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Chase Bank Overdoes It With Cash Back Short Sale Incentive

By Mike Linkenauger

Services for Real Estate Pros

November 18, 2011 02:25 AM

Short Sale Specialist

When Chase started sending incentive solicitation letters to their borrowers in hardship early this year, many in the real estate industry were excited about the potential positive impact it could have. Sending letters to home owners offering $5,000 to as much as $35,000 BACK as a short sale incentive was a revolutionary way to get the borrower to take action and participate in a short sale. While this has certainly made a difference with some borrowers who can really use the money, unfortunately it rewards those who have made poor decisions and punishes those who are still responsible in many cases.

Here is just one of those cases. We just got a Chase short sale approval letter today from a local file in our Jacksonville, FL brokerage company. The purchase price was only for $60,000. The property and situation qualified for the HAFA program, and the borrower was excited about the possibility of getting $3,000 back to participate in a short sale. Short sale package was received and HUD was sent over showing a net to the lender of just over $47,000. After a short time of waiting and processing, we finally got an approval letter today. But something was different.

After reading the first page of the approval letter, it said that Chase was to receive only $37,000 back at closing. Instinctively, our initial reaction was that this must be some mistake, Until we read further. As it turns out, without the seller or their broker even asking for additional money back, Chase gave the borrower an additional $10,000 back. Including the HAFA program money, this seller will be getting $13,000 cash back short sale incentive at the close of their property. Here we have a borrower, who in one way or the other defaulted on his financial responsibilities, and was rewarded with more money than many will see at any one time in their lifetime.

I guess they are just giving defaulted borrowers a little taste of the wall street style executive bonuses that we have become accustomed to hearing about within the banking industry. Where is the justice in this? How is this fair to those who work hard to continue paying a mortgage that is more than the value of their property?

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Rick Irving

My Texas Home Real Estate - Fort Worth, TX

Rick Irving Knows Real Estate

Life is good! Default on your loan and get a bonus!

Nov 18, 2011 02:56 AM

Cathryn Jones

Assistants For Agents, LLC - Houston, TX

I saw this on a short sale approval. I did a double take when there was a "short sale incentive bonus". I just shook my head and thought "really...a bonus to the seller?" Shocking...isn't it?

Nov 18, 2011 04:55 AM

Mike Linkenauger

Jacksonville, FL

Short Sale Specialist Network

I do believe this is an effective practice ONLY to sellers who are taking no action. My concern with this is ONLY that the seller had already taken action, and didn't request or need an incentive. They were happy with the HAFA money and that is all! It wasn't needed in any way, and is a waste.

Nov 19, 2011 05:09 AM

Sharon Tudor Isler

ERA Landmark Real Estate - Bozeman, MT

TWO Generations Serving ALL Generations

Another crazy action on the part of banks. Guess maybe they're feeling guilty about all the government money they've received and want to "share" it - for their image. Not fair for people who continue paying on their underwater mortgages!

Nov 19, 2011 06:28 AM

Sylvia Barry

Coldwell Banker Previews International (#1 Marin_Sonoma_San Francisco_North_Bay) - San Rafael, CA

Marin and Sonoma Real Estate Leading Expert

Mike - this is very interesting. I assume your seller is in good standing (in the sense of Default) with Chase?

I do agree with your comments about the fact that once this practice is know, this gives borrowers more incentive to get rid of their underwater property, which is certainly not what we want to see.

Nov 20, 2011 05:13 AM

Anonymous

Amy Brick

My first experience with such a short sale came last Spring when a potential client brought me a letter from Chase, stating that he would receieve $25,000 if he short sold. This was a great help to him as he lost his business, his building which housed his business and his dignity with the recession. Because he was self employed, he doesn't qualify for Unemployment, so he's up a creek...this is really going to help him. Kudos to Chase, IMHO.

Nov 21, 2011 04:29 AM

Anonymous

Omar Lopez - Broker / Owner Cosmopolitan Real Estate Las Vegas

I have at least 5 similar deals right now as far as the large compensation to the home owner but I did notice that the common denominator was that the seller (home-owner) was totally disconnected and careless and ready to face foreclosure. I believe Chase incentives are helping communities to stabilized prices and avoiding more vacant properties, which we all know will end up vandalized and in some cases creating a bad taste of neiborhood within the communities. It's bad if the banks don't help and it's bad if they help the homeowners underwater ... Just saying!!! Take care you all!!!

Nov 23, 2011 03:44 PM

Mike Linkenauger

Jacksonville, FL

Short Sale Specialist Network

We have done MANY of these types of transactions. Again, what makes this one unique is that the seller wasn't even asking for and didn't expect the money back. You guys are right that this has been reserved exclusively for borrowers who are in full default with eminent foreclosure, who don't appear to be taking any action. USUALLY that is the case, but now they are just giving it to people for no reason!

Dec 07, 2011 05:09 AM

Anthony Lamacchia

Lamacchia Realty, Inc. - Watertown, MA

Mike I agree and I disagree. Allow me to briefly explain. I do agree that 35k is more than needed. We just got one approved at 35k a few weeks ago and just last week we got one approved (also through Chase) at 20k that the borrower was not at all asking for or expecting. However I applaud Chase for being proactive and creating a program that really promotes Short Sales. At the end of the day it is all about numbers and Chase clearly realizes that paying these incentives through Short Sales is still cheaper for them than foreclosing. Based on my experience with distressed homeowners I feel that 10k would have the same effect.

