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Short Sales - the Bank's Perspective

2 sides I've been reading some seemingly uninformed comments regarding short sales lately and thought I would share some insight. By no means do I consider myself to be an expert on short sales; nor do I have any desire to be. That being said, I reside in the same household with a person who is employed by one of the largest banks in the world and happens to work in this department. Please do not ask me which bank nor what their position is as I do not want to put their job in any type of jeopardy. There. My disclaimer is done.

First, let's talk about the definition of a short sale. The "shortage" is the amount the bank is being asked to waive, forgive, delay collecting......the definition varies depending on the circumstances and the state and local laws.

See that word I just used? LAWS. Yes, this entire process is governed by laws. Laws you and I do not know and understand because we are not attorneys. Am I saying that agents are stupid and attorneys are genuises? No! I am just saying that this is a legal process and sellers should really be consulting an attorney from the get-go to be advised regarding all of their legal options.

A seller or someone legally (there's that word again) authorized to act on their behalf, requests a short sale package from the bank. The bank cannot legally share any information regarding the short sale with anyone who is not legally authorized by the seller to discuss it. Having a signed sales contract is not sufficient in the bank's eyes to speak with someone. The Privacy Act governs this.

So, now the bank has a complete package (if you are lucky). Unfortunately, the banks are completely overwhelmed by short sales and the paperwork constantly coming in and yes, things get lost....a lot. Think of it this way....the bank is running a business that is losing money and they are laying people off and cutting back. Yet, in the department they are bleeding from, they need to increase staffing and production.

Ok, let's say the package is really complete and really gets to someone to review. Unlike what many people think, this isn't a quick "this makes sense" decision. What makes sense to us may not make any sense to the bank's bottom line. Why? Laws (again). Let's look at this scenario: a short sale request comes in for a house in State C. In State C, if the bank forecloses, the bank is not permitted by law to go after a deficiency judgement nor any other loans they may have with the borrower. So, before a bank can make a decision whether to approve a short sale or foreclose, they need to research and determine if the seller has any other debt obligations with them. Maybe there is a debt that was sent to a collection agency a couple of years ago. The bank will have to track down that debt and find out what the current balance is on it and get this....how much the bank will need to pay the 3rd party collector to buy the debt back in order for it to be "erased".

In some states, if the bank opts to foreclose, they have the ability to "unforeclose" should they choose to do so in a specified period of time. Why would they do that? Well, maybe the house has been a meth lab which requires so much money spent on remediation that it is not worth the bank carrying on their portfolio. What happens when a bank "unforecloses"? The house goes back to the last owner or the taxes just go unpaid to a point where the municipality takes the house.

In other states, the bank may be legally permitted to file a deficiency judgement, garnish wages, etc. Depending on the laws and whether or not the borrower has filed for bankruptcy, the bank may be able to go after retirement or investments. Maybe the borrower just filed for bankruptcy hoping to "protect" their assets, the bank may want to send their attorneys to attend the bankruptcy hearing and try to get it thrown out.

So, I suppose this is enough for part 1 of the bank's side. Please do not assume I am taking sides...because I am not. Just keep in mind the following:

1. An agent's E&O insurance may not cover the negotiation of short sales.

2. What makes sense to "us" might not make any sense whatsoever to the bank.

3. The bank is being asked to "eat" tens, even hundreds of thousands of dollars.

4. There are no guarantees on timeframe for approval. If you have to make a specific deadline, let the bank know; however, don't schedule life around it.

5. A short sale is not always the best option for the borrower. There are instances when a foreclosure may be a wiser financial decision (which is why professionals should always be consulted).

I hope this information was helpful in telling the "other" side of the story.

Tina in Virginia

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Posted by Tina Merritt - Virginia Beach Real Estate on 09/25/2008 10:32 AM

Comments (74)

Short Sale in the Training Channel

short sale, bank, foreclosure, deficiency, judgement, insurance, legal, law, attorney, package, borrower, lender

Originally posted at: Hampton Roads Virginia Real Estate: Short Sales - the Bank's Perspective

Post is included in group: Mortgages
Post is included in group: Short Sale REALTORS®
Post is included in group: Short Sales and Forclosures ONLY
Post is included in group: Short Sales Pre Foreclosures Bankruptcy and More!
Post is included in group: Short Sales Specialists

74 Comments on Short Sales - the Bank's Perspective

SEP

2008

Tina- Excellent post. You bring up many points I had not thought of before. I tend to look at the buyers side and not how a short sale will affect the bank. Once you bring in the individuality of each state's laws and the almost certainty of an out of state lender, the whole situation gets more complicated with each level; lender, owner, listing agent, buyer and buyer's agent. I found your information about 'unforclosure' interesting. I have not heard or seen this term before. Thanks for the education!

