Short Sale Issues

 

Follow the money.  Always if you follow the money you will understand the intent…

It seemingly makes no sense for these short sales to be taking so long to get answers from the banks, who end up looking very disorganized and unwilling to help out distressed homeowners.  It can take months for an answer back sometimes, just to hear back if they’ll even consider the short sale or not.

So let’s follow the money…  If there is more than one lender both will want to get as much of the proceeds of the sale as they can.  But since the first lender is in place to get all or most all of the proceeds the second lender has to agree to the sale and to take a very small lump payment.   At current time it’s about 10% of the loan amount the second lien holder holds plus a set fee. 

The primary lender may not want to give up that much to any other secondary financing and may balk at additional payments which causes a delay in getting an answer back to a buyer as the lenders disagree about the money.  Unless the agent or attorney talking to both sides knows that they are doing this can become unresolvable.  It also can trend towards the illegal with the secondary financing demanding that the buyer or agent pay them outside of the HUD1 so the first lender doesn’t know how much they got.  Fraud. 

Each lender has different rules about how much they will allow for the payment cap to secondary financing and whether they’ll allow the borrower to dismiss the remainder of the debt or will require a promissory note for repayment.  Because we typically had multiple lenders involved in the piggyback deals of a few years ago, it is crucial that agents who are navigating these waters understand how to approach each lender, assess their regulations about how much repayment they’ll either allow or demand and know if this is a short sale that has any chance of ever getting out of the morass of the overburdened loss mitigation departments of the large banks.

As we follow the money trail….  Add to this complexity anything covered by PMI and it gets even murkier.

PMI companies were insurers who covered the 20% the buyers didn’t have for downpayments. So if the buyer defaulted the lender could file a claim and recover that portion of the money.  The PMI company has no loss on their books they have to clear.  And like any insurer they don’t want to pay out immediately – they want to delay.  By forcing a delay they may put the owner into foreclosure or bankruptcy but this doesn’t impact them negatively.  They get to delay their payout until after the home has gone through the foreclosure process.  Months and months if not a year can go by before their books are impacted. 

Too many agents don’t do all this homework before taking the listing and then the poor, hapless buyers come along thinking they’ll get a deal, not realizing there was never, ever, ever a chance to get that particular short sale through.  They end up squandering precious time and resources while rates rise, opportunities to buy other homes are lost and their energy and desire get sapped.

I’m all for buyers getting deals.  Do it all the time.  But there’s no sense pursuing something unless I can get the listing agent to answer questions about the status of the negotiations.  Unless they have already discussed with both lenders who’s getting what money we are starting from too low on the negotiation totem pole to make this work.  Just sending in a short sale package was not enough.  What I want for a buyer is to present their offer and have the bank be able to say yes or no based on the already pre-determined negotiations between the two banks.  

Buyers hear me say this is not worth pursuing but I don’t think they fully realize why until they get this breakdown about agendas and financial impacts.  Just follow the money I tell them…