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Foreclosures - Why are the banks taking so long to decide?

I just read Gena Riede's post on Foreclosure Properties (perhaps you would like to go read it) and decided to add to it here.

Foreclosures are everywhere, let's face it. People are losing their homes in record numbers not seen since the "Great Depression". We are in a sad state of affairs. The banks now own a lot of property that they really don't want but there are people out there who are in a position to purchase these properties.

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What is the problem? For whatever reason the banks can't seem to get it together enough to negotiate with qualified buyers (in many cases the buyers are offering cash for these properties).

In the mean time, these homes are sitting empty. The grass is growing to such heights that you need someone to come hay the front yard in order to see the house. Spiders are making themselves at home along with any other critters that may find their way inside. mouse c j tuscano

Oh yes, there are agents who have these listings but they are so busy that they don't know which home you are talking about when you call them so how could they possibly keep up with the management of each property?

I have heard that listing agents are also having to "front" the money for upkeep and utilities during the time of the listing and get paid back at closing???? If an agent has 10 or more foreclosure listings, do you think that perhaps they are stretched so tight that they may be finding ways to skimp???

The longer the home sits on the market, the more a potential buyer will discount it in their mind so where does it all end? It is time for the banks to consider initial offers seriously and negotiate with buyers instead of playing this wait and see mind game that frustrates every party to the transaction. Maybe the banks need to trust the agents they hire to sell their properties to advise them and get these homes back into the hands of people who will live in and love them.

What do you think?

Judy Tuscano, REALTOR

Your NH Real Estate Professional

Prudential Verani Realty

603-498-2263 cell phone

jude1220@yahoo.com

If you are thinking about buying property in New Hampshire be sure to hire an agent to help you negotiate the process from start to finish.

Posted by Judy Tuscano, NH Real Estate Professional on 09/24/2008 05:32 AM

Comments (63)

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63 Comments on Foreclosures - Why are the banks taking so long to decide?

SEP

2008

My buyer and I have been waiting almost 2 weeks on a bank owned property. I jokingly asked the listing agent if he thinks this might be a short sale.

we have recently had some experiences with this that might shed light on the issue from a different perspective: we have had a Purchase Contract in with a bank for some 2 months, via the listing agent of course.

Today we receive a phone call that our "offer" was the best, until Friday, when the listing agent received two additional "offers". She told our agent that as one was a cash offer, and higher than our client offer, the bank was going with that.

But our CONTRACT was in 2 months ago. And for two months it was sitting there as the highest. And yet?

I feel (but cannot prove) that this case was created by the agent sitting on the offer our client made, waiting for one from their own firm, and in fact did not present our offer at all. Why do I think this is what happened? Because I am by nature paranoid? I dont think so... just the comments from the other agent seem to reveal it.

But that of course is at best bad manners...

What do you think of that scenario?

I totally agree - what is even more frustrating is working with an agent (representing the seller) that is unresponsive, lazy and unethical. Makes people like me look bad, because I cannot EVER get this agent to answer his phone, it's ALWAYS voicemail and he is a one-man show. After submitting what was darn close to a full price offer two weeks ago today, he informed me at the end of last week that all of a sudden he now has multiple offers....and had zero when I submitted it. Wish I could contact the seller directly.....it only gets worse, since it's Fannie Mae!

Mike - have faith, I just heard from an agent after a 2 week wait and the bank is going with my buyers - I am convinced that after having lost several offers for diffrrent buyers I decided to be as patient but firm as possible with the listing agent despite her demeanor - She called me as I was writing this post and told me she chose my offer to work with over another as they were the same but mine was submitted to her first. I think it had everything to do with how I made her feel???

Focus - I have felt that way too but after the turn around here I am more convinced you can catch more flies with honey.

Edith - the banks are not listening to their agents - what good does it do for an agent to sit on an offer unless instructed to do so - they like us do not get paid until the deal closes.

10 or more, the average REO agent in this area has between 75 to 150 properties assigned to them. They need a full time person just to keep up with utilities & upkeep. I wouldn't want their job for all of the gold in the world.