You are right Tina everyday I hear all types of comments about short sales. Thanks for your information. I just joined this website and have been reading the blogs and it's definetely some good information.

Kenia in Florida

I have more questions than answers. What do you mean by "1. An agent's E&O insurance may not cover the negotiation of short sales."?

What do you mean by "5. A short sale is not always the best option for the borrower. There are instances when a foreclosure may be a wiser financial decision."?

Thanks.

Tina you are 100% correct, be careful of the laws and procedures that go on with a short sale. I do have to admit I hate hearing those words with my buyers because I still have some loans waiting to close since april. Short sales are just holding up my client's precious time when they can be living in a house now, but its because they wanted a short sale...sigh..Good post

Great post. We have at this point opted not to do short sales and tell anybody that is considering to do a short sale to consult an attorney. ~Rita

Good post!! Unfortunately, Miami is very distressed right now and the only thing that gets the phone to ring are REO and Short Sale listings. My traditional market listings don't even get a bite and I've got lots of marketing supporting them. I have had to focus more of my effort on Short Sales.

Some of the problems with short sales seems to me to involve a lack of professional courtesy and reasonable courteousness. I just closed a sale yesterday that was made almost impossible by the rudeness of the short sales negotiators at the 1st and 2nd mortgage.

The stories I heard from the agents and the title companies involves related unbelievably unprofessional conduct.

Such behavior has nothing to do with obeying laws, it is just rudeness. Tina, I am certain that your friend does not exhibit any such conduct, but it certainly occurred in this transaction.

Richard

Colleen - all real estate licensees must carry Error and Omissions insurance. Policies vary and like all insurance policies, have their exclusions. When may a foreclosure be a better financial decision for a borrower? Depends on the borrowers state, bankruptcy laws, foreclosure laws, etc. That's why an attorney should always be consulted.

Justin - you are so correct!

Kenia - welcome to Activerain! Glad to see you here!

Leslie - thank you so much for your comments! I appreciate it!

Richard - you are correct the there is no excuse for rudeness nor unprofessional behavior; however, keep in mind that these hourly employees working in loss mitigation are getting screamed at by buyers, sellers, agents, etc. Their voice mail boxes are constantly full and they don't know if they will even have a job tomorrow.

Sergio - it's a tough market there...I feel for you.

Tina,

thaks for good post. We often tend to see things in black and white and grossly simplified. One statement still got me. When you say that there is a situation when foreclosure could be a better solution.

I do not see it, and, what is worse, tell clients that they should try to avoid foreclosure at all cost, and that Short Sale is a better solution...

By the way, we use the attorney, and his staff is great in getting it to the closing. We are very happy working with them.

Jon - in some areas, a foreclosure wipes out all of the debt obligations of the borrower and the bank cannot go after any past obligations where a short sale would keep the option of collection open.

Tina, you are lucky to have a roommate that can clearly she a light at what happens at the other end, the frustrations we realtors go thru when dealing with bank employees has no end, now I understand why. Thank you for the post, very interesting.

Antonio & Alexia Cardenas "The Realtors In Motion' www.ListedByAntonio.com

We tell sellers considering a short sale to consult with an attorney and a CPA to see if that is indeed their best option. The way we read the law is that if a borrower took cash out on a refinance and it wasn't put back into the home, that the sellers could be responsible for counting that as income next year and have to pay taxes accordingly. Many people have told me someone they know is going to do a short sale because they can get out from under loans that are too burdensome, they'll rent for a few years and then buy again. When I ask them if they've consulted with an attorney and/or CPA to see if their particular loan qualifies for the debt forgiveness or if they may face tax consequences, they usually have no idea that was even a possibility!

Thanks for the insight on the banks. I couldn't understand why it would take so long for them to respond to offers - but knowing they have to look at other debt and consider varying laws, it makes sense.

As the victim of a short sale many years ago and someone who helps clients negotiate loan modifications, I don't buy it. Banks are understaffed, uninformed and unbending. My experience is that by nature they hire staff that is judgemental. Common sense and logic says that a bank will lose less if they accept a short sale or loan modification in lieu of a foreclosure.

It is unacceptable for it to take 30, 60 even 90 days for a bank to reply to a short sale or loan modification offer. In the real world we have 24 - 72 hours to respond to an offer. I understand that the laws in place protecting "investors" from losses due to too much modification.

Excuse me, the powerful banking lobby created these laws, they can change and modify them!!

SEP

2008

Antonio & Alexa - thank you for reading and commenting.

Stephanie - Yes, transactions are issued a 1099-C which is why it is important for an accountant to be consulted.

Kate - actually, most of these laws are consumer protection laws - such as the ones in California which state that once the bank agrees to accept a lesser amount or forecloses, all other debt must be written off. It's on the bank to track down all debt the borrower has with the bank and wipe it out or they face hefty fines. A short sale or loan modification isn't an "offer" in the traditional sense - it's a request to waive and/or delay a an amount owed by the borrower. If I were being asked to do that, I would take my sweet time as well. Thank you for your comment and your perspective as someone who negotiates with banks for a living.

