Why must there be a Hardship to do a Short Sale?

Hun...

It really does suck. And this situation is the calm before the Real Storm.

TLW...ROAR!

Precisely what I've been ranting and raving about for 2 years. 

The government gave our money to the banks.

The banks do not work in the interest of the American home owners.

There is no voice for the American home owners, all of whom have been damaged by the mortgage mess.

How is that working out for folks???

Hey BB, 

Suck is to put it lightly. The thing that bothers me the most about that situation is how hard you worked to get your client help. It's the same tune all over the country, homeowners and real estate agents are tackling the solutions that benefit everyone. But somehow, which is totally illogical to me, the banks decide to say FU, and foreclose on the home anyway, which will cost them tax payers at least $50,000 per.

Lenders need to be more responsive, but do not count on that happening in the near future.

 Follow me on Twitter:  http://twitter.com/roykelley

Bryant,

The truth is there has to be two (2) hardships for a short sale! Not only does the owner have to have a hardship the lender has to believe they ether do too or they soon will!

All to many fools belive it's their right to get a short sale! These comrads belive they are intitled to the banks money! "To each according to their needs!"

Hiael Obama!

Bill

Bryant when people are that far under water with negative equity they just want to walk, credit score be damned, just to get some sanity back in their lives. You are right though, the government programs are not taking this area seriously.

You are absolutely right... the system is not working as it needs to help save families and their homes.

They don't care and neither does their short sale department in India. They are not paid to think up solutions, they let the government do it for them. As far as they are concerned it is problem solved.

I had an attorney tell me today that a builder A purchased lot and built spec home that sold two years ago.  Purchasers of home lost job and walked away.  Original cost to builder was about $90,000.  He sold home for $120,000.  He bought it again yesterday for $50,000.  There had been a short sale offer of $80,000 six months ago that was rejected.  The bank actually took $30,000 less six months later.  So the sellers are hurt, the bank lost money.  No common sense is being applied to these situations at all.  Who is paying for all of this.  Any and all us poor saps who are still making a dime and paying 9 cents of it in taxes.

I am parking here with TLW, because this is one of the most frustrating issues we face today. Not just agents, the American homeowner, the tax payer, and even the banks! Why do they make it so diffucult to save their butts some money?? I just don't get it, I wish the government didn't walk into the banks, check's in hand, and say "here, take this and don't let anyone have it." Why couldn't they send those checks to the people who needed them? UGHHH

What I don't understand is that there are sellers with two dozen properties bought as investments and they are able to short sell one after the other, all while maintaining their job, their savings, etc. On the other hand you have people who are, as you describe, just stuck and they are the ones getting foreclosed on. It doesn't make sense that the lender tells one borrower they don't qualify to renegotiate or short sell and someone else in the same or better possition that they do qualify. I think the government would be better served to take all the "troubled assets" files from these banks and not to allow the banks to individually decide who gets help. This would create a more level playing field... forget the bank bailout money.

BB-this is one of the most frustrating parts of our market today.  The government has offered bailouts to some and not to others.  We are already starting to see the loan modifications fail and those very owners who didn't qualify for their first loan are defaulting on their second go round.  Meanwhile we have families who are stuck between a rock and a hardplace.  There is no way in markets where homes have lost 50% of their value will anyone be able to bring money to the table and as you say will choose to walk away at some point in time.  This mess could will get worse in some areas.

BB,

You clearly demonstrate the "hurt" of being upside down and responsible about your obligations.  "Want to move" is no reason for someone else to assume my loss. When my stocks tumble, there is no one to buy them back at what I paid. I assumed the risk and have to pay the consequences. "Need to move" - Why? If it is for a new job, the seller will have an income stream that could repay the loss.  Other needs may well equal hardship - death, illness, divorce.

I am a flaming liberal but am not willing to shoulder a share of the loss incurred by every upside-down owner.  Nope, if there is no hardship, I see no reason a bank or fellow tax payer should share in the loss.

Lisa...

I love the way you put that:

"here, take this and don't let anyone have it."

That's pretty much what BB and I were saying to each other today :)

TLW...ROAR!

This is a seriously frustrating topic for me, BB.  While (knock wood) the hubby and I haven't been hit by the recession, many of my friends and family have found themselves in difficult situations that had nothing to do with being irresponsible.  I know a couple who live in a small town that is set at least 40 miles from the nearest small town and even further to a bigger town.  Hubby had his own construction biz.  Started slowing down a couple of years ago, then the slow down became a trickle and then the trickle became an all out stop.  Like many people, they invested in real estate several years ago.  But, in this economy, they are unable to sell those properties to help make ends meet until the economy picks up.  They are in danger of losing their own house because banks won't work with them on a loan modification because they show they have too many assets (meaning the second home they have been trying to sell for over 2 years now and the vacant property that won't sell either).  The banks are only willing to work with those who are drowning and on the verge of walking away instead of helping those that are trying to be responsible and are simply treading water.  They just want a hand up, not a hand out.

TLW,

I forgot to add the part where they took the check, won't let anyone have it, hid it in a deep dark hole, and then said it was gone so they could ask for more tax payer money because these big businesses are too big to fail. On the other hand the largest employers in the country, a.k.a the auto industry, are shutting the doors all over the country. Why are these car companies not too big to fail, but the banks are? Seems like a bunch of, as you would say, CRAP!! 

Irene, BUT....the point is that in this case a foreclosure is inevitable. YOU and all of us are already shouldering the costs. Why not do a short sale and make the costs smaller? That's my dilemma. 

Of course it sucks. Not only for them but for every homeowner who is is a similar if not exactly same predicament (myself included, although I've been spared the axe this time).