I just talked about this with Brian. We see beautiful luxury homes that have been sitting empty, many for 1-2 years. First they were listed and then they foreclosed. Now who knows what you can find in them. ~Rita

I am not sure what honey we could offer more than what we did... a full price offer 2 months ago... presented as a purchase contract, with no contigencies... sounded good to me...

As for sitting on an offer, it does the agent good if they wait until they tehmselves have a buyer, and hten they make both the coop and the listing commission... I think in the eyes of many agents, that is a good thing to wait for.

Judy, we are working one right now or should I say TRYING to work one right now. The bank can't be bothered to get the deed to the title company so we are being held hostage. It is VERY FRUSTRATING!!

One point I will submit... for short sales, I have found that the banks do not give approval until the very last minute before the foreclosure, in an effort to collect as many and as high offers as they can get... then, at the last minute, they accept the highest offer, and then extend the foreclosure to allow for the closing to take place... I realize that this is not relevant to an already foreclosed property, but it is to a short sale, and I imagine the banks are waiting in a similar fashion to see how many and high the offers come in... then, when the time comes, they accept the highest one...

Paul - I hear your frustration and believe me I am not trying to defend the behavior of the agents who have bank foreclosures listed and we can not include them all in these comments. There are some who are over the top in their lack of communication with the buyers agents. The rest is all pure speculation.

Michael - I realize that these agents are overloaded with listings and hope that the banks will realize this fact and spread the wealth.

Kenna - Oh the spiders they are there and a whole lot of company with them.

Marchel - at best the whole situation is frustrating.

Paul - I think Short Sales as difficult as the bank can make them is a better choice for all in the long run because the home does not get destroyed and/or neglected in the mean time.

I have a sale in process that is a forclosure property and this one has been fantastic. The broker is top notch and the bank very responsive. I keep pinching myslef because usually they are a nightmare and so are the brokers!

Not this one though.

Judy I agree whole heartedly... it is amazing to see the condition of foreclosed properties that have been ransacked for copper, aluminum, etc., and these are very common now...

Judy I have not had a problem with Loans Closing on a foreclosed property within a resonable time, it is "short sales" that drive me nuts.

Judy, I am with you 100% of the way. I can't tell you some of the horror stories...a bank being offered 20K less than the asking price for a short sale only to find that the foreclosure price is even lower...what are they thinking...NOT

The listing agent is suppose to visit the properties once a week and write a report back to the bank but hey when you have 100 listings you can't tell me that anyone is visiting these houses once a week.

It's all such a shame!!

Just today, I found out that one of the REO's I have in escrow has a Title Company in Southern CA. DAH...how to make life harder and make a closing not go in a timely manner.

So much to say and so little time.

But just want to say I with you all the way, girl!

Thanks for the mention...

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2008

No one says it like Lenn Harley. Check out this amazing post. THE MORTGAGE MESS FROM NOVEMBER 2006

Two thoughts:

Call me old fashioned, but I ~hate~ this "yours is the best until we get something better business" !! Whatever happened to accepting an offer, and respecting that the offer is a binding contract?!

Thought #2: So many of these banks have laid off so many people, there just simply isn't anyone in the office to deal with any offers....

My husband works for a large bank and deals with this mess. I think I will write a blog post and attempt to shed some light on the "bank side" of things.

Tina in Virginia

I currently have two of these in the works..ARGH!! It is so frustrating trying to get answers to simple questions. I don't feel as though I have the ability to provide the best service/representation to my buyers when dealing with this type of property!

If a regular seller responded like a foreclosure or short sale it would be illegal. I try to not show them if I can avoid it.

I wish I had an answer to that. The banks are not geared up for the masses of homes they are owning. Is that an exucse? Certainly not. It is very very frustrating. It seems like no one cares.

It appears to me that there are no rules or guidelines and every bank is different. I submitted two offers to the bank for a short sale, the first was 10,000 less than the 2nd which was submitted a month after the first. After 2 months, the bank approved the lower offer, which was submitted first. My other short sales aren't that way. One bank asked me to submit all offers as they were made and 2 months later asked me to re-send the highest offer, which they approved.

Judy, I agree! When will the insanity stop? I just closed on a property (that was in foreclosure) after waiting 4 months on the lender to make a decision. You will see more banks/lenders going under because of their previous lending habits which did not require any accountability...and now, the leaders of these lending institutions are afraid to "bite the bullet" and correct their mess.