Tina, I realize that "it depends", but wonder if you can give an example of an exclusion of the E&O that could be costly to agents. I am trying to learn as much as I can and everything I've read, heard, and experienced to date doesn't mention this.

It would also help greatly if you could give a specific example of when it is a better financial decision to have a foreclosure than a short sale. My understanding is that when a property is foreclosed, the lender can still issue a deficienty judgment against the borrower and a foreclosure is much worse on your credit history than a short sale. In what instance(s) would a foreclosure be better financially?

Tina for all the reasons you mention in this post why things happen the way they do with shorts sales is why there needs to be some kind of governement intervention. They really are poor excuses and part of the reason why our banking system is going to continue to weaken.

Hey Tina - Good insight and perspective. As a home inspector I've never cared to much about how these work but I try to have a basic understanding because many of my inspections are for "short sales". They seem to be good for the home inspection business. I'll do several each month. I have one client who's become wealthy virtually overnight doing short sales. He's one of these "we buy homes" guys. I believe he uses the inspection findings to get even further reductions from the bank. I'm often shocked at how low he gets these houses for. Many times its less than half the market value. It seems to go beyond reason, but there's a lot about the real estate industry that don't seem reasonable to me. I guess that's why we're in the finacial mess that we're in.

Hi Tina: Banks are also very careful to maintain internal integrity. If there are too many short sales approved, stockholders may begin to wonder how many other "assets" are liabilities, and its stock value may decline. Look what happened to Washington Mutual yesterday. It was downgraded to junk.

The Short Sale, from Archer Ellison, coming January 2009

Tina -

I appreciate the insight, and the detailed knowledge and perspective.

However, in this day and age, something need be done to streamline the process. It seems to have become so bureaucratic and cumbersome. Therefore, it creates the following unintended result -

1. Distressed homeowners feel helpless, and are inclined to let the house go to foreclosure anyway.

2. Buyers have a certain amount of patience, but it is not unlimited. Extended approval times will get them to walk from a deal.

3. Many Real Estate Professionals - the average ones and below average ones, of course, don't even want to bother with short sales, due to the high risk of fallen deals, and reduced real estate fees demanded by the bank.

Taken together, this all adds up to less people being helped than otherwise could have been.

Of course, the bank has to think long and hard about any write-downs. Often times, however, common sense takes too much of a back seat.

My opinion, anyway!

DEAN & DEAN'S TEAM CHICAGO

Tina your comment "If I were being asked to do that, I would take my sweet time as well." in response to mine is perhaps one of the most frightening that I've ever read on Active Rain. It demonstrates that even people who work in banks don't understand how our banking and monetary system works.

Reality is that banks buy and sell notes at a discount on a regular basis. The first 18 - 21 years of a mortgage is pure interest, pure profit for a bank. Because of the future income potential of a mortgage note, banks buy and sell notes at 75%, 50%, even 25% on the dollar. They do this for liquidity and to give them the ability to lend more money, cash reserves all that kind of stuff. These note traders in banks are a closely guarded secret and difficult to find primarily because banks don't want the average person to understand how the system works.

In most cases, a short sale will render more money for the bank than a discounted note. By putting uninformed and judgemental people into these critical departments has done nothing but exacerbate the problem.

I think that Elizabeth hit the nail on the head. By attempting to maintain "internal integrity", banks have undermined the very foundation of our system. In essence this suggests that the banks are hiding the truth of their balance sheets. Every bank knew what was going on and this fact brought our economic system to it's knees. Nobody trusted anybody.

If instead, the banking industry would have faced it head on early, even in private at the executive level, they could have agreed to push through short sales, take a short term hit and get back on track. Instead they hid behind false balance sheets and we are all now facing the possibility of a nationalized banking system.

It is in the best interest of all parties for short sales to be approved quickly. Doing so is the only way for this country to get back on track and preserve our way of life. Unfortunately it's too late!

One of the best posts I have seen on Short sales, and also on Active Rain. Thank you for taking the time to educate us.

I have heard some very different side to this story. I think often the banks have people who have little or no training and things get very messed up. I am sure some lenders are better than others, but I see properties sitting and deteriorating for months. However, I am keeping an open mind when reading your posts.

Thanks for taking the time to explain the perspective of the bank in an objective fashion, a rare qualify these days in an election year.

Great post and great discussion. The big problem that I see is that the banks do not have a system in place to handle these transactions. I don't buy the I lost it excuse, it is a way for them to stall. With the digital technology today, losing files is unacceptable.

The longer the banks take to approve these, the better the chance of losing the buyer and they will own the home. Who does that help?

