The names of the people below and their stories are all
fictitous, but are examples of what real estate agents
are seeing and hearing in the Metro Detroit area on a daily
basis. Short sale sellers #1: Bill and Nancy have fallen upon
tough economic times. Bill lost his job when his automotive
supplier employer shut its doors 1 year ago. His unemployment
checks recently ran out and although he's found a minimal
wage job and Nancy has a minimal wage job they are unable
to keep up with their $900 per month mortgage payments. They
fall further and further behind each month and are making
decisions each month on which bills to pay and when so as to
avoid shutoff notices on their utilities.
Bill has sent out resumes all over the country and finally received
a job offer in North Carolina. He packs up in his old "free and
clear" car and heads to his new job, leaving his wife and
children behind to sell their home and then join him. Selling
their home won't be an easy task, as their $120,000 mortgage
balance is much higher than the current value of $95,000 on
their home.
Short sale sellers #2: Jim and Diane bought their 2 bedroom,
2 bath condo in a new development 3 years ago. They bought
an upgraded model with all the custom features that the builder
offered. They also financed 95% of the purchase price when they
bought the condo. Jim has recently decided to retire early and
they contacted a real estate agent about putting their condo on
the market so they could move to a warmer climate state.
They were stunned to hear from the real estate agent that their
$235,000 condo is now worth approximately $185,000-$195,000.
They are angry that their condo not only hasn't gained in value,
but that it lost value over the last 3 years. "We'll just call our bank
and sell it as a 'short sale'. We read all the time about people
doing that."
Should Bill & Nancy and Jim & Diane receive the same consideration
by their respective mortgage holders in regards to a decision
in favor of a 'short sale'? Not in my opinion. Bill & Nancys situation is the product of an economic loss and situation
that sadly we see all too often in the Metro Detroit area. Job loss.
No replacement job in sight. A move out of state to support their
families.
Jim & Diane want to sell. They don't have to sell. They purchased
their condo at the height of the market and even though they can't
be faulted for not knowing the way the real estate market would turn
downwards, they don't need to sell. They can do one of two things:
They can wait it out and sell when the market can get them their
mortgage balance owed, or they can bring money to closing to pay
off the rest of their mortgage balance and pay their mortgage lender
in full the amount of money they agreed to.
Thankfully, the banks and mortgage holders are looking at short sale
requests with a careful eye. They are evaluating each request and
determining if a short sale is needed and warranted.
Without the banks doing this evaluation, the
Bill and Nancys of our
area would simply be walking away from their homes and letting them
fall into foreclosure. They are the ones who truly need the help
offered with a short sale.
The Jim and Dianes will have to make a decision on whether to stay
or to reach into their savings accounts to pay back the mortgage lender
the amount that was agreed upon.
©Kris Wales RE/MAX Advantage 1, Inc. Macomb County Michigan
Search for your new home with MLS provided data in Macomb County
Kris, I hope the banks are looking at short sales differently. I have listed 2 separate ones and both are different situations. Both needy, one got transferred and one built a bigger house. Can't sell the older home for what they now owe. It is sad for both of them.
It seems that banks look at short sales all the same. The problem with # 2 is they have money that can be attached if the bank goes after it, but they are so busy they won't fight it. Sad, huh?
Missy: I think part of the "short sale" request process is a hardship letter written by the sellers, explaining their individual circumstances. Did your sellers have to write one? It is a difficult situation for all involved.
Dennis: I'm hearing more and more of scenario #2 lately. Sellers seem to feel they are entitled to the forgiveness by the banks, regardless of individual financial situations. When we explain there must be "hardship" they have trouble comprehending that. It is sad.
I have done several short sales and no two are even close to the same. The only similarity they have is that all banks are very difficult to work with.
Gary: Are you seeing "hardship" as being a deciding factor in which way the banks will lean?
Situations leading to possible short sales are always so different. Banks hopefully are looking at the "convenience" short sales a little differntly.
Kris - This is a great point. I think today this is happening to frequently and I don't think that the banks are looking at this close enough. I love when they ask for a hardship letter - my life is great but I could write a great letter and probably get me out of my own home.
Kris, you make a very valid point. I can only hope the banks are looking carefully at the shorts coming in; I know of at least 2 situations very close to me where the owners are real estate agents who bought properties w/option arms, put renters in and hoped to ride the wave. The wave crashed, so they are letting the banks (and therefore, the shareholders) take the hit.
It's "NEED" vs "GREED"! Unfortunately, sometimes the greedy ruin it for the truly needy.
Gary Waters: I hope so also Gary. The "convenience" sales are the ones I have a gut problem with. The note that is signed at closing is often referred to as a 'promise to pay'. No where on the notes I've seen does it say "only when the value increases". Those who are hurting because of economic hardship are those that I want to see helped.