BB and TLW, it's absolutely amazing that people are expected to completely liquidate in order to receive relief from a strategy INITIATED BY OTHERS that has left them horribly upside-down. I believe in paying bills, too- but have to say, the arrogance of the banks (IN LIGHT OF THEIR OWN HUUUUGE MISJUDGEMENT) is appalling. From credit card fee thievery, to offering dumps AS IS on the market, when is this going to abate? Expecting people with a circumstance in which they seek relief (paid for by THEM) to go unnoticed/ignored is disgusting, but then, this whole venue is disgusting. 

Bryant, it is the blindness of the people in charge that has led us into this sinkhole that keeps getting deeper and deeper.

Dear BB,

If any of these made sense, we probably would not be in this position if people had brains.... I'm sorry I'm blunt. You have just triggered me to write another recent experience of mine.

It is just a ridiculous situation -- and for what it is worth -- we agree with you that there will likely be many more foreclosures before it is all over with.

Hi Bryant -- You sure know how to get the the point and lenders should listen to your logic as it's crystal clear and makes perfect sense.  It is very confounding how this whole process works.  In short, I totally agree with you.

Bryant - I think you have an insightful observation there about the "next wave".  I had an owner-occupant today who wants to relocate to NY for job "opportunity".  He is upside-down, but makes $150,000 per year.  He wants out.  How long should he just stay in the house- 10 more years?  I hear the "responsibility" arguments, too.  If he just leaves, foreclosure and deficiency judgment.  Why "not" just do a short sale, with a gentler promissory note or some such?  Good deep discussion.

Following your last post, this one should have been titled, "Why BANKERS Suck"!

i fear you may be correct about this being the eye of the storm. If so, I just hope we survive it intact. Because too many are not :(

I agree, as I predicted almost three years ago we have not seen the worst of this mess.  A short sale for this homeowner seems like it should work out to his benefit.  Values are not going to come back soon, in fact they continue to fall.  Down is where the values are as the foreclosure market is driving it in this direction.  Take your lumps and run like the wind.  Hang in there Bryant, and as always tell TLW hello too.

Jennifer, DAMN!!!! I almost feel like changing the title now. That's awesome. I must be getting slow in my old age.

I completely agree.  The government and the banks are neglecting the true source of the problems.  Not only that, but when there is a true hardship, they are hesitant to do loan modification because the hardship is too severe and the owner's don't make enough to cover a lower house payment.  THEN on top of all of that, they take five months to let you know the borrower isn't approved for modification.  And so the problem goes on.s

I don't understand how that cannot be a hardship...that defies common sense.  What is so frustrating about these situations is the lack of long term thinking that happens in these situations.

Bryant, this makes three of us, "According to Lenn (and I agree) we have an equity problem in this country. Until this problem is solved nothing else matters".

Unfortunately due to weak demand and a surplus supply of homes, homes values will continue to fall further exacerbating the problem.

Bryant,

Good point too about this being the eye of the storm.  Based on everything I am looking at, there are still going to be millions of additional foreclosures over the next couple of years.  Credit Suise is estimating as many as 8 million.  The wide spread foreclose moratoriums which have now expired, have made the market look much better than it actually is.

I am not sure what the bank wants to hear as a hardship.  Driving 100 miles, and the wife on unemployment sounds bad enough for me.  What do they want next a kidney?

BB - it has been ugly for years, is still ugly, and likely to get uglier. Frustrating doesn't quite describe the situation. There is no rhyme or reason as to how the banks are hanlidng these situations, or not handling them as the case may be. Hmm, there's a post percolating...

Jeff

Bryant - It totally sucks - like a Hoover on steroids.  But don't think for a minute that it isn't intentional.  The big bank boys know exactly what they're doing.  Laraine

BB - The problem is that there is no common sense or simple calculation or - ha! - loss mitigation in mind of those who make a decision on short sales. I've just figured out that the bank rejected one of my short sales because they did not want to close in May. June worked better, though. So they finally agreed to approve it when it became clear that the closing will be in June. That's all about books and  insane considerations which have nothing to do with people and bank's losses.

 May be the same approach will work in your case, too? We work much harder on short sales than on regular ones. It's fair to get paid for it.

Bryant that not only sucks but it does not make any sense for the bank to not take that offer.  who ever made the decision to not take the offer must have taken one to many sips of their own bath water that morning.

Yup, that sucks! 

Absolutely corruption at it's best!!!

agree we are going to see a whole wave of foreclosures just as soon as the ever helping "loan modification" people have held people at bay with no answers for over 70 days +.  There is no process - their is no communication just "I'm sorry you will have to wait until we get to that file."  so in the meantime these homeowners are sinking and sinking and when they finally so - oops sorry you don't qualify its too late to market the home without a fire sale. this whole thing SUCKS!

We can complain all we want, but the banks have the "ear" of the government. Nothing will change unless something catastrophic happens.  The next wave of foreclosures might be enough, but I doubt it. The government can just print a few trillion more.  There never was a serious commitment to solve the foreclosure problem, and until there is, homeowners who can't pay their mortgage, and the overall economy are without help.

BB, I read this post and it makes me sad, so sad.

We are in such a desperate situation in MI and we can't get loans modified, and it takes FOREVER for short sales, we get and offer and buyer walks because they are tired of waiting.

foreclosures come on the market and in Ann Arbor are gobbled up with multiple bids.

i had calls all week on foreclosure's and ALL of them were gone with between 3-13 offers. I have told the buyes "please don't wait". They are going so quickly.

BB, I think I want to nominate you as President. OK, mabye not the US president, but at least of NAR.

It sucks.

Andrea, who would really be the president of NAR, Bryant, or Billie, with that whip of hers? LOL

The situation is loaded with suckage.  The ban is being undeniably stupid by not taking an offer when it is available rather than foreclosing. 