The rudeness is unacceptable, I don't care how many times they have been yelled at. They are not the people that are under pressure, the home owners are the people that are under pressure.

The longer the banks take to approve these, the better the chance of losing the buyer and they will own the home. Who does that help?

The rudeness is unacceptable, I don't care how many times they have been yelled at. They are not the people that are under pressure, the home owners are the people that are under pressure.

The longer the banks take to approve these, the better the chance of losing the buyer and they will own the home. Who does that help?

The rudeness is unacceptable, I don't care how many times they have been yelled at. They are not the people that are under pressure, the home owners are the people that are under pressure.

Tina, very interesting. In a short sale experienced , the reluctance of the bank was evident- so much so that I was feeling that there was MORE to this picture. My thoughts centered around the gut feel that the bank had no intention of accepting ANYTHING. As it happened (hindsight) in fact, they DIDN'T want short sales exposed- they were in the middle of imploding, and today, no longer exist.

With respect to a lawyer counseling a seller, in addition to ourselves, until we know every nuance and potential outcome, they need both a lawyer, and an accountant, before we proceed.

Tina, I think many folks also forget that it's not only the bank making the decision. In fact, they usually have the least say so in the approval of the "short" behind the PMI company and the Investor(Freddie, Fannie or Private). There are a lot of things that must go right for a short sale to be approved, including the seller having received the initial loan on the up and up.

The entire short sale system is being backed up by REALTORS(R) not knowing what they are doing. Examples are:

Submitting multiple offers to the bank instead of one accepted contract.
Pricing properties way too low where there is no chance of the deal being accepted.
Submitting incomplete packages.
Not properly following up on the transaction.

There are successful short sale closings every day. They can be done and they can be in a reasonable amount of time. They do however require everyone working together AND ability and knowledge.

Agree with the many comments about the rude behavior, but really I don't care if I need to negotiate with Godzilla as long as I can get the darn thing approved for my seller.

Bryant your comments are right on .

Having said all that, Tina, could you please fill your roomate's shoes with jello tonight? Tell them it's a present from me. :^)

Tina--Wow! Great insight for us agents as to how these work. I caution my buyers about short sales and most are not in a position to wait around for the banks to be able to answer. I have always explained to the clients that it is not a simple easy answer and it is my guess due to the mortgage crisis, there are hundreds, maybe even thousands of files on each processors desk. You have confirmed my beliefs about the situation.

Tina,

Excuse me but spell check isn't working today so I'll try to make most of it correct.

I can see from the above comments that there aren't too many that are happy but you asked for it:)

First thing I'd like to say is I really believe that there are some people that are just using the short sale method to simply get out of their loan for whatever reason and it's probably not the most legit reason but for most....it's simply not fair. These lenders got their hands caught in the cookie jar and now they are scrounging for the crumbs.

The most important aspect of the short sale is time...if you don't have a long enough time line to get things done then you might as well just foreclose now instead of making people sit on pins and needles. I've saved clients as much as 2-3 weeks of time wasted gathering the documents they ask for yet they still make it impossible for us to make things move a long even if we try to help them.

I also think it's probably better for a buyer looking for some sort of deal to buy a foreclosure or an REO instead of the short but the short has to get there first.

I agree on a few notes you mentioned such as the fact it's probably better for the borrower and the fact that a short sale has not time limit of guarantees. As far as how the banks are understaffed to handle these situations...maybe if they would hire better qualified people to answer the calls all the consumers make then maybe there wouldn't be as much lack of communication. I don't feel sorry for anyone who would want to work in that capacity. I do think it took guts to write this post and I commend you on that.

I also want you to know I'm not upset with your post but I don't agree with part of it regardless of these so called laws. Is there a law that says the people who mislead the consumer into believing they are getting the correct information? Or that they lose paperwork but don't even tell you until it's to late? Or tell you that you are approved but then you aren't? All their mistakes.

So the bank is losing money...so what..then they shouldn't have lent those people money in the first place. I have 5 short sales going and I've been successful with my past ones but when you start having to ask for escalation time and time again and then find out the bank lied and told you 2 months earlier that they assigned you a negotiator and we are wondering why we aren't getting calls...then what....we ended up finding out our so called negotiator just quit and left their files and then have to start our process all over again...so we should have to wait longer? Oh did I forget to mention when we told the person on the other end of the phone the buyer is ready to walk...they say 'Then you'll just have to find another buyer" How dare they!

Please...I have an agent who's buyer fully understands how long it can take yet they've had to extend the contract 3 times and now after finally getting a counter from the bank they came back with a number and we even sent a HUD over a week ago only to find out the private line the negotiator gave us is now a number that is automated.

Tracking down a debt? They can't even track down the paper work sent to them or even one sheet of paper with the authority to negotiate?