Intersting post and tons of comments. I think the banks are slow rolling and waiting for the bail ouot figuring they could get more from uncle sap ( not a type O )

I think the lenders are dragging it out hoping for a higher offer. It's a mess and not going away soon. I have to feel for the agents that are handling the properties. But in a lot of cases they are handling too many ad maybe that isn't right either.

Monika - you must be dealing with an agent that is not overwhelmed with 50& listings or has the staff to help manage them. I have closed on bank owned in the past where this is true but most of the time.....yikes.

Paul - on the one I put together today the bank is not allowing the description of the property to be specific ie. includes appliances, etc as they want a general phrase stating "as is where is" instead covering themselves from liability on any type of vandalism or theft in the interum.

George - Perhaps there aren't as many forclosures in your area? Good for you not having to deal with this problem and I hope it stays that way. Short Sales are tough but I still think if banks would get on board they would help in improving the bottom line for everyone.

Gena - Talk about tough - the bank I am dealing with is from CA and God knows who the title company is never mind where - even the listing agent does not know.

You are welcome I really enjoyed your post.

Thanks Ellie

Cheryl - this bank just waited to get multiple offers then choose their favorite.

They are just going to need to hire more people to deal with foreclosures or trust their agents to negotiate for them.

Tina - I am interested in reading the other side of the story, I'll keep watching for your post.

Cherimie - I hear you, I have actually lost clients due to the waits - they tend to think we are not doing our job for some reason even though we communicate the reality of the situation daily.

Gary - you are right - we can not avoid showing them because that is what people want to see until occupied homes reduce prices into the same realm.

This is my take on this foreclosure situation. Possibly: The banks are over whelmed and do not have the manpower to review the files to make a decision. They have laid off people to counter the loss of money so files are just sitting, waiting to be reviewed.

I have no idea why you made this "Members Only"... The way the banks are currently acting with Las Vegas Short Sales is a travesty and you need to make it wide open.

Just my thoughts on Las Vegas Short Sales and Las Vegas Real Estate.

Diane - it is a shame but there is someone who cares - it is us, the Realtors who can help but the banks don't want to play by the rules where offers are concerned it seems. Oh yes they do what is legal but ethics seem to go out the window.

Colleen - you got that right - ALL BANKS - are different. making our jobs so much more difficult dealing with different personalities in our clients and customers now having to juggle that with different rules for each bank

Bobby - hopefully therewill come some sort of rulebook to help banks muddle through this process.

Charlie - you may be right - but you'd think they would put some sort of moratorium on selling their property so we don't sit and spin our wheels - Oh I forgot we don't matter in the grand scheme.

Charles - I feel bad but there comes a time when a person is overloaded that they put up their hands and say stop I can't do it all and they either get help or give some work to someone else.

I just had a short sale go to trustee sale on Friday. THe house went for $130K less than our most recent offer. THis is SO frustrating here. Unless you bought in the 90's or prior you can't sell right now.

This foreclosure problem is going to grow even more legs with the asset liquidation that has been going on for several months!

Judy, I closed on a foreclosure yesterday that took 20 days from our offer being submitted to closing! I'm very fortunate in my area that the 2 major REO players are both very good REALTORS(R) and have very efficient teams in place. They get the job done.

The length of time it is taking them to respond is costing them more money then hiring more people to get the job done, I've had a customer with an offer in on short-sale (that is now in foreclosure) for 90 days. When we called yesterday they finally decided that it was timie to order a BPO! What a joke! Now it's probably going to be another few weeks.

Marlene - this could be true but does not alleviate them from the responsibility for these homes

Paul - you have made your point so now this post is wide open fdor all to see and comment.

Renee - it is like the proverbial snowball gathering in size and speed as it rolls down the mountain. Look out, public, this can happen to you too.

Bryan - that used to happen here but no more - congratulations on closing - we just put 2 UA yesterday and we hope to close before the end of October on both

John - time seems to mean nothing to the banks right now

We have agents here with 400+ REO listings. Getting information or status updates can be extremely frustrating from some of the teams. Other teams have systems and personnel in place to handle the volume and do a nice job. I like dealing with the second group.

