bill Roberts

AUG

2007

As a buyer in today's market, its best to wait through foreclosure. None of these homes are selling at the foreclosure sale. Wait until the property is listed with a Realtor and submit a ridiculous offer. Cash is drying up and if you can close within a day or two, you will get real buy on a property. Also, the second mortgage holder is now gone so you only have to deal with one lender.

Hey Mario,

A real estate attorney explained to me that in many cases lenders don't care if we bring them an offer or not since they have mortgage insurance to cover their losses. Seems to me like the mortgage insurance companies need to improve their guidelines to entice these lenders to consider legitimate offers. I would think it would benefit them more than anyone in these situations.

AUG

2007

I have noticed that short sales have come to a halt in the past 90days. I just submitted one to countrywide last week that they owe $255,000 and the offer is for $160,000. I submitted the packet, hardship, and pictures of damages along with estimate costs. The seller isn't in default yet he has just been living off of reserves. Will the bank even consider this if he is not late?? Also any tips for talking to the loss department?

Chris, The offer I submitted was only $20,000 below total debt after paying off Realtor fees and penalties and late fees. They still denied the offer. I can not imagine them absorbing a $95,000 loss before fees. The last client I attempted to assist with a short sale was told by their bank that they had to have the house on the market for at least 90 days with a Realtor at fair market value, they had to prove hardship and they had to be in default for at least one month.

As for tips for dealing with the loss department; Make sure you have a letter signed by the sellers authorizing you to discuss the matter with them prior to calling. There are some interesting post on this subject. A few post suggest that the loss department is using us Realtors to gather information to use against our client, this would not surprise me, so be very careful.

Chris, if your client really wants to keep the house then maybe try to negotiate with the bank to not adjust his payments and give him some time to refinance. Short sales are a lot of work and not guaranteed.

I work for a mortgage assistance company, and work short sales every day. just never one where they are not in foreclosure. As far as that much of a loss, that is 70% of market value

AUG

2007

You get a lot more with sugar.... I have been working in this market for investors for a long-time and one thing is consistent. You have to focus on building the relationship with the lender right way. Keep in mind that the people representing the bank are people. Having a complete packet is just one step. You can have all the comps in the world all the numbers to justify but if you don't show a benifit to the bank, the borrower, as well as yourself you may find it hard to push a deal through.

Your hardship letter should be well written and should include the elements of why this deal is good for the borrower as well as the bank. It should elude to consequences for everyone as well. Such as if this deal doesn't happen it will cost you and I money. The borrower may have to file for BK prior to Foreclosure etc...

As an Investor you should always include a letter thanking the bank in advance for your time. Introducing yourself to the lender and letting them know your here to help in anyway possible. Let them know your a good investor who is helping this borrower (if your giving them cash and you shouldn't, don't say that). Provide them with a good feeling about you and your investment goals for the property.

As an agent (by the way if your working without an experienced agent your crazy) Include a thank you note on the submission packet. Again let the bank know that your not there to take advantage but to help facilitate the transaction. Don't be a pest but make it a point to call every couple of days or so just to check in on progress. If the lender says it takes 3 days to review the file, put on the nice voice and ASK for thier help personally on the file.

Remember it's not always about the numbers. Remember they are dealing with 100's of files per day and that if your a jerk or pushy the natural human tendency is to put you off. But if they genuinely like you and you treat them with respect you'll see gold my friend.

Lastly if your trying to jump into this game and don't know what your doing get a mentor, an attorney, a loan professional, and an agent. The short-sale, pre-foreclosure game is high stakes and if you make the wrong call you could easily find yourself in a sling. Each state has different laws so deal only with area specialists. I hope this helps....

Will Green

Home Source Mortgage

208-703-7307

OCT

2007

What I have seen so far is that once the bank owes a property the time for settlement after it get an offers is very short ( 5 to 10 days ) so why? Tell me.

OCT

2007

William, I have decided to delegate my short sale negotiations to a specialist. She has a high success rate and I'd rather concentrate my time on prospecting and marketing.

Marisol, I guess the problem that I'm encountering is that many of my short sales have two trust deeds and the trust deed in second position keeps holding out knowing very well that if this goes to auction they are likely to get nothing at all.

APR

2008

I think that maybe you are not giving the banks enough info to complete the short sale. They need to have it proven to them why it is not in their best interest to keep this property.

MAY

2008

complete packages were submitted. When I first wrote this blog the consensus here on AR was that banks didn't want to accept short sales. Here we are in 2008 and I'm getting feedback from other Realtors that banks are getting better. I'm not sure how much MI pays but assuming that they didn't pay the second trust deeds were wiped out. It became a lose lose situation for the homeowners, lenders, me, and the neighbors.

JUL

2008

I recently made an offer on a house that had been on the market for 20 months. The house has sat empty for the past 18 months. The offer was for the house "as-is" as the seller has no cash to make any necessary repairs (it needs a roof, new siding and new gutters). Tax assessment on the house is $219,000. The seller owes $220,000. My offer is $180,000. The listing agent had my sign a contract agreeing to purchase the house with the banks approval via a "short sale". I've been qualified through my lender and have over the 20% necessary to put down. The bank has requested to "Review" my paperwork - but that was weeks ago. Since, I've heard nothing. I'm afraid that I'm wasting my time expecting the bank to pony up and take a $40,000 loss but I love the property and am willing to wait if there's a good chance that the bank will bite. Anyone have any input? Is there anything that I can be doing to make things happen? The sellers will definitely lose the house to foreclosure if our deal falls through. Does this seem likely or a long shot?

JUL

2008

Danielle,

Some say it's taking banks anywhere from 30 to 60 days to approve a short sale. If your offer is a low ball offer then it might take them longer because they'll try to hang on for another offer to come in. But you are right and we all sit here in amazement because we hear that the banks don't want to sit on non-performing assets but their actions speak louder than words. I could only imagine the amount of files that they are reviewing so your patience can have a huge pay off. Keep looking just in case. Good luck.

APR

2009

I had a listing that was being foreclosed on. The seller owed about $130,000 on it. They sent the packet. Did the paper work. I listed at $99,000 which was still high because it need so much work (windows furnace c/a carpet cabinets updating) we got an offer for $80,000 the bank countered back at $109,000.... $10,000 more than the list price. I know the area well and I wouldn't have given them $60,00 for it. After talking with bank sending pictures and comps. They said it was all cosmetic and wouldn't drop the price. They want fair market value on an as is property. It was never worth $130,000.

Shelly

FEB

2010

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AUG

Well sometimes i dont know what to think of short sales. They are getting better and then they are not!

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Mario Villagran, MBA, Realtor

Burbank, CA

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