So then it's a good thing for a lender to finally say no to an offer and then let the property go into foreclosure only to take many months later to resell it and at a lower price then what prior the offer was? I find it very interesting that a banks common sense is that unintelligent.

Thank you for a great discussion.

Well, after dealing with numerous short sales, it is safe to sya that I see buyers, sellers, agetns and bank employees on all ends of the competency spectrum. I sure would not want a job in the loss mitigation department of a bank being yelled at.

I think that it was best said that if the agent and seller just do their job and get things done right, then we will see the closing rates of short sales increasing. Here in Chula Vista (suburb of San Diego) about 60% of the active inventory are short sales and most of the remaining are REO's. Since Janaury 1 thisyer, only 10% of the short sales listed have actually closed escrow. And sadly enough, that number is a lot higher than it was last year. Things will imrove, we just have to know the rules and work the system the right way.

As an agent, the bottom line is, "What is best for my client?" And to that end I will put up with the hassle of a short sale and might complain about those I run into in the process, but come on, if we focus on the negative, we are bound to attract more negative. That darn Law of Attraction.

So let's focus on solutions, be the agents that get things done, and let the P&M'ers waste their time while we succed.

Thanks for sharing some of the realities faced on the other side of the coin. I found this and the comments very informative.

Tina...thanks for the post and it was very interesting to see many sides of this situation. I felt like I was on a jury panel listening to both sides state their case...and I would not be surprised to see a lot of these transactions end of up court in the years to come! Too many Realtors trying to play Attorney...and too many Attorneys just chomping at the bit! I feel for both sides...hung jury!

Tina,

Great post. I had a buyer put an offer on a short sale this spring (in April). He was willing to wait through July, but then said to cancel the offer. I noticed online it closed the end of August. Perhaps the bank was waiting until it got the most lucrative offer? I don't blame them. They are in business just like us ... working hard to make some money. :)

The one thing that I don't understand is how come a short sale takes 2-4 months to get approved. Then the bank rejects the short sale. After the foreclosure is completed the exact same bank can make a decision within 3-4 days and end up selling for 10% less then the amount they could have received months earlier as a short sale. It makes no sense.

Tina,

In Foreclosure the Lender can sue for the money (drficiency judgement), or not sue for the money. In any case there is a 1099 to the Seller. In short sale the lender usually gives a letter that they are not going to sue the seller, however, still there is 1099, which is anavoidable (not the form, but obligation inder the law, even if the form 1099 is not given to you), unless this was wither a primary residence for full 24 months, or the person was insolvent at time of short sale.

However, in terms of you credit, short sale is way less damaging, so it looks like in any scenario short sale is a preferred way to go.

Great post, Tina!!! I have done a number of short sale transactions (representing buyers) and this information really gives a different perspective on the the process.

Thank you for sharing!!!

Appreciate the insight . Short sales are anything but short and they require a lot of patience.

Tina.. Great information... When I take a listing that may be a short sale.. I put in the special stipulations that they should seek legal and tax advice.

Tina, great post. One thing I would disagree with though regards the department of loss mitigation losing money. the money is already lost. They are actually in the business of trying to recapture as much as possible. Part of this giant financial crisis we are facing now is because these properties (after they make it past shorts and into REO) aren't being cleared, and the banks have non-performing assets on the books.

Getting cash would help the banks with their liquidity.

interesting post.

I hadn't thought about the law/debt tracking issue. I'm afraid that I believe the bank probably already knows the foreclosure laws in every state. As thorough as they are, I can't believe that wouldn't already be known before they even give the loan. Maybe if it's the first time they have ever foreclosed in that state ever, they'd have some research to do! But otherwise, this is likely already a part of their knowledge.

As far as debts, I know my lender checks my credit every so often. And as automated as everything is, you'd think they plug in the social and see if there's anything else in their system that pops up as a debt through them.

How does this take 6 months?

What takes 6 months? Getting reassigned 4 times, having negotiators quit in the middle, faxes lost 9 times in one month (no joking), flat out lies (We can get this done by the end of the month for sure.), having 4 BPO's and 2 appraisals done because you don't believe the price the first 10 times around. It's a three-ring circus sometimes.

Best I've run into so far - Citifinancial (although they don't believe in appraisals), they were nice, efficient, didn't lose anything, I had the same processor until negotiation, they contacted me with updates, then I had the same negotiator, though he was a jerk. But the process was a million times better than my worst one - Wells Fargo. That took 6 months, 4 negotiators, 9 lost faxes, 4 BPO's, 2 appraisals, and a partridge and a pear tree.

SEP

2008

Tina

Wow ! Great post and very informative.

Priceless ! Enough said.