Judy:

Not sure what you are referring to, but I see that yoru edits to the original now include the sluggishness of the banks to respond, and the wait and see stance they take... this is a very important thing to note... just yesterday, we had buyer couple who we had put an offer in on a bank owned property for. We submitted it as requested by the, as a purchase contract signed by our buyers. We did that 2 months ago. Yesterday they come back and say that our offer was the best one up until Friday. But now they have decided to go with the newest offer that came in Friday. Our clients were not even given the opportunity to counter, or give a highest and best. The listing agent was told by "the lawyer" that she should just tell our agent that the bank has decided and our buyers should just move on. How about them apples?

I think the banks feel they are going to be made whole by the government. Maybe they will if they wait long enough. It seems like everyone else is getting bailed out.

First, your dealing with bank. Second, your dealing with a bunch of scared corporate bureacrats who are concerned with self preservation. They are going to be overly meticulous about everything. If you want them to move faster, you need to motivate them. How do you motivate them? Hire someone to reform a Forensic Loan Audit on the seller's mortgage. This usually motivates the lender to come to the table.

Donna - there is quite a bit of inequity among those handling these large volumes of inventory

Paul - I owuld not want to be in your shoes right now - I don't know what I would tell the buyers.

RE; my previous comment: our agent has had to tell them the facts, as that is how we opperate here... needless to say they (the buyers) were not pleased. They really wanted this house.

Our buyer agent that was working with them has extensive experience with the buyer side of these transactions, nad is seeing the management of the listings deteriorate, as well as an influx of all sorts of handlers and transaction specialists, who claim to service the buyer... in fact, we had an agent with a listing tell us that we had to deal with a third party guy, that our buyers had to pay the guy $3500 to have him get them (our buyers!#?%!@) the best deal, that they would need a minimum of $3000 deposit of earnest money (house is going for $100,000) and that from now on, we should deal with the thrid party guy.

I called and spoke to this guy, who tells me that he has had to go to the buyers for payment, since each and every time he went another way, he was written off the HUD at closing... he is not a lawyer, not a title company, but instead is an appraiser who has gotten into this business.

Of course, our agent can handle her end of this, and it is her responsibility to get her clients the best deal, and our buyers see no reason to pay such a fee for any such service, especially since we provide the service for them. And they chose us to represent them based on referrals and references.

Of course, the listing agent has no idea what to do about this, since she has never actually handled a closing for a short sale (yes, this one is a short sale, not a foreclosed property, so there is additional work to be done)

Anyway, we continue to strive to get our buyers the best deals we can, and we strive to be efficient, and upfront and honest with our buyers... we let them know that these sorts of things happen, and we let them knnow that up front. Still, when they find the house of their dreams, they are let down after months of hurry up and wait.

Your point is excellent, and I am really pleased that you made this post. Thansk again.

I am not sure. Hopefully, someone can answer. However, I understand that if homes go to foreclosure they can collect insurance from PMI. Can anyone clarify?

Great post! I have been watching the market in Valley Springs California for two years. We would have loved to move quite some time ago but we live in Stockton Ca and we can't sell our home due to the REOs and the inability to compete with the prices here.

We decided to go ahead and keep our current home, rent it out and buy a second home. The home we bid on is way over priced for what others are going for. Its listed at 273,000 been forclosed for over a year, went to auction once, and is now an a second agent. We offered 210,000 (needs TONS of work) the bank took over a week to get back and countered at 268,000. We just countered at 215,000. The listing agent is begging the bank to take it, good offer, qualified buyers and they will not listen. It has a ton of potential but we are not holding our breath.

Judy -- I am so glad that you wrote this post and congrats on the feature. I have been watching a property deteriorate since the first of the year. First it was listed as a short sale -- there was an offer; not a bad one at that -- but the lender said no because the house next door closed for more (but it was updated and in MUCH better condition. It went into foreclosure -- sat all winter -- I had a client who recently wanted to see it -- now it is a MOLD factory -- trees growing out of the gutters the siding is falling off the house -- and the bank still won't look at any reasonable offer (in light of the further deterioration). What a mess this is!

