People often ask me what the odds are that a lender will flat out deny a short sale and my response is, at the bare minimum, they will usually at least counter.

However, usually means that every once in a while, one will get denied without a counter. Below, is one of those instances where the lender came back saying they wouldn’t agree to the short sale, period.

This was a situation many are unfortunately familiar with: loss of job/income, while caring for an elderly relative – in this case, our client’s mother.

We submitted the short sale to US Bank. As we followed up, we encountered a higher level of incompetence from loss mitigation than even we’ve grown accustomed too. We bounced around from person to person for weeks and then fought with our negotiator for months. Documents were lost, calls and emails we were promised would be returned, weren’t. At one point, our negotiator even lost our file.

Fed up, we found our way into the executive offices of US Bank and were put in touch with the Executive Vice President of Consumer Finance, Mortgages & Collections.

She apologized for our experience and promised to help. And by “help” she meant going line by line through each credit card statement, looking for any holes in the story our clients presented in their hardship letter.

Of course she couldn’t find any and with the exception of a single $100 credit card purchase to a clothing catalog around Christmas time, every penny could be accounted for towards food, shelter, basic necessities, and mom.

Still, even after conceding that the offer we submitted was above fair market value, US Bank decided that these people didn’t need a short sale, but a loan mod and credit counseling. When we argued that neither would help them better handle their mothers expenses, we were told the following:

“Care for your mother is a choice, your mortgage is an obligation.”

They insisted that we go back to our clients and let them know a loan mod is what they were offering and to call back. We advised US Bank that a loan mod was not possible and that two options were available – accept the short sale, or let us know where to send the keys. They never responded.

Our clients mailed in the keys a couple weeks ago, hopefully wrapped in the US Bank Five Star Service Guarantee I opened this piece with…

This short sale involved a property located in the D.C. area. Our clients did not have the story most assume would be associated with a short sale - there was no loss of employment/reduction in pay, or heath issues, etc. Simply put, they had a one bedroom condo, just had a baby and needed more space. Their hardship was the local real estate market.

It took a couple weeks, but after some adjusting of the list price, we received our first offer and submitted it 01.06.09. The lender, GMAC (see? a little redemption from my last blog!), communicated with us regularly and on 1.21.09, we received our approval letter.

Yup, 13 business days, 15 calendar days!

We closed on 1.30.09, with our client released from all liability for the deficiency.

There are a lot of misconceptions out there that a bank will only consider a short sale if there has been significant hardship, months of skipped payments, etc. Sometimes, that is the case. Usually, it’s not…

When we first started working on this short sale in early 2008, many banks and lenders were still operating under the belief that the current real estate crisis was only isolated to certain parts of the country. For those of us grounded in reality – even then – we knew every market was hurting. No longer confined to rust belt cities like Detroit or investor playgrounds like Miami & Las Vegas, just about every area of the United States was experiencing plummeting real estate values.

In presenting this short sale, we faced the challenge of not only getting both GMAC and SLS to accept it, but to even acknowledge the necessity of it in a perceived strong local market.

What follows, briefly details a remarkable short sale experience we recently completed in Hawaii, which was 13 months in the making.

Our client owed $1.2m on this property and though its value had peaked at $1.5m a few years earlier, we knew we’d have trouble getting $1m. Still, we had an amazing agent working with us locally and we were confident she’d get us the best offer possible.

Sure enough, offer number one came in at $950k.

The two liens – GMAC & SLS – fought over everything; title fees, payoffs, Realtor commissions, etc.

The buyer lost patience and walked. We started over.

The next offer came in around $900k. Again, the lenders fought and again, the buyer walked.

Several more offers came through, each one for less than the one before, with each one meeting the same fate as the first two. Rinse and repeat.

Finally in early December, we were able to get everyone to make nice long enough to accept an offer for about $850k. That was in large part due to finally landing a great negotiator with GMAC. But even his talents couldn’t prevent what was about to happen.

A couple weeks prior to the closing, a storm caused significant damage to the property. Not the home itself, but the actual property – sink holes! The damage was so severe, the home was no longer insurable and therefore no lender would finance it. The buyer walked.

But we persevered and were able to find a cash buyer - quickly. Of course, the offer was low, but the lenders knew they didn’t want to inherit it via foreclosure in its present condition, so they agreed to it.

$500k, cash.

We closed it last month, with both lenders releasing our client from all liability for the deficiency as a condition of the acceptance.

They could’ve had it for $950k, but due to inefficiency, incompetence and the inability to see the big picture early on, they lost $450k.

I share this story with you, because there are a couple things to take away from this experience:

First, if there were ever a scenario that showcased the need to streamline the short sale process, I don’t think you can provide a better example. The first buyer waited for months, as the offer bounced around from person to person at each bank – and that was after we had to convince them that the local real estate market was in fact “not good.” There was simply no reason for that. In conversations with execs at some of the big banks they’ll tell us “be patient with us, our employees are overworked,” or “we’re doing the best we can with the talent level we’ve got.” Really? Hire more employees. Your employees aren’t competent enough to handle their task? Hire better people. I promise you, the talent is out there.

Second, and this is becoming a theme, DO NOT GIVE UP!! This property was saved from the courthouse steps no less than 3 times. We had multiple offers, multiple negotiators and more lives than a cat. But, we stuck with it. Simply put, you cannot give up until the house has been foreclosed on and the redemption period has expired. And even then, you might want to make a couple calls just to be sure…

We had submitted an offer for a property here in suburban Detroit, for $65k. After about 60 days, the buyer lost his patience with the process and walked.