Vincent: You and me both :-) We could easily construct a hardship letter, but I would hope the banks would ask for more than that.
Susan: Exactly my point. I don't think the Jim and Dianes are necessarily "greedy" but they want what they want, and they don't wish to wait for it. Those like Bill and Nancy truly have a hardship and it's those people I want to see helped.
I have a bank holding out for $3,000 they're trying to get out of the seller in a short sale. The buyer is just sitting and waiting with a cashiers check. It's an economic issue for the seller. I guess the bank thinks he has 3K buried out back.
Chris: I'm surprised the bank didn't just come back with lower commission or no commission to brokerage to make up the $3000. That's what I've been hearing is going around. I'd be interested to hear how that turns out. Keep me updated please?
No, the two couples will not be view the same by the banks. Couple 1 will get the short sale option because they are behind on their mortgage, and the bank would rather take a short sale and hopefully get some money now than wait 9 months and get even less money. The second couple are not behind on their mortgage they just desire to move. Why can't they wait a year or two for when the value return and then sale and move.
Serena: What you described is what I would hope would happen. Couple #1 truly deserves a chance to give the bank as much as they can without facing foreclosure. Couple #2 would like to sell, but don't need to. Thanks Serena.
Well done Kris. I hear from couple # 2 and 3 quite frequently. I will not help them with a short sale. #1 I would work my hiney off to help them.
This post is very good Kris. It clearly shows the differences in who we should be helping and who just needs to stay in their property and pay the mortgage that they agreed to pay. The problem is many REALTORS(R) do not know the difference and are clogging up the system with short sales that will not fly.
Good job Kris. Thank you.
Bryant: I refer all "short sale" listings to someone in my office who is much more knowledgeable about them than I am. Part of the reason why I do this is because I have a difficult time dealing with consumers who have the "want" but not the "need". The true "need" consumers deserve to have someone handle their needs with kid gloves and expertise. Glad to hear that you will work your hiney off for them :-)
What about #3....bought homes all over the US hoping to sell for quick profits. All market values declined & rental markets are bad as well. They now say the are in a "self-induced' (my words in quotes, not theirs) financial hardship & need to short sale everything??
Susan: I've heard less about your #3 than the scenarios I presented above. Perhaps because our local issues are more economically based? (Job loss) I have heard about your scenario taking place in other parts of the country where they are "investments gone wrong" based. To those I say "take your lumps". Harsh? Probably so. I simply want to see help going to those who truly need it because of no fault of their own.
Kris, I think we all have a lot more sympathy for the first couple, and if the weather were better in Detroit, I'd no sympathy at all for the second couple. But you're right that, as long as they have the money to pay off their mortgage, it'll be tough to get a short sale approved. I'm amazed at the number of agents here who are just listing homes as short sales without first getting the whole thing cleared by the bank. It makes it a really tough road for the buyers.
Patricia: Alot of the short sales on the market now in our area are true "needs help". However I'm seeing some of what you're describing: Those that simply want out, have the money to keep current on their payments, but simply are appalled at the plunging values. It is a tough road for buyers who wish to buy and can't get an answer, and sellers who do need to sell and are having problems getting a short sale approved. What a mess huh?
Kris--Thank goodness I haven't seen to many Jim and Diane couples as they need to just stay put during this crisis. People have to live with the decisions that they have made so the Bill and Nancy's of the world have an opportunity to move on as their situation is in many cases quite desperate. The banks have a difficult job to do in the months and years to come...Good post!
Kris, These are interesting scenerios. I do hope the banks are viewing them differently and see necessity in one case and not the other.
I think it's sad that the system is getting abused. I mentioned a while ago that a client wanted to short sell just months after extracting six figures (you read that right!) of equity out of their home to buy a new one.
The banks want to work with serious sellers in tough situations but they have to figure out if the situation is real and make sure there is no fraud involved with the short sale (ie, selling to relatives). Up markets breed fraud and down markets breed fraud.
I am simply going on a tangent and not implying that Jim and Diane are requesting a fraudulent sale :)
Kris, I totally agree with you. Hardship is one key component of a short sale and it doesn't appear that couple #2 has that at all. They will probably have to bring money to closing which is sad but the reality of a down market. I once had a client loose $300,000 (early 1990's) but they didn't discuss a short sale...it was simply a bad timing.
Too many people seem to try to take an easy way out while those that honestly want to make it don't usually have an "easy way"
Hi Kris,
Great topic! I am seeing so many situations like couple #1, they truely need our help. These are the ones that I will do whatever it takes to help them out. Then there are the others that seem to think they are entitled to a short sale,just because you want it doesn't mean you get it.
Jim and Diane need to honor the loan. I wonder if a bank would give then forgiveness.