I would disagree though, that the housing issue is the central issue here.  And as much as I hate it, banking is.  I have come to believe that there should NOT have been a TARP bailout, and there certainly shouldn't be a continuation of THOSE failing policies of the Bush Administration... but giving the money to people would have been a bigger problem. 

Failure has to happen.  It has to happen at the personal level AND at the business level. 

And the basis of the problem is the creation of these debt instruments and the amount of leverage in the system they created.

Yes this sucks. If I were asked to bring 200 grand, I too would foreclose.

Bryant, hopefully it won't be too late but Lenders must realize that avoiding foreclosure at all costs is a must to start to bring back some type of normalacy to this market and approving Short Sales will do just that. How does one define a hardship? A predicament, hard knocks, insolvency, bad luck, broken fortune, stress of life or a sea of troubles...all similar hardships. Lenders must open their sea of hardship defined!

Bryant, here's another piece of the puzzle that really doesn't make sense when a bank does what they have done to you - reserves. When a property forecloses, the banks have to put money in reserves to against that loss. I have heard 6 to 7 times the number of the foreclosure.

So what's wrong with this picture? Let's see, we can take $60,000 today or have to set aside $360,000 or more and maybe get $30,000 a few months down the road?

Why oh why doesn't somebody stop this madness? I feel like I'm living in the Twilight Zone!

Sharon

PS Your description of these people would be a hardship in my eyes. $700 salary per week on a $200,000 house? They wouldn't even qualify for that loan today. Wife on unemployment. Hardship of driving 100 miles a day to work. Why can't they see the hardship here?

Sharon

Plain and simple, this sucks MASSIVELY...

I agree that this sucks but there are a few issues.

The seller does qualify for hardship.  Having to drive over 100 miles to your new job is reason for selling the home.  I have completed numerous short sales and this is a viable reason.  The second reason is that they according to the income information that you posted qualifies them for a short sale.

We will often get responses from the negotiator that will state such similar things.  You as an agent however have to keep trying and keep negotiating.

I am sorry to say that most agents are not trained well enough in the art of completing a short sale and as such do not do the right things or give up too soon.

Keep talking to the lender, this should be a viable short sale!

BB,

I believe anyone can do a short sale if they sign a note to repay the difference between the sale price and what they owe. If they want that amount to be "forgiven" they have to prove a hardship for forgiveness of debt.

So it isn't quite true that they can't do a short sale without a hardship.  They can't get the bank to eat the loss without a hardship.  Perhaps splitting the difference?  Signing a note for part of the loss?  Several options.

Banks don't like to admit they have all this bail out money.. I spoke to a BOA rep who claimed they never asked for the money and had actually paid a huge chunk of this back to the government.

Some lenders have slowed down the foreclosure. One suprised me and gave me a NET payoff prior to even getting a offer on a short sale. Now today I recieved a offer on this home and alls should work out if they stick to their commitment.

THIS ABSOLUTELY SUCKS!   The problem is you have the people at the top making all of the choices with OUR tax dollars and they have NO IDEA what is happening on the day to day grind within the community.   What irritates me more is all of the RANTS that you see on blogs regularly, but NO ONE has and viable solutions on 'what to do' worth a crap!!!

They wanted to spark the  economy and keep property values up right?   Well they should have  taken all the bank bail-out money, and divided that money giving it to every WORKING American Tax Paying Citizen that was a HOMEOWNER!!!   That would have instantly taken us out of this housing mess, because most people could have paid their house down or off, had extra money to spend IN THE ECONOMY, keeping us OUT of this economic slump, that is if not a depression, at the very least is DEPRESSING for working U.S. families!!

We owe so much damn money, our kids, kids, kids..... will NEVER see the light of freakin' day!!

Ardell - Are banks set up to do this?  In theory you are right, but given what I've seen with lenders, I can't imagine they'd have a system set up to process this kind of short sale.  The difference would become unsecured debt and I think they would rather write off the difference off than get into the unsecured debt business.  Just the fact that the lenders would deny a short sale and allow it to go to foreclosure instead, shows how short-sighted they are.

Bryant,

It's sad that we can no longer expect common sense from so many of the people we deal with (banks are at the top of that list).  Common sense, just isn't common.

Many people will choose to walk away in a situation like this even if it effects them for 7-10 years if they feel they don't have another reasonable option, especially if it's a place like California where there's likely to be no recourse on purchase money.

I have AN answer to the equity (or lack thereof) issue. Of course, there are issues with my answer.  Since Fannie Mae and Freddie Mac are already subsidiaries of the federal government, and they 'own' about 55% of all mortgages currently issued, my theory says: Pay down EVERY loan owned by Fannie and Freddie by X% or some fixed dollar amount.  Then force the servicer to re-amortize the loan at the new principal balance over the existing life of the loan. 

This accomplishes mulitple goals; 1) Increase equity/reduce loan balance for homeowners; 2) return capital to lenders through paydown of loans currently on their books; 3) reduce payments for current homeowners through re-amortization on lower balances, and; 4) give the 'too-big-to-fail' (and 'too-big-to-treat-their-customers-fairly') lenders fresh capital to actually lend (since this capital came from loan paydowns).

Simple, yes? Fair, no. But is anything? It would be impossible to structure anything fair. And it is a better option than just throwing money at these banks.  But I believe it may be the only thing to really address the true underlying problem - real life affordability for homewoners. 

I completely agree! We just keep pushing on... Things MUST change!

Gail,

Yes, I have done one that way back in January of 2008. I had the buyer client.  At that time, before any of the bailouts and new ideas...it was the ONLY way a short sale would be approved. The seller was willing (seller was an agent) and her broker represented her.  She signed the note and it closed.