Best Regards,

Wayne

Tina, good solid information about Short Sales. Unfortunately, the banks would be better off if they would negotiate short Sales and get them off the books before spending countless amounts of money with Foreclosures and the continued deterioration of the house. I understand their are laws but this is a time when I believe the government should step in and regulate the banks to immediately accept Short Sale offers if they are within a 35-40% value range to help save neighborhoods, cities and counties. This has an enormous trickle down effect on the City and County coffers.

I'm sure I'm preaching to the choir on that one!

Thanks for taking the time to bring in the bank's side and the implications of the law.

Thank you for the "other side's" perspective. It is a good thing to keep in mind as we negotiate through the myriad of short sales that are part of today's market.

I can't think of any instance where a foreclosure is better than a short sale for the client. I wish you can give us an example. . .

You are right, there is a lot of misinformation out there hidden as content from Realtors. . .

Fernando - Here is an example: I can think of 1 state imparticular that when a bank forecloses, all other debt between that bank and borrower must be erased. If the bank does a short sale instead, the borrower remains on the hook for the debt and the "shortage" of the short sale.

interesting read, though here in New Jersey it is extremely expensive to foreclose on a home, and it sure would be nice to get responses from the bank faster than 3 month.

Thanks for all of the interesting posts.

Those of you who have experience with short sales, perhaps you could help me out with an issue I'm having right now.

I have a short sale deal pending, with a closing imminent.

The listing agent is working with a "short sale" company that is negotiating with the lenders who have 1st, the 2nd , plus the mortgage insurance folks.

Apparently, this agent and short sale company have also done work to keep the house clear of liens, to work on loan modifications and forebearance, etc. The listing agent says they may have paid some ongoing bills (homeowners' electric, water, etc.)

What they want my buyer to do is to reduce his offer on the house by $10,000 -- but then agree to pay that $10k outside of the closing DIRECTLY to the short sale company -- for services rendered. Apparently, some of this money went to pay off the second -- the preliminary settlement sheet only indicates $1,000 is going to this. The rest for services as noted above.

I've asked for a more specific accounting of this and have been told that I (and my buyer) are not entitled to specifics because of client confidentiality issues. This seems fishy to me, but I have not done business with a third-party short sale company before, so I have nothing to compare it to.

In this deal, my client is NOT paying any more than he offered for the house; they just want us to pay the $10k out of closing.

Is this a typical way for a third-party negotiator to do business, or is this inappropriate?

I've asked my office, my local Realtor board and my state division of real estate, but none have offered me any concrete advice.

Any help would be appreciated.

Michelle

Sounds pretty" bogus" to me. Check with your Broker or legal channel through your real estate association. Might be worth the research.

Best Regards

Wayne

SEP

2008

Tina - Interesting. Very good. I wonder if anyone has a quick/easy reference link for different states' regs regarding deficiency judgments?

OCT

2008

Tina,

I really like this post because it's very thought provoking and I respect the information you are willing to give out to some who don't understand the issues we face and I know it's all a gamble of time and money that is not guaranteed...but I don't like is the incompetence.

I come back to this post just to let you know that we have a short sale on a townhome... going on 5 months and let me tell you it isn't going on this long because of any of these so called laws. It's because the lender has admitted to screwing the whole process up not because they needed to review the files because of any laws.

Good news..after getting to the second negotiator...they might possibly approve our counter offer after telling us they never received it two weeks earlier yet the first negotiator confirmed they did and even sent all the documents that were lost over to the second negotiator. But guess what?...after all of their great follow up and work...the buyer walked. So now who shoud we blame? Pretty interesting that this buyer was coming in with 40% down and was qualified with the same bank that was the owners lender yet they couldn't make sense of it all.

I'm not sure which lender the person in your house hold works for but I can tell you that mine is with probably the biggest lender out there....so I have to unfortunately disagree with the reasons above and quite frankly had nothing to do with how much the owner owed or how much the lender was willing to relieve the owner of debt.

The funny thing was after they gave us their first counter the value had gone down even more and I sent them new comps since their appraisal was already 45 days old. I asked them if I should disclose the lower comps to the buyers agent and asked them if they thought the buyer should reduce their counter since the value now fell below the original offer....they were pretty speechless. So now after going to court twice to keep an attorney off our backs....we might have sealed the homeowners fate.

To me it just makes me think that maybe the lender wanted us not to be successful. I would have been happier if they just told us this earlier in the game instead of wasting time. So now we sit and wait and find out if god will give us more time or this home will just end up on the long pile of inventory that will end up selling for less and will take a very long time. We have a 5 yr supply of townhomes in our area right now.

I'm interested in hearing the perspective from your end or the person who you know works in that atmosphere.

Thanks

Neal's experience is a mirror to my experience and we are probably talking about the same bank. I too am interested in your friends perspective on this one.