Bill and Nancy has a rough situation and should be able to do a short sale. Lets hope
yeah its sad situation, i have a client with somewhat the same scenario, its a touch decision to make when your options are so limited. Hopefully everything turns out alright in the end
I agree with you and BB on this one. Short sales were meant to be for true hardships. Keeping up with the Joneses doesn't qualify as one, IMHO.
Hi Kris - great topic and one most of us likely will encounter if we haven't already. I haven't, so am learning what I can through posts like yours so I really can help people when, and if, I encounter it.
The people who truly need help would, and should, get it, like your first scenario. The second scenario involves accountability versus the need for help. Far too many, from what I read, take no responsibility for their own situations nor do they seem inclined to care either. Your people in situation #2 should suck it up and stay where they are for now, unless they just want to accept that the market has changed, sell and then make up for it by being a buyer in this market. They certainly have far more potential upside by selling a little lower and buying in this market. Why do people not see that?
There are legitimate situations where people really do need help and it would be nice if the banks would do their best to work with those people. But the people who don't legitimately need help shouldn't get it - they made their bed, they need to lay in it, in my opinion.
We have a mortgage broker here in my area who bought all kinds of properties over a 2-3 year period, all built on a house of cards with funny financing, using inflated commissions as down payments, etc. And he's been being foreclosed on right and left. And get this, he's STILL here in business, doling out financial advice to those seeking mortgages. It makes me want to puke every time I hear that someone's talked to him about a mortgage.....
Ann
I havent read all the comments but it is unlikely that the bank will approve a short sale for couple #2. unless they agree to sign a note for the shortfall. The banks want to see the same information to approve a short sale as the would want to approve a mortgage, except in the case of a short sale the borrower needs to demonstrate that they cannot make the payments and dont have the assets to cover the shortfall. In your example its clear that they can make the payments
Not all borrowers will be approved for a short sale
Different needs. One is a hardship, the other isn't.
I can't believe someone that just wants to sell would consider just going to the bank and requesting a short sale. I do feel bad for those that are close to foreclosure.
Kris,
Couple #2 have the mentality we see so often. "It's all about ME and what I want!" What bank would agree to that? If they did, aren't the bank examiners (or at least the stockholders) going to question such a forgiveness of debt?
Short sales are hard, and need a lot of attention ... you loose your marbles....I tried to do one last year, but could not accomplished it.
Your first scenario was dead on with how to deal with it. But with the second scenario things are much different. I dont see any mention of them being delinquent in their mortgage payments (unless i read over it). Of the 13 banks that I currently work with they ALL require that the mortgage be in at least a 60 day delinquincy. From there they will have to explain why they are behind, provide a hardship letter, financial forms that include bank statements and income. If the home being "short saled" is a second home the chances of it being approved are slim to none if there is equity in the primary. Furthermore, if it appears that they have intentionally allowed their debt to be in arrearances the bank will take a very strong stance against them, and it would be financial suicide for the homeowner. Banks are not willing to lose money because a client doesnt want to honor their debt. It's a shame that many lose equity overnite at no wrong doing of their own, but that is part of the Real Estate Economy. I would seriously encourage homeowners to NOT mess up thier credit by forcing a short sale, as the impact may not be recoverable and more times than not a short sale fails anyway, leaving the homeowner homeless.
What a great way to explain the differences - it is amazing those that want what they think is due to them vs those that simply have had the rug pulled out from under them.... great job
Kris, It's the Jim and Dianes that are partially to blame for decreased property values. If those not needing to sell kept their homes off the market, values wouldn't keep decreasing.
No two short sales share the same story. There are innocent people who have been caught up in this mess. I do feel sorry for them. That was a good explaination of different views Kris.
There are definitely different situations and different needs. Our short sale experiences have been that the banks have not been too kind to anyone, regardless of their situation.
They are totally different, especially from the Banks perpsective. Jim and Dianne, has no hardship. One major componet that gives banks the justification to do a shortsale in the first place is the exsistenace of harship. Most Banks have to get approval from their board in order to execute a short sale. No harship, no short sale. Most Banks would tell the second couple to just wait till the market rebound or somthing. But it would not happen (the short sale)
Thank you to whomever is responsible for featuring this post. It is much appreciated.
Teri: I'm glad you're not seeing or hearing about too many Jim and Dianes also. I don't envy the banks job or workload now. Hopefully it will start to lessen a bit.
Carole: As do I...Thanks Carole, always good to see you here.
Renee: I'm curious to know how the bank/mortgage holder viewed the couple you were describing and their scenario...did it get denied? I agree Renee, the ones that need the help should get it. Those in true "need".
Diane: Now you have me wondering...is the "short sale" something that just came into play? Was it around in the 90's? (I started as a real estate agent in 1997...not familiar with the term until recently.)
Sandra: You put it perfectly. Thank you. When it comes to "promise to pay" there should be no easy way out, but help should be there for those that truly need it.