Dec 07, 2011 11:05 PM

Mike Linkenauger

LinkUp Realty - Jacksonville, FL

Short Sale Realtor - Jacksonville FL

Again, I don't think you read this Anthony, or you are completely missing the point. It has nothing to do with the amount. The seller in this case didn't ask for or wasn't offered the incentive in advance. It wasn't needed in ANY way. Your comment appears to be towards the incentives in general, which is NOT the topic of this article. This also has nothing to do with it being cheaper to do a short sale than allowing a foreclosure. Again THE SELLER WAS ALREADY GOING THROUGH WITH A SHORT SALE WITHOUT AN INCENTIVE BEING OFFERED. THE INCENTIVE WAS OFFERED AT APPROVAL.

I hate to yell, but some don't seem to get this...

Dec 08, 2011 04:02 AM

Anthony Lamacchia

Lamacchia Realty, Inc. - Watertown, MA

Mike I did read the blog and I get it. But I was giving you my opinion on a broader level. No need to get angry, I support your cause here.

Dec 09, 2011 01:46 AM

Sylvia Barry

Coldwell Banker Previews International (#1 Marin_Sonoma_San Francisco_North_Bay) - San Rafael, CA

Marin and Sonoma Real Estate Leading Expert

Thisi is amazing. I do hope this does not encourage strategic defaults. The problem with those defaults is it drive the prices down artificially for the rest of the homeowners when they either can't refinance or will have to sell for even lower amount. I personally do not agree with this - offering more money when it's not asked for/needed.

Dec 11, 2011 03:03 AM

Elva Branson-Lee

Solid Source Realty GA - Atlanta, GA

CDPE - Atlanta Real Estate & Short Sale Agent

Mike and All, I've had a few of these, too. And while I am as grateful as any agent would be for the transactions in a tough real estate environment, I also think that these incentives are a little over the top and definitely send a questionable message about default. My sellers were not proactively seeking to do anything, and admittedly only participated because Chase offered them money "to help them (Chase) with a short sale." On the other hand, I've seen other borrowers who were proactive with Chase in seeking a short sale before imminent default, put through the short sale wringer with months and months of stalls and derails, lost paperwork and lost buyers, etc.

Also, the selling prices on the "solicited" short sales I've had have been at the very bottom of the market. On one sale, Chase only netted a few thousand dollars!!

It is mind-boggling. I hear that other lenders may be following suit. But we can be sure of one thing .... there is something in it for the lenders' bottom line or they would not be doing it. However, I can hardly believe that it has anything to do with a short being less expensive than a foreclosure....not with up to a $30K incentive to the defaulting borrower. That does not compute.

Dec 11, 2011 12:05 PM

Mike Linkenauger

Jacksonville, FL

Short Sale Specialist Network

I agree with you Elva. I think incentives this large send the wrong message, and also reward the irresponsible. It is enough in my experience to offer a few thousand dollars towards relocation, and then incentives like the ability to purchase again in just a couple years. That incentive alone, IF EXECUTED PROPERLY (Unlike HAFA), is enough to get MOST defaulted borrowers off the fence if needed. Incentives this high are more than some people see at one time in their entire lives! Something about giving a large cash windfall greater than the borrower has EVER seen as a reward for defaulting doesn't sit to well with me either. I think $3,000-$8,000 should be plenty in most cases. Now in situations like this one, $3,000 would have made the borrower extremely happy. $13K made him jump for joy like he just won the lottery.

Sylvia, I don't think this will encourage strategic defaults. This incentive was only for certain cases who were in true hardships if I'm not mistaken. I would hope their aren't borrower who are naive enough to believe they can stop paying out of convenience only to receive incentives like this a couple years later for short selling... Of course, I'm sure there are unfortunately SOME who will use this logic.

Dec 11, 2011 12:58 PM

Sylvia Barry

Coldwell Banker Previews International (#1 Marin_Sonoma_San Francisco_North_Bay) - San Rafael, CA

Marin and Sonoma Real Estate Leading Expert

Mike - I think the reason why I say it would encourage strategic defaults is because when people hear something like this going on, they will not bother to find out under what kind of circumstances when Chase will offer this.

If I know anything about psychology and hypes, rumors will start going around and people whill have false hopes because until somebody tries it, nobody will know what might or might not happen. People did buy homes with 100%+ financing with the excess back to the borrowers and that's how it got us all into such a huge mess.

I would rather have Chase accept what's reasonable, pay what's reasonable and help the ones who are really under hardship to make it work for those instead of offering a large sum of unrequested money at the end.

Never underestimate the power of what people are willing to 'dream' for.

Dec 11, 2011 01:42 PM

Mike Linkenauger

LinkUp Realty - Jacksonville, FL

Short Sale Realtor - Jacksonville FL

Unfortunately you may be right in some cases. Lets hope people don't fall for that, but like I said as well, some borrower may be naive enough to fall into that mind set.

Dec 11, 2011 01:53 PM