Why Don't Banks Act Rationally in a Short Sale?

Why do some short sales get approved, and others rejected? 

Why do some short sales with loans from the same bank get approved while others don’t? 

Why do some short sales with loans by the same bank in the same developments get approved while others are denied?

The world of the short sale is changing on a daily basis, and what you know today will be different tomorrow. The rules change, the players change, the documentation changes every minute.  There is, however, one constant: you do not always know whether a short sale will close or not. 

Two years ago only about 5% were closing, now that number is more like 50%. Still, it's quite risky for buyers and sellers to get their hopes invested in a successful short sale when the odds are 50/50.  There are some things you can do to help insure the process has the best chance of closing. 

In general if the following are true then the chances are better:

1.     The realtors on both ends know what they are doing and have the time, energy, and resources to follow up to set expectations appropriately.  The buyer can not be in a hurry!

2.     The fewer the liens the better. One loan is best, two loans with the same bank is second, two loans with two banks third, two loans with other liens such as taxes are probably not going to work out.

3.     The short sale process was started before a notice of default was filed.

4.     The buyer is well qualified.

5.     The home is owner occupied.

None of these things will guarantee a positive result, but they help.  The biggest problem in the short sale process comes from third parties who are not the bank, but either investors that purchased the loans like hedge funds, or insurance companies who insure the loans for the banks (not mortgage insurance for the borrower). 

These entities can derail a short sale, and it is not possible to know if they exist, or what they will say before the process begins, unless of course you are dealing with a bank approved short sale--but that is a different story.  So the lender may appear to be Bank of America or Chase, but the investor who put up the money maybe someone else and if so they have to agree to the price and terms.  Or sometimes the second lender will get more money in a foreclosure and will not agree to release the lien.  When this happens, what appears to be an irrational move by the bank, may have nothing to do with them.

These are a few of the reasons why seemingly illogical things often happen in the world of short sales. 

Marcy Moyer

Keller Williams Realty

DRE  01191914

marcy@marcymoyer.com

www.marcymoyer.com

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Hardships and Short Sales

This informative post is re-blogged from Partner First, an online real estate network with resources for buyers, sellers, and agents. This post was written by Jacob Swodeck, and published on his Partner First affiliated blog.

Back to the Basics: Hardship and the homeowner...What will Fly?

Posted by: jswodeck on Jun 01, 2010

Tagged in: Untagged 

What qualifies as hardship in a short sale? I get this question fairly often, and it should be addressed. First, I’ll tell you what does not qualify as hardship, and that is simply being underwater. If you owe more than you are worth, being upside down alone is not adequate hardship to get a short sale approved. That is only half the equation. There has to be a financial hardship.

In nearly every case of hardship I have ever seen, a loss of income has been involved. It could be unemployment, divorce, being laid off, the failure of a business, or any of a hundred other things, but a loss or decrease of income is absolutely hardship. When your expenses remain the same and your income goes down or disappears, you have a case for hardship. You could be a ditch digger paying a $500 per month mortgage or a brain surgeon paying $10,000 per month. If you lose income, hardship is not hard to prove. In rare cases, income has remained the same but the payment has adjusted up, but the mathematical outcome, namely a deficit, is the same.

That is as basic a yardstick as I can find. I’d be surprised to find a more common or less complicated theme.

I can pretty much guarantee that with mortgage investors, Fannie Mae, and Freddie Mac shaking in their boots about strategic defaults that hardship will have to be proven and justified.  It may not be enough to state your hardship.  Borrowers will more than likely have to provide any and all supporting documentation in order to have qualified hardship.


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Marcy Moyer
Keller Williams
650-619-9285
marcy@marcymoyer.com
https://twitter.com/marcyagent
DRE # 01191194

*thanks to the UK Daily Mail for the image

A Better Way to Do a Short Sale

In the past few years short sales have been long, frustrating, and undependable. The sellers had to prove they were desperate and often had to stop making payments in order to qualify for a short sale. The listing agent had to spend hours trying to figure out who was able to make the decision and whether or not the documents were even received. They buyer’s agent had to wait endlessly for an answer while his or her buyer threatened every day to bail. The closing statistics for short sales have been estimated at 10-30%. Many people felt why bother?

So why should you bother? For some reason banks are getting on board with the idea that allowing a seller to do a short sale is a better deal for them than foreclosure. In general banks get 45 cents on the dollar for a foreclosed home and 75 cents on the dollar for a short sale. It has taken a long time for the banks to get on board with short sale approvals, but short sales are now getting approved and some banks have started trying to make the process more efficient.

Bank of America, who has taken over Countrywide, is now using a platform called REOtrans for their short sales. This platform started as a method for asset managers to process bank owned properties with realtors and is a very effective method for all parties, as they can see in real time where the file is and what else needs to be done. As anyone knows who has dealt with a Bank of America or Countrywide short sale, it can take a month after an agent faxes the short sale package to the bank for the bank to upload it onto their system. Now it is uploaded directly on the site and everyone knows it is there. Everyone will always know where they are in the process so no more allocating 3 hours a week for follow up per file.

Wachovia wins the prize for the best short sale system. Twenty five percent of Wachovia loans are 60 days or more past due, so they have decided to encourage more short sales. They have a system that will get the sale approved and closed in 45 days or less, and do not care if the seller has hardship, or just made the decision that they would rather give up a home than pay for a home for 10-20 years before they are no longer underwater. Underwater means that more is owned on the home than the home is worth. Some estimates put the number of underwater homes in this country as high as 50%. Given those stats Wachovia has made a decision that if someone wants to sell short they will facilitate it. This is not to say they will just give a home away, but if a home has $700,000 of loans on it, and it is now worth $500,000, Wachovia will let someone buy it for close to $500,000 and forgive the other $200,000 debt, and do it in a reasonable amount of time. Plus, they will even give the seller up to $5000 for moving expenses.

Wachovia bought World Savings so this applies to World Savings loans as well. Wachovia was acquired by Wells Fargo but as of now Wells is not doing the same thing with short sales. Hopefully this program with Wachovia will work well and spread to not only Wells Fargo, but to other banks as well.

If you have any questions about short sales, or other real estate related questions please feel free to contact me.

Marcy Moyer

Intero Real Estate Services

marcy@marcymoyer.com

650-619-9285

www.marcymoyer.com

D.R.E. 01191194