Suzanne: "Just because you want doesn't mean you get". How many times have we told that to our children? Wonderful.
Richard: I agree. Bill and Nancy should receive all the help they can get to move on with their lives and keep their family intact. Jim and Diane can wait a bit or honor their loan.
David: I hope your couple have a desired outcome. Let me know what happens please.
Melina: Thank you. I do feel sorry for those that lost equity, don't get me wrong. I just think there should be a line drawn as to who receives help and who doesn't.
Ann: Thank you for the nice reply. I am still amazed after reading about the mortgage rep you were talking about, especially the fact that he is still in business and doling out financial advice. Unbelievable. I suppose though that because what he did isn't "criminal" he can't lose his job over the foreclosures. I have a feeling that his type of scenario isn't all that uncommon. How sad.
Ron: That would be my hope (couple #2 having to sign a note for the shortfall). It's the only thing that makes sense to me. Thank you Ron.
Lenn: Agreed. Hopefully the banks/mortgage lenders are seeing things that way when they review the packets they receive.
Christy: I've been dumbfounded when I hear about it myself. When it's explained to them that they need to show hardship its hard for them to fathom.
Eilleen: I would hope that whomever has the file would question the reason behind the request. From what I understand, they are. You're right..it's the "all about me" mentality.
Maria: I fully understand! I've been referring those listings to someone in my office who is much more knowledgeable and who has a better make-up for them than I do.
Darrel: Thank you so much for providing an explanation of what the bank is looking at and how they are going to perceive things/circumstances. Please keep in mind that the people I spoke about in the article are all "fictitious" but the stories are ones we hear often here. Sadly for couple #1 they need the help. As you stated #2 would have a difficult time and probably NOT be able to have forgiveness of part of their loan. I appreciate it Darrel. You cleared up a couple of issues for me.
Thesa: "The rug pulled out from under them..." How true, sadly. Those are the people I really want to see receive all the help and compassion they can get.
Gary: You're correct. If those "short sale" scenario homes aren't on the market, or weren't allowed to be to begin with, I wonder how much more quickly the real estate market would recover? Sad isn't it..
Wayne: Thank you. It's quite interesting to see what is taking place in our market. Sad in some cases, but interesting indeed.
Bob and Carolyn: In the Phoenix area that you work and live are you seeing more "investment" based short sale requests? I would hope that those who have true economic need would have an easier time of it.
Lawrence: Thank you. That is exactly what I would hope to see happen. I didn't know that each short sale had to go before a board for approval. No wonder they take so long!
Thank you all for your time spent here commenting and educating me more about the short sale process and how banks are viewing them. It has been quite an exchange, and one I have enjoyed.
I have had a lot of people call me wanting to do a short sale because they were tired of losing money on their investment properties. Many had the ability to pay, but just didn't want to.
They should be looked at differently. Those are 2 clear cut cases. One has the money and the other one clearly does not. It's called greed. Plain and simple.
Dan: Did you have any of those people be successful in negotiating a short sale with their lenders? I hope not.
Robert: I agree. 2 totally different set of circumstances. One "wants" the other "needs. Thank you.
I was amazed last week by an article in our local newspaper that described in full dtail just how you can and should do this if the numbers don't add up to what you want. Just walk away and let the bank have it. OMG, how can anyone, in good conscience, just walk away from a home they can afford but don't want to afford. Throwing more fuel on the fire of the media!!!!
That article made my stomach hurt!! People don't feel they have to take responsibility for their mistakes. Just let the bank or someone else deal with it! I wish/ hope the banks find out a way to deal with these folks differently than the people in serious need of assistance.
Virginia: Oh my goodness, I would have been sick reading that article also. Unbelievable. This is exactly why there are scenario #2's. People are starting to believe it is perfect acceptable to do this.
I just came across a situation yesterday where the sellers already purchased a home 1.5 yrs ago and have unsuccessfully been able to sell their current home. They are struggling to make both home payments and are at their wits end. I told them that they need to investigate the short sale scenerio. They are upside down and just don't have the cash to bring to the table. AND they need to price the listed home TO SELL. ... I am not the listing agent, just a relative!
Mary Novak
"Professionally Bringing Buyers and Sellers Together"
www.MarvelousMary.com
Mary: This situation is one we are hearing of more and more. People purchased new homes prior to selling their existing ones and didn't think of the ramifications or have a Plan B should their home not sell and they are faced with 2 payments. My own personal suggestion would be to approach the mortgage holder for a "short sale" in order to clear the title for a new buyer and simultaneously arrange with the mortgage lender to pay back the shortage. (Personal note, etc.)
Congrats on the feature, Kris. You have certainly painted two different pictures. I don't have much sympathy for couple #2. Wouldn't they be worried about destroying their credit?