The Lender is STUPID for Not Accepting My Offer! Aren't They?

Real Estate Broker/Owner with StepStone Realty, LLC 572467

The following are true CASES from our years of processing short sales:

  • CASE A:  We presented Lender X with an offer of $85,000.  Lender X refused the offer, foreclosed, then listed the property for $60,000 and immediately accepted an offer of $55,000.
  • CASE B:  We provided an offer that thrilled the first lien-holder, but the second lien-holder refused to accept $3,000.  The house foreclosed and the second lien-holder received $0.00
  • CASE C:  We provided an offer of $120,000 with 3% seller concessions.  The lender rejected the offer.  We presented a back-up offer of $110,000 with 1% seller concessions.  The lender accepts the second offer.

What the heck is going on?  Are the lenders stupid?  Aren't they losing all of this money?

Well, yes and no.  Once you understand how the system works, you start to see why these lenders make these "crazy" decisions.

Customer ServiceYou see, most lenders we deal with (particularly those with big names like Wells Fargo or Bank of America), do not own the loan you are attempted to short.  They simply own the servicing contract.  So while the short sale spends months sorting itself out, and you feel like they are losing "thousands" of dollars.  In truth, they are really only losing "hundreds".  They get paid each month for successful collections.

In order to approve a short sale, this servicer, as a part of their contract, must make sure the short sale is approved based upon certain underwriting criteria.

So while it seems "stupid" that the lender would not accept an offer that nets them more, the truth is, an investor has set out underwriting guidelines that the sale must meet, regardless of the "net".

Since you are "negotiating" (and I use that term loosely) with the servicer, not the actual owner of the loan, their leeway in accepting an offer is extremely limited.  This can make the short sale process tedious and frustrating and sometimes it can cause the lender do something "stupid".

So what happened in each of the above cases?

  • CASE A:  This was an FHA loan.  At the time (FHA has since done away with this short sale underwriting guideline), if the BPO valued the property at less than 62% (I may remember that exact percentage incorrectly, but it was something around 62% -- someone correct me, please) than the original loan amount, they would automatically deny the short sale and move to foreclosure.  The fact that they ended up with about $30k less in their pocket at the end of the day did not matter.
  • CASE B:  Despite the fact that Fannie Mae loans would only pay up to $3k to second lien holders at the time, the second lien holder's underwriting would not accept less than 20% of the loan amount ($50,000).
  • CASE C:  The underwriting guidelines specified the maximum allowed seller contributions bo buyer-paid closing costs as 1%.  Even though the second offer was less net for the investor, the servicer was bound to take the lower offer because the higher offer needed 3% seller concessions.

Trying to relay this information to your client isn't easy.  The distinction between "investor" and "servicer" is lost as they just know their mortgage company as "the lender".  Therefore, when they seem to be making "stupid" decisions, they are, in fact, simply following contractual guidelines as they underwrite a short sale.

This probably doesn't help alleviate the frustration we all can feel when dealing with a lender, but hopefully it will make us all just a little bit more patient!

Posted by


StepStone Realty, LLC

Find out more at:

Comments (49)

Manuel Monserrate
Raleigh, NC

Wouldn't it be wonderful if they taught basic mortgage market economics in high school, so people understand terms like primary and secondary mortgage markets, mortgage servicing, etc? It's not rocket science, it simply is something not a lot of people are ever exposed to.

Sep 22, 2010 05:51 AM
StepStone Realty
StepStone Realty, LLC - Austin, TX
Freedom to Succeed

Roger -- I look forward to reading it!

Manuel -- Amen!

Corinne -- UGH!  I hope you close, but we've had similar situations.  Closed, but frustrating!

Sep 22, 2010 06:23 AM
Simon Mills
Mills Realty - Toluca Lake, CA

Fantastic post pointing out both sides of the story.  It is frustrating on the front lines from both agents and buyers.

Sep 22, 2010 06:30 AM
Bruce Swedal
Denver, CO
Denver Real Estate

I am certain short sale approval decisions are governed by some advanced form of logic none of us are capable of understanding or attaining.

Sep 22, 2010 06:47 AM
Kim Bartells
TC Business Management, LLC - - Perkasie, PA
Result Driven Real Estat - Marketing Expert

Good post.  Isn't it funny how guidelines, designed supposedly to make jobs easier and faster, have managed to slow down the process and make it more complicated.  If they would just trust their employees and investors to use their own brains, we'd all be better off (well, maybe?).

Sep 22, 2010 06:48 AM
Neal Bloom
Brokered by eXp Realty LLC - Weston, FL
Realtor CRS-Weston FL Real Estate

I love this post.

Excellent way to describe how stupid they appear to be.  In my opinion...lenders should be employing Realtors to negotiate instead of unqualified people. and they should be local. How can someone know the true value of a FL property if they are negotiating from Osh Kosh and have never even touched or felt the structure? And I definately agree that in most cases...trying to explain this to a seller or a buyer is very difficult let a lone getting them to understand why.

It sounds more like the servicer should be negotiating but not all short sales are killed because they didn't meet that  63%. There are other factors such as homeowners associations that need to be paid or Real Estate taxes

Sep 22, 2010 06:51 AM
Trinidad Gaeta
Remax Top Producers - Diamond Bar, CA
Trinidad Gaeta

Good little explanation... I wish the logic was that simple and with MI on certain loans it can still be a little more of a mess. But, definitely a clear explanation of your senarios.