Keep beating the drum.

If I've said it once, I've said it a dozen times, banks do not know how to sell real estate.

Judy, it is so obvious that with the banks using Title companies out of the area that the transaction is not a smooth one. I don't get the fact that something so obvious isn't even acknowledged and changed by those asset managers at the banks. It is mind boggling isn't it?

I have one right now, just like you where I am suppose to send a deposit check but have no idea what the address is, the escrow number and who the escrow officer is...what's up with these banks? And you are right even the listing agent hasn't got a clue.

Truly AMAZING!

All I can say is we are in a sad state of affairs right now... I do believe that the banks are overwhelmed, especially the ones going under themselves. My sister works for Wachovia, and she was just laid off, along with 90% of the other workers in her building. She was a supervising appraiser. The only person left in her department is a woman with 30 years tenure.

I also believe that, yes, some unscrupulous agents sit on the offers in the hopes of double-ending the transaction, and some are overwhelmed from trying to manage too many listings. These agents are doing a disservice to the banks, and they make the buyer's agents look inept in the eyes of their clients.

I wish I had an answer, but I don't...

My understanding of the PMI question above is as follows: Banks lend, say, $100K on a purchase. PMI covers about 80% of that amount. So it would seem that the bank would only be out the difference, say in this example, $20K. But this is an overly simplified view... in point of fact, the banks are highly leveraged in their lending, meaning that they retain only a small percentage of deposits and lend some amount more than that, as permitted by law, often 30 times the deposit amount. So losses such as this are amplified by the leveraged amount.

Not only that, but the real issue is in the fact that the lenders also sold the debt on the market, in such products as derivitives of mortgage backed securities, so while the PMI insures the loan for the original lender, the mortgage backed securities remain uninsured, and these are debt resulting from the leverage mentioned above... The losses there are complete. It is these derivitive products that are causing the largest pain in the financial markets.

I might not be clear on this, and for certain my numbers are rough estimates. But I think that is the general concept.

Hope that helps.

This is indeed a fascinating post and topic.

I think they're jsut overwhelmed with the volume.

Great post, Judy! And right on target. They may be somewhat overwhelmed by the volume, but that's no excuse. The shape that they're in now is partially due to not running their business properly in the first place. And the way they act now toward the foreclosures makes the poor management practices just that much more evident.

REGARDING PMI

Who the actual "investor" is in a short sale or REO is hard to determine. Notes get shuffled, packaged, and re-packaged, in and out of trust, servicers claiming full rights of ownership with the consent of the owners. For insight look at the 10-Q reports to the SEC that are submitted by the big lenders.

IN SOME CASES - PMI will make a deal with the lender like this, "We will insure this batch of loans totalling $250 billion dollars. We will cover 80%. BUT, if more than 6% of these loans end in default - we will not insure anything in the batch whatsover and will shove it back in your face." In these cases the lenders will go to extreme measures to avoid that 6% mark.

It is a very complicated process and in the end doesn't mean much to the end buyer. Many of the investors on short sales end up being PMI. Do some research into MGIC and look at their 10-q reports. Look at big lenders 10-q reports. They often mention local markets and their "inability to move REO properties" in those markets. They are explaining losses to the SEC.

Amount owed is meaningless. List price is meaningless. Current and immediate future value is meaningful.

I am a mortgage broker specializing in construction lending. Many times seller agents set on offers made by nonninvestors because they know the appraisal will come back with repair conditions and they feel the potential buyer will not be able to satisfy the condition and close. They wait on a cash offer from an investor. I'm involved in trying to clean up these situation daily. The best solution is for the agent to have their client PREAPPROVED for a one time close that buys the house as is and also provides funds for need repairs and/or remodeling. Make sure the offer makes it very clear that the sale can close quickly if the offer is excepted.

Judy, you really hit a nerve. I spoke to an asset manager a week ago who promised to get back to me asap. I've been talking to her since April! Still, no answers.

I'm one of the agents who recently had cash buyers wanting to buy a foreclosure...with a guaranteed closing in 7 days. It took the bank 3 weeks to even give us a counter offer. How ridiculous is that? In that case, the agent was so upset, because she knew that she would never get a better offer on the home. We did close, but it was a long and winding road. GBU!