We called immediately to cancel the short sale. In typical Countrywide fashion, we received an approval letter from them two weeks later.

Not long after, a new offer came in, this time for $62k. We submitted it and within two days, a negotiator called us and we were told everything looks good; she would order a new valuation and try to push it through.

We started our regular follow up and within a week, we were told the offer was denied and the file was closed. This made no sense. How could an offer that was only $3k less than the one that had already been approved (over a month earlier no less – in the nations most depressed market), be denied?

We stared to investigate. We spoke with a half dozen people over a 7 day period and were told the same thing by each person – sorry, denied and closed. Over and over. Rinse & repeat.

Finally, we were able to get a hold of a supervisor. Sure enough, the file was still open and had been into the investors for approval the whole time.

So, what happened? Each person we spoke with at Countrywide had been looking at the wrong screen. They were looking at the file that had canceled.

I’m happy to report the property closed and our client walked away without owing a penny back to Countrywide. Imagine what would’ve happened if we’d just listened to the first 6 loss mitigation reps…

On average, we save people about $125,000 by assisting them with a short sale on their home.

And truthfully, that number is low.

For the thousands of people who simply mail their keys in to the bank and forgo the short sale option, it can cost them tens of thousands of dollars additional or more.

Here in Michigan, there is a 6 month redemption period.  Once the bank forecloses, that’s how long they must wait before they can sell your home.  What happens during that period?  The bank incurs costs they will add to your tab.

They have to maintain the home, pay taxes, association fees, etc.

During that time, the property will likely continue to devalue (especially in the current economic climate).

Then there are the legal fees and various other costs to the bank during the foreclosure process, which they are sure to add to the tab.

When everything is said and done, is it reasonable to think another $25,000, $50,000 or more can be added on?  You bet.

Don’t let that happen without a fight.

A short sale can reduce the damage to your credit and can keep the bank from pursuing you for the full amount owed.

Talk to your bank about your options.  Ask them for a short sale package.

If you don’t know where to start, call us, we do…
 

That is our experience as well.

In the MSN article on short sales, they report

“Our numbers suggest that 20 percent of completed home sales nationwide are short sales,” said Guy Cecala, publisher of Inside Mortgage Finance. “The number would be larger if it weren’t for the fact that one-third of all attempted short sale deals don’t go through.”

…

In a typical home transaction the seller gets final say on which buyer gets the home, but in a short sale the lender weighs in on that decision, since it’s the lender who won’t recoup 100 percent of the seller’s mortgage balance as in a “normal” home transaction.

Many buyers who consider putting a bid in on a short sale abandon the deal mid-way through because it takes so long for a lender — unlike a regular individual home seller — to respond to it.

“If you put in an offer on a short sale, you’ll have to wait on a response for anywhere from four to six weeks,” Popik says. “Our study indicates the average wait is 4.5 weeks.”

This is very true. It can be weeks and weeks to hear anything. And unless you nag the lender and work them every day, nothing happens. Mortgage lenders are buried in too much work and they have a staff that is short of people. They cannot respond in loss mitigation soon enough to all the mortgage short sales that are being submitted to them.

The article continues with this:

Buying a short sale: Time-consuming process
Knowing that the typical short sale is time-consuming for this very reason, Kurtyan said that he and the developer he represents began petitioning the lender for price drops before marketing the homes at their current prices, rather than marketing reduced prices and crossing their fingers that the lender would approve them — a common tactic among short sellers. The process started in December, he says, but it took until March for the new prices to get approved due to the lenders involved.

Our firm is working on numerous short sales. We have the staff to work with the lenders and put on a lot of pressure. Just getting their attention is sometimes a notable accomplishment. We work with a large title company and we get all your ducks in a row — so that you can focus on what is important to you, like selling real estate or arranging loans or going about your day to day business.

I do suggest that you consider using someone like my firm, Short Sale Legal Services, if you are in the real estate business. You and my firm will be paid largely from the settlement costs at closing.  We do require a retainer up front, but the rest is paid contingent on our success. If we succeed, the buyer’s funds pay the real estate commission, customary closing costs and our fees. The bulk of the money, of course, goes to the first mortgage holder and the second mortgage holder if there is one.

I can’t tell you how many hours we spend on each transaction. If I had to do what you do, sell a house, and do this, I think I’d have to choose a different career, perhaps asylum inmate

The fact is that we specialize and I think, so should you.

Two mortgages present special problems and challenges. 

Much of the time, the second mortgage holder is completely under water. They have zero equity. Even the first mortgage will not get back full payment.

Yet, the second mortgage controls the deal because unless they release their lien, the short sale cannot go through.

And even when both mortgages are serviced by the same company, the notes may be held by different noteholders. So the servicers must get permission to do the short sale from each noteholder. It is hard to get everyone’s attention, let alone get their permission too.

For that reason, when we negotiate a short sale with two mortgage companies, we always work to get the second mortgage to agree to a short sale and then work on the first. The second will release the lien and we also work to get both mortgages to release your client, the borrower, from future liability. That is not assured but I do my best.

One thing we always make sure of is that people understand that we can’t do magic. They may be legally liable for any deficiency.  We do our best to make sure that the lender releases them from liability but that is not a sure thing. On the other hand, people are often better off doing a short sale because they are helping the lender solve a problem. A foreclosure is usually worse for the lender and often for the borrower.