Watching How Lenders Deal With Short Sales
When lenders start to deal with foreclosures and pre-foreclosures in a manner consistent with reality, we might see the bottom of this market. Recently, my experience with these lenders has been less than heartening.
In one case, I represent a seller who paid waaaay too much for her home, and a death in her family resulted in her inability to keep up the payments. The offers than we have received have all netted the second lien holder NO MONEY – so they will not allow the sale by releasing the lien.
Keep in mind that when the house hits the courthouse steps – the second lien holder will get NOTHING, anyway. But, instead of helping facilitate the sale – they block it.
When I brought them an offer, the second lien holder sent me their list of requirements (which included some very detailed info that took a great deal of time to acquire) and told me that they will need at least 21 days to consider the offer. Don’t even bother us before 21 days, is what the instructions read.
Well we waited over a month for them, then called to find out where we were on this deal… only to be told, “Well, we’re not going to accept NOTHING, that’s for sure!”
Hmm – they knew there was nothing in it for them from the inception. They knew there was nothing in it by the detailed Seller’s Net Sheet that I submitted to them. So after more than a month – we now know that they will not accept such an offer.
Gee – I guess it was too much trouble to just say that in the beginning.
The second lien holder wants the first lien holder to give them some money, or they won’t release the lien. The first lien holder, of course, will not give the second lien holder anything.
I guess we should just go get our sign and lockbox…
I have another client who has been trying to sell for the last year and a half. They no longer live in the property (it’s been vacant for a year and a half). They have tried to talk to their lender(s) regarding a potential short sale so that we could lower the price down to a level that the market can allow a sale.
They are getting nowhere with their lenders. Apparently, they are not at all concerned that my clients may not be able to continue to pay for their “dead horse”.
My Experience Has Not Been Unique
Several other brokers I have spoken to are getting the same kind of treatment from the lenders. It’s as if they are in denial of the mess we’re all in. Some properties are being held as REO properties for more than a year before the lenders are getting wise to pricing them to move.
Meanwhile, many of these vacant properties are growing mold (sometimes toxic mold) and deteriorating day by day. The cost of holding these properties is enormous. Banks have to either self-insure these properties, or pay exorbitant rates to maintain policies on them.
At the same time, it seems that these same lenders are severely understaffed – which makes getting anything done that much more difficult.
I recently represented the buyer of a foreclosed property – and it was a hassle. We could have closed the deal in two weeks… but it took over three months. Everything that we did was slow as molasses.
So as far as I’m concerned – we aren’t at the bottom, yet.
Are We At Least Getting Close To The Bottom?
If you ask me when the market is going to improve, my guess is that it won’t be until next Spring, at the earliest. The Fed easing up on the money supply, along with the lenders getting their collective act together, will help to turn this mess around… but don’t expect anything quick. I know I don’t.
Allen Butler says:
Hello Doug.
I’m with ya 100%. I’m working on a listing right now where I got an offer over three months ago from a buyer who is apparently mentally dificient, having written the offer for exactly what I had listed the property for (which was a great deal at the time). Now, the builder specs are lower than my short-sale, and the buyer still wants it! However, the mortgage insurer has declared that they will not allow the short-sale, based on the fact that my client owns another property that is current on payments.
Nevermind the fact that:
a.)once they pay court & lawyer’s fees they’ll be further in the hole (approx. 38k)
b.)once the lender takes the property back, it’ll have to be listed about 40k lower than it is right now, and
c.)according to my listing contract, which was signed for 12 months, if, for any reason (including foreclosure), the property changes ownership, I will be owed 6% of the eventual sale price. (I’ll file a mechanic’s lien.)
I certainly understand that banks, investors, and insurers have “guidelines,” but let’s look at the financial reality: sell now at current market value, or lose another 70-80k in 6-8 more months plus holding costs.
Seems like a no-brainer, right? Well, what’s worse than no brains? I have no idea. Maybe a neologism is in order. . .