Fran,

Common sense is not what works here.  You have to think like a banker. Luckily I was one before I was an agent for 20 years. Just did a bank owned...very smooth...they did as I expected because I expected them to act like a bank, not like a seller or a realtor or a lender...like a bank.

There are lots of options, but you have to not try to push a square peg into a round hole.  Sometimes the bank won't approve a short sale until the owner is very far behind in payments and foreclosure is imminent, as they think the owner may save themselves and stay.

That is why they sell later for less than the initial offer.  They want the owner to keep up with the payments as first recourse, even if they have to rent the house and move away. Many do, rather than ruin their credit. So the bank often wins that game.

It is near impossible to do a short sale without ruining your credit.

THER NEED BE NO HARSHIP TO DO A SHORT SALE!!!!  What you heard from the lender was a strong arm negotiating tactic that could have been overcome.  This is another reason why most agents are not qualified to negotiate short sales.  If I had a dollar for every time I have heard this kind of lender bullying and still got a short sale approval....

I have done short sales for investors with multiple properties, for people with significant assets or income.  Plain and simple, the bank can't make them pay.  If they decide to sell, that is the hardhip.

www.short_sale_expert.activerain.com

Want to hear a good one?

I know of a house that was listed at $269k with 2 offers on it at the list price. The Seller owed $315k. The lien holder wouldn't budge.

The foreclosure was scheduled and the Opening Bid at the Sheriff's Auction was $180k.

Investor purchased it for $1 over opening bid.

Happened 3 weeks ago.

I know how to do math, but not how to figure the lender's logic in how leaving $80k on the table helps anyone.

It's not always about the dollars and sense of it from our vantage point, Sarah.  It's not always about the seller. Sometimes they need for it to foreclose.  Sometimes they push the paper back to the lender who sold them the paper, and force that lender to sell it at the loss. I think they may have to own it to do that. Then the first lender sells it as a bank owned property.

You can only do the best you can, but the outcome is not always that the short sale gets approved.

The lienholder didn't agree for the property to be sold prior to foreclosure for its own reasons.  Sometimes it's best to understand that everyone acts as they do for their own good reason.  We can't always control the outcome.  We can only do the best we can.

A short sale is a house that is not really "for sale"...it is at best "maybe for sale".  The lienholder did not give approval for the house to be on the market in the first place.  They are under no obligation to proceed in the manner everyone else has deemed appropriate for them.

Why didn't one of the two buyers with offers buy it at the foreclosure? That's a good question.

You know... it's kind of really sad but it has nothing to do with how much equity has been lost. It has to do with the finances of the seller.

A seller can be making $15,000+ a month and still qualify for a short sale... depending on how much their monthly liabilities are. Just got one approved yesterday.

Moral of the story? Go out and get leveraged to death...

Worked for the guys on Wall Street...

And on another note...

One of my Sellers received this today:

• I have reviewed the information submitted and the sellers do not qualify for any liquidation options. They are showing a large surplus income and they do qualify for home savings options. I need to know that they are interested in pursuing home retention and would need a rescinding of the listing so that we can proceed with home saving options. I need to know this no later than Friday, May 22nd.

That “large surplus income” is from the husband who makes about $700 a week and a wife who is on unemployment. They owe over $200,000 on a property that is worth $60,000. They have never refinanced. Hubby’s job relocated him to  a different store and he now has to commute over 100 miles a day FURTHER than when they bought the house.

In this scenario... $2,800 a month + unemployment is enough money to pay a $200K note. Of course I don't know the rest of their financial obligations but it sounds like they don't have any other monthly obligations. (That gas bill has got to be pretty high, car expenses, lunch, etc..)

Hmmm... rent a home closer to where Hubby Works since it can be considered a job relocation, show the added monthly liability for the rent / utilities and you have a better chance of getting qualified.

Not sure if you are listing ALL of their expenses in the Financial Statement... but the key is to stop thinking loss of equity and change it to total liabilities. The first thing I do when I sit down and qualify a candidate for a short sale is to have a Complete list of every single monthly expense. And I mean everything... It's amazing how many things are left out such as cell phone bills, food, gas, etc..

If we get denied the first time... we put our thinking caps on and resubmit the entire package to get another loss mitigator to handle the file... don't ever give up because one loss mitigator says no.

Just some thoughts...

You know what else sucks? It's what's happening to the average Orlandoan homeowner who bought anywhere from 2002 forward, isn't in any trouble, whose job isn't on the line, who can pay bills on time ... and who is STUCK IN THEIR HOME FOR POSSIBLY THE NEXT 10 YEARS OR MORE!

You are right this situation will become more and more common. I also am with you on the foreclosures and the impact it will have dragging the recovery out for a lot longer.

I just don't get the "thinking" behind the decision makers in this time right now. I see it everday, cash offers right under asking get rejected over full price offers of financing; people willing to buy without an "approved short sale" but the banks say no, its really crazy out there. All you can do is try to keep yourself as sane as possible.

Yikes!!! Tons of great comments.

For those wondering I have not given up on this deal. I have been negotiating with the lender for months. There are however other circumstances making it difficult that are outside the scope of this post.

Short Sales are what I do and I'm good at it.

This post was written to bring up a very real issue and that's the fact that lenders are foreclosing on properties that don't need to be foreclosed on.

There were a few other posts about short sales being 'granted' as if it was a gift to the sellers.  This is just another example of how messed up the banking industry is.  I've got another situation now where I'm afraid that the bank is not going to 'honor' the hardship.  Your sellers are not rolling in the dough, in fact one is on unemployment! Give me a break.

People and business tend to manage and act based on the path of least resistances and/or out of complete ignorance.  Banks I believe are doing both. 