Fewer lenders, Judy. Fewer employees in the industry to address housing concerns, hence the overload for many loss mitigation teams still in existence. Hundreds of thousands of defaults looming because of resetting pay options and other high risk loans over the next year. Hope your having a fine week.

Great post Judy. I'm sick of hearing how overworked these listing agents are. Overworked or incompetent? One foreclosure I just closed on you could bet the agent just didn't know what was going on from one day to the next. Another problem was I was being double-teamed by her sidekick. Two nincompoops for the price of one! I was told that I just expected things to happen too quickly. They asked for the earnest money & I brought it in the next day - that was unheard of. Well not really if your buyer wants to house it's not! They didn't even record the foreclosure deed and wondered why we asked them who had the authority to sell the house! Selling something is tough enough and these guys make it just tougher!

I have written a few posts about the issue I have with REOs... it's stupid. And I sometimes think that the banks don't want to actually sell the properties... It's all just crazy.

WHY? I can tell you why with 700 BILLION reasons!

The banks want the MONEY from the "bailout" AND they want the property!

They keep the foreclosures on the books for a reason. Oh . . . poor banks! BOO HOO!

We save and save and save . . . and they steal and steal and steal. Now it's the pensions and 401(k).

The United States of America rewards SNIDELY WHIPLASH robber barrons. Don't people get it?!?

Same scenarios with short sales. The banks do NOT want to accept the offers they get. They are forcing forclosures. If they was really a "crisis" they take the money and run. Just like our SELLERS are doing when they have assets in the home. They are taking LESS then LIST all the time just to get the deal closed. Banks aren't having to do this because Uncle Sam is cashing them out!

Where are the Senators . . . aren't they reading ACTIVE RAIN?!?

P.S. I've been reading the responses about how overworked and backlogged they (banks, financial institutions) are . . . HMMMMM . . . HIRE TEMPS!

Don't we have some parts of the nation with 7% unemployment?!? HIRE PEOPLE! Didn't they just lay-off HIGHLY skilled mortgage people?? Not all were bad. What about the underwriters? HIRE THEM!! Stop this stupd game! It's ridiculous. The gloom and doom is SO stupid. Why are the banks sitting on these properties??? There are buyers who would LOVE to buy them.

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2008

Carla: 8.35 percent unemployment in Rhode Island, one of the worst two in teh country. It is a matter of greed to accept more listings than one can handle... and we have seen how greed works in teh banking industry...

The banks are taking a long time to decide on foreclosures for one reason. They can't do it any faster. Many asset managers are handling 500 files per month. The banks are overwhelmed with foreclosures and understaffed. Not only are they dealing with potential sales, but there are a flood of other homes in foreclosure that need to be listed and put on the market, in addition to tons of others receiving notices of default.

Banking insiders -- sources that I cannot name -- have told me the banks are withholding foreclosures from the market and releasing them when inventory begins to dip. They are allegedly withholding these homes to drive up prices on their existing inventory. If too many homes hit the market at one time, competition will dwindle and prices will plunge even further.

It's like juggling ten balls in the air. These banks didn't expect the foreclosure crisis and are ill-prepared to deal with the mounting number of foreclosures. This is not in defense of the REO lenders, it's just the way it is. If buyers want these homes, then they work within the confines of the bank's limitations, and smart agents will write contracts with 45-day closings instead of 30.

The Short Sale, from Archer Ellison, coming January 2009.

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2008

Thank you to all who have chimed in here. So much good information and many opposing opinions so I guess it is up to the reader to decide for themselves.

Are the banks just waiting for the Fed to lay the Golden Egg/Bailout Money on the table?

Are the banks overwhelmed by the amount of foreclosures in their laps?

Are the listing agents holding up the works in order to reap the double sided closing?

In any case, if you are looking to purchase a Bank Owned Property - you will need the help of a professional - one who will stick with you and negotiate for you until the deal is closed. So no matter what state you live in be sure to find a Realtor to represent you in every real estate transaction.

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2008

Here is a thought! Let's use our tax money to buy these properties! That sounds like a FABULOUS idea!

Katie - If only we could - let's see if we can figure out a way.

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