Allen
October 3, 2007 — 1:06 pm
Carey says:
My experience here in Colorado Springs is the same. I love it when the lender won’t accept the short sale but then when they own it thru foreclosure they sell it for less then the offer you brought in the beginning. Brilliant. I understand the lenders are short staffed but do something. Bring in all the deadbeat l.o.’s from the company that aren’t producing anything. Maybe they will at least learn something.
October 3, 2007 — 1:18 pm
BR says:
Man, reading this was like reading back a recent personal experience.
What is different in our situation was we called the banks bluff, even the day of ‘so-called’ foreclosure and continued to submit the same final offer. Guess what? They finally accepted, the second lien gave in and we closed the deal. It took days upon days of calling back and forth, hours waiting on hold, countless call transfers, 100’s of deadends until the 11th hour. Might there be a better offer in the wings is the idea, and so what if you don’t like it Mr. Realtor, we’re paying you.
You’re so right that this is worse before better- I’m praying for better sooner than later.
October 3, 2007 — 1:22 pm
Chris says:
I noticed a couple of the smaller banks are getting smart. I think now they are realizing how much property they own in with no hopes of getting rid of. So they are warming to the idea of short sales. Its a slow process though.
October 3, 2007 — 4:12 pm
Doug Quance says:
>Allen:
Neat trick with the mechanics lien and all… wouldn’t hold up in my state. It would be nice if it could…
>Carey:
Yep… that’s often the case here, too. Won’t sell it now for the right price – but they’ll sell it later for less…
>BR:
You’re a better man than me. I will wash my hands of this thing before it hits the courthouse steps…
>Chris:
Too bad there aren’t more small banks holding these notes. The big ones are ridiculous.
October 3, 2007 — 11:15 pm
Ben says:
The banks inside paper pushers have always been against getting the answer out and trying to save a deal. I guess this is the time for job security to be more important then helping clean up a problem.
I think we need to send in the offers with a cover page of drawings showing examples of the points you are trying to get in their head. Sometimes we need to take their hand and lead them out of box or is it a cubicle they call home for 8 hours each day. ha ha
October 4, 2007 — 2:18 am
Olivia says:
This reminds me of 2 shortsales I listed earlier this year.
(1) A client offered $80,000 on a dilapidated hse with a mortgage of $100,000, worth only $120,000 – $130,000 fixed up and this house needed at leaset $30,000 of work not including remediation of the major black mold everywhere (no second mortgage) – after hours of work satisfying their demands (and they slashed my real estate commission to 1.5%) they turned the offer down flat. House sold as an REO for $60,000.
(2) Found a buyer for a house with a mortgage of $95,000.(no second mortgage). Buyer willing to offer $100,000 for the house. Lender insisted on $110,000. Buyer walked and house just went under contract as an REO asking $66,000.
I agree that short sales are not worth working right now.
October 9, 2007 — 10:02 am
MyPhoenixMLS says:
According to RealtyTrac, an online marketplace for foreclosure properties and the go-to source for foreclosure data, foreclosures in the U.S. were up 56% in the first half of 2007 over the first half of 2006. In Arizona, they were up 128%.
And, according to a recent article in the Economist, “with some 2.5 million adjustable-rate mortgages resetting to higher rates before the end of 2008, everyone knows there is much worse to come.”
According to Moody’s Economy.com, as many as 1.7 million homes could fall into foreclosure by the end of 2008. That’s a lot of affected homeowners, many hard-working families.
There’s a couple of great blog posts on foreclosures at http://bobstahl.topproducerblogs.com/.
October 11, 2007 — 2:19 pm
Los Angeles Real Estate says:
Doug,
I have been experiencing the same problems. I can think of three reasons:
1) Lenders are optimistic that the market is going to rebound anytime soon; or
2) People in charge of loan loss mitigation on behalf of investors/insurers could care less about prudently mitigating the loss (which until now I thought it was due to lack of proper management at certain servicing companies. But now it seems like the practice is widespread.); or
3) Decision makers at mitigation departments need to retake basic math classes.
October 21, 2007 — 11:35 pm