Great post and comments.  I still remain hopeful some positive change will happen.  Although probably not until things get worse.  Not that they aren't bad enough.

I just met with a couple yesterday who are paying two mortgages right now. They have a rental but they are not getting enough for rent to cover the mortgage so they cashed out on some retirement to help hold them over but that money is almost gone. They asked their bank to modify their loan but the bank said NO, of course, because they do not qualify. They do not want to short sale or loose either home, but they may be forced to do so. Of course there is not equity in either home so selling with out a short sale is out of the question! It is ridiculous to me that Banks do not even consider helping you unless you stop making payments.

I checked MLS listings in your area and I saw prices down 80% from 2005. I realize, and know investors who bought without seeing, and did negative am loans, and they should be punished for stupidity and greed. However, they have also had an impact on well meaning people who had the misfortune of bad timing. Isn't it a hardship that a combination of events, theories, and exploitation created the perfect real estate storm, and I mean a tornado combined with a hurricane for damage, let's call it a toricane. Now that's a real hardship. 

Interesting Comments You Guys...

Greed is alive and well this industry. Those who were responsible for this mess are now making it worse by allowing the foreclosures to continue. It's troubling to me that the banks are holding all the aces. There doesn't seem to be a way around any of it.

P.S. Should I put up a poll and see how many folks think I should run NAR? :)

TLW...ROAR!

The Obama/Geithner/Goldman Sachs looting of America continues.

I sure agree with this assessment: it sucks BIG TIME.  No one wins!  Like big snow ball rolling down the hill, it's picking up volume and speed.

Yes, I cringe at that scenario, I am convinced the banks need to revamp there departments to handle these short sales.

You make a good point, and it is funny that the bank would perceive a 700 / week income as a surplus. But, what would happen to our banking system and our national economy if every single person who was upside down decided to short sale their property?

Folks it does not just rest with the banks and government......our industry was also involved. The scams, fraud perpetrated, reported yet not dealt with is also at fault. I love real estate and have enjoyed and still enjoy helping buyers and sellers.

But we have a problem with checks and balances.........in all facets of our society......

While the banks certainly need to be taken to task and accountability we as a profession need to clean house and instill better safeguards to limit the bozo's with conflict of interest and questionable ethics.  As much as my opinion of the banks and lenders are extremely low it took willing partners outside of banking these past years to perpretate the schemes and promote the subprime loans etc. and frankly many consumers knew what they were doing and signing , not all ,but I was approached on numerous occasions to see "If I would cooperate"......as soon as I heard that line I knew where they were going........I went the other way...

I have stated in the past and I will state again, what I saw happen in the medical profession that could have been remedied by the profession policing its own is happening and has happened in real estate and other industries. Healthcare would not be in the dire straights today if things had been handled differently years ago........

If we do not change the structures, standards, accountability and apply checks and balances nothing will change.

What a mess....you blog  is an eye opener for sure. There are no winners in this game.  The banks have to change things dramatically to deal with short sales. 

Patricia Aulson/Portsmouth NH Real Estate

Being relocated is definitely a hardship!  Every bank negotiator is different--some are more experienced than others and they all have their own negotiating tactics that they use.  I think that most people negotiating short sales give up too early.  Some loan products have loss mitigation rules that require them to always reject the first offer regardless of the price, and many people just give up at that point.

The situation described here sounds like the seller is still living in the house and is not making payments.  If the sellers have income, some negotiators may see this as the sellers trying to live in the house for free when they may actually be able to make the payments.  In my opinion, in a job relocation situation, the sellers should move closer to work, then the hardship is very clear:  They had to move because of a job transfer and they can't afford to make payments on two houses.  I've never experienced a situation where the bank didn't consider this a hardship, even when the sellers had sufficient income to make their mortgage payments prior to moving.

The loss mitigation process at most banks is broken.  Fix that, and real estate markets nationwide would begin to stabilize.

Here is an article from FAR http://www.floridarealtors.org/NewsAndEvents/n3-052009.cfm that came out yesterday. From my understanding talking with a represenative from a bank who works in the short sale department, that sometimes it makes more sense to let the home foreclose instead of doing the short sale, because the investor who owns the loan will make more money. I totally agree that the banks need to let the short sales go through to help substain the values, because I have seen on average that when it becomes bank owned the home usually sells anywhere from $20,000 and up less than what it could have sold from a short sale.

If it is not the homeowners fault for the situation they find themselves in then whose fault is it?

It is not the homeowner's fault the market deteriorated but whose fault is it?

It is not the homeowner's fault that they lost their job but whose fault is it?

What is it that takes the responsibility of paying the mortgage away from a homeowner who accepted the loan with all that goes with it?

Is this a new thing; to repay a loan which an individual signed for with the property as collateral?  If they cannot pay then foreclose and be done with it and get the properties on the market at market value and get them sold.

Where was the real estate agent in this fiasco?  Did all of you actually believe the appreciation of real property was going to continue unabated and never stop and reverse?

I see it as quite humorous that before the huge downturn the "bank" was everybody's friend and now the "bank" is the evil enemy.

Banks are blind to the fact that they will be losing even more money when the rest of the foreclosures hit. I'll be talking to a seller about a short sale this weekend because she can't afford to repair the roof and garage (for thousands of $$) in her house. We'll see where it leads...

TLW, 

If you ran NAR, I would send you flowers every month. I just hope that if you did, you wouldn't get tainted, seems as though anyone who goes there, comes out with a box of rocks for brains. :)

-Lisa

we have an equity problem in this country. Until this problem is solved nothing else matters.