Neal & Jeff - what you are going through is unfortunately, more common than not. I'm going through it myself on a couple of transactions and feel your frustrations. As far as losing paperwork, there's really no excuse for any company to be so careless. Here is a little bit of the insight I received which may help just a little (still not an excuse though): no one wants to take the positions working in the loss mit department. Bottom line is...it stinks. They offer bonuses, incentives and still get a tremendous amount of turnover due to the stress level and the workload. These people have constantly full voice mails, phones ringing off the hook, guidelines changing daily and very nasty people yelling at them. If parties to a transaction would agree to 1 point of contact, if would help a lot. When a negotiator has a voice mail from the seller, then one from the lsiting agent, another from the buyer, then the buyer's agent, then the loan officer, they just can't get their work done. Also, about 50% of the calls that come in are from people who are either not authorized to get information (because the appropriate releases have not been signed) or from agents who do not know how the process works (i.e. they want the bank to approve a short sale without a contract being submitted). A recommendation I received was to send all paperwork in either overnight or via certified mail. Faxes can easily get lost simply due to the nature of a fax (multiple pages, multiple faxes, running out of toner, network interruptions, etc.). Since they receive thousands of short sale packages per day, things do get lost. He also hinted that if you can show proof that someone signed for a package that was then lost, take that information and send it in a certified letter to the CEO of the bank directly. That should grab their attention.

Hope that helps!!!!

Tina, with all due respect, that sounds exactly like the bank we are dealing with. FYI, Wells Fargo for one WILL NOT accept an overnight package, been there done that. Even had the package signed for and they still claimed they did not recieve it. They even asked me why I sent it overnight after THEY told me to. As far as nasty people on the phone, it works both ways. I have talked to some of the nastiest people on the phone, it is always the "order takers" and very seldom the negotiator. I always start the conversation with trying to be very polite and don't ever insult and it still does not work.

The problem lies in the systems that the banks have, or in most cases, do not have in place. Losing faxes is NOT acceptable, they don't lose any payments that get sent in do they?

Jeff,

"The problem lies in the systems that the banks have, or in most cases, do not have in place." - Yes, I agree. He doesn't work for Wells, by the way. Why though are you handling the negotiation? I wrote a post about that HERE.

Thanks for your insightful and thought provoking comments!

Hi Tina,

Thanks for your response...but I'll tell you a few other things...we always send both by fax as well by mail even if they won't accept it. We also wait about 48 hrs to confirm it in their system. The funny thing was the 2nd negotiator in this case even felt bad because of what we went through...now we had to help them because they did a software conversion and everything was all ove the place...we spent an hour helping them put all the files together. But unfortunately it was a little too late.

I'm pretty sure that they wouldn't have much of a problem in the mail room if they were waiting for the big fat check from the HO who is sending their mortgage payment...they probably won't lose that as frequently but it's a two way street. They got their hands caught in the cookie jar and now won't take responsibility.

The problem is they have had more than enough time time reorganize and hire a few competent people so I still think that isn't a good enough excuse. We had to literally interrogatea person on the phone to get them to admit that the reason why our first negotiator never responded to us after waiting 30 days from the appraisal was because they just quit...no calls no nothing...we had to find out the hard way and that is simply not right no matter the case. I just think that if they continually are going to make it impossible even after we do everything to cooperate and make it convenient for them that they might as well just say at the beginningthat the file has no chance of making it...kind of like putting the animal out of its misery before the pain gets unbearable.

I also must say that although there are guidelines...they aren't always met as far as the type of loan or the amount owed is way too much...I've seen deals that wouldn't ever fit the MO to be a successful short close that have closed...as much as 150-250K uo side down yet the bank approved it so I don't believe the part about it not qualifying...maybe before but not any more.

Whether or not they are losing money...if they would look at the whole picture...it might be better off just taking the loss and starting over even if its such a high loss. Also the banks are regretting the fact that they need us but are unwilling to cooperate and even pay us a figure. Besides the HO's losing their home...we as Realtors are taking a chance by working for nothing but hoping for something in return so they can listen to my violin on that one.

I just wish the government would do something like make it mandatory for them to reach deadlines instead of worrying so much about buying back bad loans yet they still have no compassion.

Thanks

Neal and I think very much alike.......Neal, are you sure that we are not working the same short sales? I agree that the government would be much better off passing legislation to regulate the short sales, it will save the homeowner and the lender valuable resources.

As far as why do I negotiate the short sale? Well, I feel that it is my responsibilty to my seller since I took the short sale listing. My E&O does cover this type of transaction and I always disclose and tell the seller that they need to consult with their attorney and accountant BEFORE making a decision.

Tina,

Great post.

The one thing that I will add that will help anyone with short sales it when you call the customer service people in Loss Mitigation, setup or any dept., be friendly with them. After all, all they have been doing for the last 8 hours is listening to Realtors and Homeowners complain to them. Just remember that they are the middle man in the whole thing, but it you treat them how you would treat your mother, you will be amazed at how much easier the process becomes. Also, by being nice, you can gather information about who the decision makers are and how to get a hold of them DIRECTLY. Just keep this in mind, No Good Deed Goes Unnoticed.