Sep 22, 2010 09:09 AM
Craig Frazer
Farmington, UT
Real Estate, RE/MAX Metro, Davis & Salt Lake County

I think this is endemic of what is going on in society at large.  We have become a nation governed by laws and lawsuits and as a result, common sense has been thrown out the window.  How many times have we encountered the "it's our policy", "our guidelines don't allow", "my hands are tied" responses from various vendors, merchants and retailers we interact with on a daily basis.  My favorite (in the  most frustrating way possible) is the "I know it doesn't make any sense but that's the rule."  Well if everyone knows it doesn't make sense, then why in the world can't common sense prevail and change it to make sense?!?!?! 

If you want to point to one of the contributing factors to the collapse of the American economic engine, you can certainly list the loss of common sense as one of the top 5 reasons.

Sep 22, 2010 09:50 AM
Kieran Loughman

Hi Daniel!
They are stupid,both lenders and servicers. Bureaucracy is a beutiful thing. So much waste, such little concern for doing the right thing. They should go on strike.


Sep 22, 2010 12:24 PM
Thom Abbott |770.713.1505 | Intown Atlanta GA Condo Living - Atlanta, GA
Midtown Atlanta GA Condos For Sale

Great post. I also know short sales that never happened because the bank  asked for such riduclous paperwork that my clients said, "screw it" and let it foreclose. Sad.

Sep 22, 2010 12:24 PM
Ralph Janisch ABR CRS Broker
Janisch & Co. - Conroe, TX
Selling Northwest Houston to good people like you!

I think your blog just goes to show why the industry is in the condition it's in and why the more things change the more they stay the same.  There are lots of Stupid people with a lot of education in the upper levels of the lending organizations.  Thinking has been removed from the process.  These people can only choose the black pill or the white pill they can't choose a shade of gray that might just make a whole lot more sense.

Sep 22, 2010 02:38 PM
Ken Gramley
Cary, NC

While I see your point and agree that it's good to understand WHY the servicer makes the stupid decision, stupid is stupid, contractually obligated or not!

Sep 22, 2010 02:41 PM
Carl Schumacher
CIDM Real Estate - Grand Rapids, MI

I'm working on a short sale right now. Loan balance: About 65K. BPO value: About 42K. Offer amount: 30K. Lender counter: 34K. I then submit 5 foreclosure sales within the last 6 months of similar homes, not just in the same neighborhood, not just within a 1/4 mile radius of the subject property, no, on the exact same street within two blocks either side of the subject property all sold for between 20-25K.

So based on this evidence did the lender relent and accept the 30K? Of course not. The lender disapproved the sale because they claim they never received the HUD-1 in a timely manner that was submitted to them at least 3 times since the offer was first placed. And this is on the Equator system. Every time I look at it, the HUD is sitting right there for everyone to see, yet apparently the negotiator can't view it. This has all taken about 5 months so far. 3 months yet to go before the end of redemption.

I'll be submitting a new offer at 20K next week. Based on past experience, that should do it.

I'm going with stupid . . .

Carl S


Sep 22, 2010 04:41 PM
Nancy Frimann
Eagle Ridge Realty/Signature Homes & Estates - Gilroy, CA

Beautiful post.  I hear a lot of agents complain all the time, but they don't know what is going on behined the scenes.  I hope this helps some of them.

Sep 22, 2010 05:25 PM
Debe Maxwell, CRS | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!


Sorry I'm late to the party but, I just have to say that I do hope that folks here realize just how wonderful your service is--you have the in-depth knowledge and the tenacity to get these done for agents and I could not be happier with your service.

Also, I just wanted to mention--I heart Aaron!  LOL   So glad he inspired you to get into the SM realm--you guys needed to get the word out about your amazing service.  Thanks again for all you do here on AR and for your agents--you're the BEST!

Sep 22, 2010 05:46 PM
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

I presented an offer on an REO.   The list price was $200K.  In addition to being "trashed",  the place had structural damage.  Buyer offered $100K CASH,  the local portfolio lender replied through their agent verbally, "No Way".   Several months later, they took $70K.

Next up, an REO house that showed in MLS as year 1985, listed for $250K.  Research and discussions with neighbors showed that this was a 1920's house that had been moved onto the site and been renovated.   Aside from the potential lawsuit for misrepresentation, the place was also a wreck.  Same Buyer offered $100K.   "Nope", said the Bank.   Last I saw, the house was still for sale.

Per your blog title, Daniel, "Are Lenders Stupid?"  

You tell me...

Sep 22, 2010 05:57 PM
StepStone Realty
StepStone Realty, LLC - Austin, TX
Freedom to Succeed

Thanks again for all the comments.  Per your comments, the system is definitely stupid, but understanding it a bit more is a good thing :) 

@Debe: Thanks for the kind words!  We work really hard for agents and love it when it pays off with a happy customer.  I hope we are doing business together for years to come!  And Agent Aaron rocks (except when his fantasy football team beats mine).

Sep 23, 2010 01:34 AM
Ricki Eichler McCallum
CastNet Realty - Corpus Christi, TX
Broker,GRI,ABR, e-Pro, TAHS

Great blog Dan.  I hate to work foreclosures and short sales.  Fortunately, we dont have a lot in our area.  But we are dealing with one right now.  Be glad when it is finished.

Oct 01, 2010 04:46 PM
Kathleen Lordbock
Keller Williams Realty Professionals - Baxter, MN
Keller Williams Realty Professionals

to get paid not to accept an offer- instead going to foreclosure- sounds like something our government would participate in!

Dec 25, 2010 03:35 PM
Robin Rogers
Robin Rogers, Silverbridge Realty, San Antonio, Texas - San Antonio, TX
CRS, TRC, MRP - Real Estate Investment Adviser

Thanks for a great explanation of the craziness that happens with short sales. I didn't know these things were going on behind the scenes.



Nov 14, 2011 02:50 AM