Why won't the lenders do a Short Sale anyway?  Why does there have to be a hardship? Why can't the hardship be that you are stuck in a situation that is not going to change for a decade or more? I mean let's face it, at some point, MOST people will need to sell. Unless they have an option to Short Sale without proving a hardship they are screwed and we are screwed.

In my area it's not solely an equity problem. It stems much from the effects of those on Wall Street and some flippers who are using flipping opportunities which sometimes adversely affects lenders' decision whether to accept a short sale or not. In order to maximize their recovery of capital they usually require evidence of hardship. Lenders want to reduce their loss severity. I don't blame them considering that some flippers come into the picture and flip some properties so lenders want to screen for flippers. Thus a hardship letter. I don't blame them.  

 Some will stay and stick it out but I'm afraid many more will just walk away and let their homes be foreclosed on.

Some may file for bankruptcy so not all is lost. As you know in Florida equity in homesteads are usually exempt and so far in the Tampa Bay area we are seeing more short sales than foreclosures probably because lenders are more willing to work with the homeowner whether it be loan mods, forebearance, etc but things are changing. Perhaps in your area it is different but lenders in this area are quickly following Wells Fargo in that they are more conducive to resolving short sales. In my experience it is getting so much better than it was last year.

There are some ways that we can help too. We can write directly to our senator(s) and let them know to get on the banks/lenders because when people buy a home they spend money and alot of it helps stimulate our economy. It is a win-win situation but a blog post may not change things. However contacting your senator may help.

For those wondering I have not given up on this deal. I have been negotiating with the lender for months. There are however other circumstances making it difficult that are outside the scope of this post.

Short Sales are what I do and I'm good at it.

This post was written to bring up a very real issue and that's the fact that lenders are foreclosing on properties that don't need to be foreclosed on.

I notice that you have since updated. In my area (Tampa Bay) things are slowly getting better. IMO alot of it was driven by Wall Street and now unfortunately mortgage companies and realtors ® are unfairly being blamed. Getting rid of underwriters did not help. Raising billions did not help. Offering stated-income products did not help. So far however lenders are slowly helping to clean up this mess. Wells Fargo happens to be one of them. Unfortunately it will not happen overnight.

I am curious though what other circumstances were not mentioned in your original post. Perhaps it is some of these circumstances that gave the lender reason to reject a short sale. Are there retirement accounts, cars, boats, other assets? As you already know, lenders will look at their financial picture so I am wondering if they did not disclose other assets that were not mentioned. In my experience though some flippers are making things so much more difficult for some homeowners with short sales it has gotten better... not worse but your area may be different.

I have avoided short sales for reasons like this.  However, they are supposed to be getting better.

Agree with your post and almost all the comments.  It's a tricky spot to be in.  When you see the house down the street selling for half of what your mortgage is, it's tempting to just go rebuy that and leave yours.  Your life is easier, payments lower, interest rate lower, no refi problems...and on and on.

Hold on there!

Firstly, short sale qualification is a myth - frankly, almost anyone can accomplish a "short sale" in some form or another.

Secondly, and maybe this should have been my first comment, and I use it all the time when I start a seminar - If you think dealing with a lender is going to be a logical exerience, think again.  Better yet, go to your car and put all of your "assumptions" and "logic" in the trunk and lock it tight.  Then go back to your desk and start again with a clean slate.

Very funny Richard!! I did get Aurora's email and will respond after I speak with the sellers again tomorroww. You'll love this one :)

Lana, this post was put up to start a discussion. The post is factual it just doesn't contain all of them because the rest of the situation doesn't apply to the point I was making. My area was raped by investors during the boom. Now we are paying the price with values down more than 70% in the last 24 months. 15% of the homes are in foreclosure in this particular neighborhood.

I agree that Wells Fargo is awesome. I wish every short sale I had was with them but it's just not meant to be :(

Ross, This post is not blaming anyone. It's simply questioning why lenders don't look at short sales strictly from a financial view. No matter whose to blame the fact remains it's about money. Let's cut losses where ever we can. If foreclosure is inevitable then accept the short sale if it "Nets" more regardless of the circumstances of the seller.

Bryant,

If the buyer's agents are telling their buyers to offer market value then where is the incentive for the "bank" to do a short sale when the "bank" can get close to market value or more with the MI claim for a foreclosure and probably look a whole lot better on their books.  A short sale will not fly for the "bank" to have any chance at all of getting a claim on the MI to go through for a short sale and who is going to pay more than market value.  O', that's right, that is why there is a fiasco now because people paid more than market value for real property in some markets.

Still, when did the responsibility go away for a mortgage?  I ask again, where were the real estate agents when all this was brewing, doing a happy dance to the "bank"?

It is a terrible situation that does not have any chance of getting better for a good while.  All that money dumped into the financial institutions with no accountability or oversight makes me ill.  In my area, some agents are actually putting in private agent remarks that the Buyer's Agent may not get paid to make the deal work.  Now there is great motivation to spend all those months trying to get the deal done.  I steer as clear of Short Sales as I can.   

Ross, We were working just as we are now. Where were you? In my market values are still rapidly declining. A short sale today at $60,000 is far better than an REO 5 months from now at $40,000. A short sale is based on today's value a foreclosure is based on a value at some point in the future. It is FAR better for a lender to accept a reasonable short sale today.

Bryant, I was in Kingwood, Texas.  Are you a lender, Bryant?  You know that it is FAR better for a lender, the lender is gone it is the entity that owns the paper now, to accept an offer far below the mortgage amount?

Did you address the MI, no?  Did you address the responsibility, no?  What the hell is going on in this country when personal responsibility is waived because? 

Foreclose, and be done with it.  Then the property will not languish on the market and depreciate further.