OCT

2008

Jill and Terry,

Sorry but we are always nice to any person on the phone...I don't care if it's loss mitigation or...triage...or a supervisor. As a matter of fact..until they came back 4 months later to tell us to just go sell it to someone else...then I said something. But all bets are off when you get stupid people with no consideration... who have no ides what they are doing....don't return your cordial phone calls or even can't seem to stop losing all the paperwork you send them both via fax and registered mail....does this mean I should just keep being nice? How long do I keep being nice after the buyer walks and leaves the seller with an attorney licking their chops waiting to collect? I wish you would tell me which bank you are working with that are so nice and cooperative because I'll trade you the 4 others I'm working with.

The only way to keep a short sale from falling apart to soon is the time....if you keep losing time because the lender just can't seem to get it then you might as well pack it in now...I'd rather they just tell us that they won't approve it early on...but they can't seem to even do that right.

Why wouldn't we want to be nice? After all I want to have a pleasant transaction so there is no use in starting it off on a bad or negative note so I agree with what you are saying but 9 out of 10 times it doesn't work with a robot.

Agail Neal, are you sure we are not working the same transaction? I too am always nice, ask them how they are, how is the weather, I know you are busy I won't take much of your time, etc.

They can make every excuse in the book but it boils down to thier systems and their lack of knowledge and many times their hate for their job. I actually had one person from a large lender tell me, Sir, I am sorry, we did not recieve your 34 page fax. The funny part is that I did not tell her how many pages the fax was that I sent (7 times) because they never could find it. It was 34 pages, imagine that! I called back the next day and a very pleasant lady told me that it was recieved 3 weeks before that.
I can not believe the number of companies who still use the old fax machines with PAPER. There are so many digital faxes out there now, there is no excuse for old technology. Having an email address to send these to would be even better. The only problem is that we can track that and they won't want us to be able to do that.

Jeff and anyone else who cares,

Just so the world knows...I just received an email ....great news...we now lost buyer number 2...we just lost two buyers with 40% with the same bank and 50% down because of their lack of effort and their total stupidity...so let me ask everyone a question now...should we still be nice? Should we use a law as the excuse? So should I just let my clients die in foreclosure now...I'm playing my violin now. Maybe I should send all the lovely people at the bank a new toaster or a gift basket.

Neal, just so you know, I DO CARE. I know what you are going through but I am saddened by what your homeowners are going through. Would it be slanderous to name the lender?

Keep fighting!!!!!!!!

I would like to see a "third party" streamlined process for short sale transactions. Local, independent, and with the authority to make quick decisions. Won't happen, but that's my 2 cents.

Jeff, I think that the lender should be named and shamed.

Rich, that's a great idea, you are right it won't happen, but it's a great idea.

Jeff, there is another option for you seller. You can hire a company to review the HUD and challenge it for inconsistancies and pretadory lending clauses. Since there are often discrepancies on the HUD, these attorney based companies can often force banks to modify, accept a short sale and even keep the homeowner in their home for months. Give me a shout and I can refer you to a few reputable companies. It may be worth a shot at this point.

There is one that I would love to name and I am sure that the horror stories would come rolling in. Hate to name names but their carriage is drawn by a team of horses

Doesn't suprise me, Wells is the most Arrogant bank out there. I hear it over and over! But then again they are buying other banks and holding their ground in this debacle!

Certainly customer service is not a priority with bank!

Had to pipe in on this one...WF killed a deal of mine at the eleventh hour and my Lender is in the process of saving it. I've never seen such incompetence in all my life. What stories I could tell...

OCT

2008

All I can tell you it ain't Wells...we only have a flicker of light left and tomorrow the flame might go out.

JAN

WOW......alot of information here! Thanks for all you've put into it. I would like to ask if you have any "specific" information pertaining to us, here in Hampton Roads, as far as some of the things that you mentioned that vary from state to state. I have a listing now that I have as a short sale and I feel like dumpimg it after reading some of this. I've tried to get as educated as possible on all of this, but I don't know if it's worth all the stress of losing your license over. I always try and do the right thing, but this all sounds like you can be doing what you think is "the right thing" and still get hung out to dry. Maybe I need to turn it over to someone that is more experienced in this.

Vicki - Virginia is a very bank-friendly state. Unless negotiated otherwise, the banks can go after a deficiency judgement from the seller. I recommend advising your clients to meet with an attorney to discuss their situation (C.J. Vandervelde at Shaheen & Shaheen is well versed with short sales) just so they are fully informed of the financial implications of a short sale. Good luck and let me know if you need and further help!

Tina in Virginia

JUN

I may be reading this way later than it was posted, but there is a lot of things to think about from this post.

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