I very much appreciate your replies.  Thank you

Sincerely

Nice post Bryant. My quesiton is, WHO should get to decide what constitutes a hardship? What I consider a hardship may be all in a day's work for you and vice-versa. I'm negotiating with a bank right now who sold a loan product to my client that had no chance of EVER getting paid off. And now they want my client to take a note for the difference between what they'll net on the short sale and the inflated loan amount created by their crazy loan terms. It should be ILLEGAL to sell a loan product like that. What crooks. Good luck with your sale - let's hope your buyer hangs on!

I dont see why by now something more hasnt been done. Nothing has changed since last year.

It is a shame the government gave money to the banks when they are not capable of any logical behavior. Changes need to be enacted to help the average homeowner, not the banks.

Bryant....I feel your pain, agree with Lenn and you and am having a very difficult time  wanting  to be motivated.  I'm far from being a doom and gloomer but have this nagging sense of the worst is yet to come.  This house of smoke and mirrors has huge cracks which many now see.  Lift a little more smoke, break a couple more mirrors and what do we have....something very UGLY to behold!  Why is it that when we voice these thoughts some rush in to crush and disparage. 

I was so appalled a couple of days ago when a member Floridian tried to chew Lenn up and throw her under the bus; it was unconscionable and made me very uncomfortable.  Listen, time will tell soon enough what's in store.  Meantime, the pretend game is OVER!

Bryant, I couldn't agree with you more.  The so called bail out Haha will only put us in deeper when all this fake stimulars is gone.  I think we'll be hit harder then what one may think.  I agree that what we've seen as far as forclosures is only a taste of what is yet to come.

If you can get out now it's time the banks have gotten  better about these short sales.  I have had 3 approved this week.   A few months ago they would even consider doing a short sale.  Today they would rather short sale then have another foreclouser on the books.

I have a seller who contacted bank to advise that he was on the verge of not being able to make his payment. We are located in an area devastated with an ash spill.  More than likely, he will not be able to sell his home for what he owes. TVA is not willing to assist in his loss so he can either force a short sale or lose to foreclosure.  We have decided to reduce the price to well below what he owes and take our chances. Advising buyers that it is a short sale and could take some time but this is seller's only way out.

Another one can't get appraisal dollars needed. Appraisal in 2007 for $257,000 and today $225,000. $32,000 loss in 1.5 years.  How are sellers supposed to battle these issues.

What else can I say that hasn't been said already - this does suck - yes, said it again. We a only a couple deals a year that the seller can bring money to the table, coming up with tens of thousands of dollars is not easy, certainly don't hide it under a mattress. Foreclosures have dropped here very recently and I agree it's the eye of the storm, something else is going to blow soon. ~Rita

It does appear that still many lenders (who often are out of area) have no idea when counting the beans that they don't amount to much.  This is a major problem.  They are in denial that home values could be "THAT BAD"- but truth be told...in your area for certain THEY ARE "THAT BAD".

The more that foreclose the worse it will get  and eventually the bank will fire sale them.  (As more pile up on the books.)

Florida is a transient state- vistors come and want to own a piece of the Sunshine State- few however stay for very long as job opportunities dry up in the harsh economic climate...this is of course paves the way for more foreclosures as they cannot keep up with the payments on properties they purchased which were hyper- inflated  before the market crashed....

I am sorry you worked so hard on this dud deal.

Do you only know “Short Sales” and limited service Brokerage? You apparently have go go it is! Some people call it runs of the mouth! In this case you have runs of the head. Do you ever sell a darn thing? You blog all the time. You comment on blogs like its going out of style. Blog about something new for a change. Like how many sales you have made or not this year, client retention, Full service Brokerage. I still can't forget your Limited Service and your complaint about another agent contacting your Seller when you put the contact information out there for all to see. You need to reevaluate your self. Delete this if you like but it will only show that you need another profession. I challenge you to answer this in a way that is intelligent.

Hey Anon commenter. Please come back and let me know who you are so I can respond. I don't talk to walls. I would however love to answer your questions.

Just call me..... whatever you need to. I will remain a wall. If you won't respond then that's it! Either you have  a response or don't. If you don't then it is what I exspected. If you do then enlighten me and the rest of the people here. After all is this not a blog of enlightenment?

Nothing I hate more than a lively discussion full of useful information killed by a commenter who is to chicken to even put his name. Just never understood the point of it.

This is one of the worst/stupidest stories I have ever heard.

Sandra:

If the useful information is really all that useful than my comments will not kill it just enhance it. In fact your comment was the least useful of all. By the way how many packs of Cigs do you smoke a day? It's showing.

Anon, Your response to Sandra has been deleted and I'm real close to deleting your other ones. If you want to have a conversation about Real Estate we can. If you just want to continue to be a jerk you will be deleted.

If you have any questions about my business or how much business I do then just read my blog it's all there.

If you need help learning how to retain your clients I charge $100 an hour for Coaching. Let me know where to send the PayPal instructions so you can place your retainer.

Don't get short sales, don't get someone having a 60K home being 200K in debt, and don't get anonymous bloggers. 

I'll call you the coaching thing sound cool.

Part of the problem is how the REO properties are being handled.  Many are done by out of area agents who have never set foot in the property (let alone the state).  They are underpriced, creating a flurry of multiple offers they can't begin to respond to.  It makes no sense to overload these listing agents with more properties than they can effectively manage. Getting agents that know the area better serves the surrounding neighborhoods as the prices will reflect the reality of the availability and competition for the area, rather than creating a feeding frenzy.

Because the short sale process goes so slowly in many cases, buyers just hang back and wait until that desireable property goes into foreclosure.  What a shame.

Hey BB my comment to the annoymous guy would be "it's my BLOG and I'll DELETE if I want to!!"

Almost my entire real estate practice is short sales, and I (fortunately) closed 100% of my short sales in 2008.  I'm on target to do the same in 2009.  Short sales ARE frustrating, but look at the advantages.  I'm helping clients who are in distress (and usually in default) often due to circumstances they couldn't forsee and can't change (divorce, illness, job loss and relocation with an underwater home).  A short sale on a credit report says "Debt settled for less than full amount"--whether it's $1 or $1M, it's not disclosed.  If the home is foreclosed, the homeowners credit is TOAST for 7 to 10 years.  If a short sale is completed, even tho the first default usually costs the seller about 100 point on their FICO, they typically recover 10 points per month when they pay their bills.  I never have to ask for the seller to lower the price--I just arrive at the listing appointment with the listing contract and paperwork, and an amend/extend prepared saying I'll lower the price, in cooperation with the homeowner's lender, by $x to $x per week until I get an offer acceptable to the seller and approved by the seller's lender prior to the public trustee's foreclosure sale (that's the courthouse steps in CO).  I do a ton of BPO work for various valuation companies, so I know my values.  I am an active member of the CO Foreclosure Prevention Task Force, so I know all the alternatives available (which seem to change HOURLY) to a short sale.  I have extensive training in foreclosure intervention, and am a 5-Star Professional with the Default Servicing Institute.  Work it!  You CAN get short sales approved and earn a great income helping distressed homeowners; I'm living proof!! 

I heard that lenders would rather foreclose than do shortsales because they get paid on the insurance.  I don't know if this is true?

Carol Graves, Keller Williams, Los Angeles

Lenders would not rather foreclosure than do short sales.  The amount the insurance pays is not always enough to make up the difference, and the number of claims lenders put in counts against their cost of insurance in future transactions.  I have a property that I'm doing a short sale on here in CO, and we contacted the insurance company first.  They did a BPO and it came back that they were going to have to pay the entire claim, and THEN it still wouldn't cover the shortfall. I have had cases where the insurer demanded a token repayment after closing (like $100 at 0% interest over 5 years--which is a total of $6K, but on a deficiency amount of $60K, it's next to nothing to get a full and final release). Don't get hung up about the insurance.  It doesn't cover the entire amount, and if the lender forecloses, they're looking at a loss in the order of $60K or so.  They are NOT better off foreclosing and pushing another person into the situation where they'll have NO credit for the next seven to ten years.

There are new incentives for the lender to accept a short sale.  Last month, the Obama administration, through the Making Home Affordable program, offered lenders and loan providers an incentive of up to $1,000 for each completed short sale, and up to $1,000 more to share the cost of paying any second-mortgage lenders to release their claim on the property. Homeowners too were offered up to $1,500 for relocation expenses. The incentives offered by the government, coupled with lenders wanting to reduce bad loans, are likely to increase the number of short sale transactions in the near-future. "Without a doubt, lenders are more willing to work through short sales," said Andre L. Mitchell, the executive vice president of the Lynx Mortgage Bank. "In this marketplace if the lenders can negotiate in any way to get rid of a bad loan, they're going to do it." Banks may lose less money in short sales than in foreclosures, where banks may carry the house for a considerable period of time before selling it. Analysts believe short sales are often the best option, even for homeowners thinking about a new loan to save the home. "It's gotten to the point where people understand that sometimes you have to start over," says Mitchell. "A loan modification might help you in the short term, but sometimes what people need to do is get out completely."

Jeri,

Thanks for the info.  Lots of valuable information!

Thanks, Carol.  One of the most frustrating things I confront is that the negotiator handling a short sale transaction doesn't KNOW or ABIDE by the new programs or guidelines.  For instance, on Fannie Mae backed short sales, CUTTING THE REALTOR COMMISSION BELOW 6% ISN'T ALLOWED any more.  And I have had negotiators on Fannie Mae loans try to do just that!  If YOU know your federal guidelines, and you tell the negotiator to BACK OFF, they often will.  It's amazing to me.  When you have the upper hand through your knowledge, you can get a heck of a lot more accomplished in terms of short sales than if you just take whatever the negotiator gives you as gospel.  It's usually not.  EVERYTHING is negotiable!

Is anybody having problems with seconds being sold as toxic assets, even when they're owned by the first lien holder, and then having the recovery department demand more than the first lienholder will pay?  It's ridicuous!  The first lien holder effectively has shot themselves in the foot!  They WANT to close on a short sale, but they've sold their own second and then their guidelines don't allow payment of the amount the second (which is now in an outside agency recovery department) wants.  Talk about crazy.  Is the inconsistency, even among an individual lender's negotiating staff, driving anyone else nuts?  What would happen if all the homeowners getting screwed by individual lenders banded together in a class action suit based on inconsistent guidelines within individual lending departments??????  Why do some borrowers get a full and final release, and other do not?  Has anyone looked at the demographics (or blatant discrimination) inherent in these negotiations?  Are we looking at predatory lending in the form of approval of short sales for some borrowers, and lack of approval of short sales for other borrowers?  Is there any reason to be suspicious that this all might be related to how the loan was originated in the first place?   If there was predatory lending to begin with, with higher rates being charged to certain borrowers, is that reflected in the loan numbers (I know one lender, at least, who classifies loans based on the loan number as prime investor, prime owned/HE, and non-prime) and again in the approval of some short sales and not others?  Interesting angle that the justice department may want to look at, I think.  Anybody else have any comments or feedback on their experiences?

I'm with you. I'm simply apalled by the sheer WASTE and STUPIDITY of the current 'system' (if it can be called that) by which banks are processing short sales...or not.

I found the post by Bob in Phoenix about the FDIC rules acting as a dis-incentive MOST interesting.

We are in a lot of trouble here, folks. We need to raise public awareness of how broken this is. It stinks to high heaven.

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