Lender declining a short sale

[SD Realtor]

Had a listing last year in Pine Valley. Beautiful home at the top of the hill. You can see it from hwy 8 driving past Pine Valley above the green water tank. Custom built home, couple of acres blah blah blah blah. Nice owner wanted to price it to high. I took the listing after advising him my pricing recommendation was about 100k lower then the price he wanted me to list at. Okay then… we worked together a few months, not much activity at all and he did lower the price somewhat but no nibbles. He asked to cancel so he could work with someone else and I obliged. By then he was in trouble with the lender and had NOD status. The new agent who is a nice guy at Keller Williams marketed the home as a short sale. No activity. They moved the price down to a 750-800k range. They did get an offer at 779k before the trustee sale but the lender said NO!! House went to auction and is now REO. The lender sent a different agent to pick up the keys from the seller. I felt bad for the Keller Williams guy because he kind of got screwed by the lender.

No moral of the story here… just citing an event that happened.

[PerryChase]

Sounds to me like it should be.

If short sales were readily approved, then everyone would want one. Knowing that Realtors are the weasel types (not the ones on Piggington), and that fraud was rampant and on the increase, sellers and their agents could engineer all kinds of sales to relatives and associates, for profit, at the expense of the lender.

Lender should not approve short sales until homeowners have exhausted financial means such as savings, 401k, etc..

[Bugs]

I think the lender is going to lose their ass on this one. If the property was exposed to the market by two agents and after reasonable exposure came up with an offer, what makes a lender think they’re going to do any better by:

– spending the money to foreclose

– spending the money to secure the house and maintain it

– spending the money on a new broker, only to have them slap a “FORECLOSURE SALE” tag on it in the MLS.

Time is not on their side, and meanshile they have an unperforming asset on their books.

There’s no way the lender’s going net more out of this deal by taking it back and they’re high if they think otherwise. They should have signed off and moved on. They might have had a chance collecting on the deficiency under a short sale; burying that borrower by another $100k merely guarantees they’ll never see a dime out of him.

[poorgradstudent]

I think the moral of the story to me is that if the seller had taken your original advice and priced it to sell, he probably would have ended up better off.

[SD Realtor]

Maybe poorgradstudent. maybe not… I wasn’t trying to make that point. The point I was trying to make is that I really do not understand the lenders right now. I definitely agree with Bugs. Bugs the street name is Rocky Pass, in Pine Valley. Should be pretty easy to look up.

SD Realtor

[temeculaguy]

I have seen REO stuff priced higher than when it was in it’s last few weeks as a short and I’ve seen REO brown lawners in bad shape with no upgrades priced higher than model matches that are in good condition from private sellers. I had been chalking it up to out of town lenders using old appraisals and the amount owed to determine pricing, not the market. But the REO has the canned language about “no warranty, as is” why would anyone pay more for that little luxury. I also notice these overly priced REO’s always have a realtor with an out of town area code, I could have priced it better from an internet search of the MLS. The last thing I’ve noticed is that two of them were priced with a few hundred dollars of the ZESTIMATE. Sometimes I feel like I’m taking crazy pills.

[Anonymous]

Mistakes are almost a given – sellers ruled by emotion and quite apparently in turmoil (at least financially), loan servicers swamped by a rising tide of delinquencies (peppered with fraud), inadequately trained loss mitigators, out of area servicers (some of which almost seem to thrive on non-performing loans) – all of which is against a backdrop of people looking backward (at values and data) versus looking forward.

[aztecnology]

I was talking to a vp at title company this past week who’s been in the biz a number of years, and the question of lenders not taking short sales came up. He said that in many cases if there is more than 1 lender, 80/20 scenario, a lot of times if the second lien holder does not agree to the short sale then the first lien holder will not play ball also. Of course this happened last year, and a lot has changed in the marketplace since then…

[PerryChase]

Of course, as Larry J, mentioned, the lenders haven’t yet geared up for foreclosures. The problems with houses is that each case is individual, but lenders need to have consistent loss mitigation policies that apply across the board. They also need fraud prevention/audit systems to avoid fraud by employees, sellers, Realtors, etc…

[Bugs]

There are still some holdouts who think this slowdown is the creation of the media and that better times are but a few short months away. The NAR pays David Leahrah a lot of money for being their advocate; some of it is bound to pay off.

[AK]

I’ve read that some servicers prefer foreclosure to short sales because they can make more money through padded “fees” and “expenses” … sort of like Larry Birkhead’s $500K+ legal bills, I guess. Is it possible that certain servicers are the real obstacle to short sales?

[Bugs]

I guess that is possible. I can’t imagine a lender allowing that to go on too long though. It’s a competitive business and you don’t win by giving money away.

[gn]

This thread is great. When I read the first post by SD Realtor, I was puzzled by the lender’s action, too.

I learned so much. Thanks.

[SD Realtor]

I have given up trying to figure out the lenders… My guess is that if they did start pricing the REO properties to sell immediately then that “could” start impacting comps and appraisals and that could accelerate the downturn… like it should… I don’t know… I am just hacking away…

SD Realtor

[Anonymous]

I currently work in the loss mitigation department at a major servicer and our job function is to review short sale offers on a daily basis. There can be multiple reasons why the lender does not approve a short sale. In this scenario if the borrower submitted the offer less than 30 days before the sale date the lender has already lost as much as it’s going to in the foreclosure process (except for 1 more month of holding costs) so the rational there is to just simply foreclose and get it done with. In addition, the lender has to take on the possibility that the buyer may not close even if the short sale is approved(buyer may not be able to find financing or walk from the deal) which would result in more holding costs if we have to take the property back to sale. Regarding the second lien holder issue, it’s not that the first mortgage lender does not want to agree to the shortsale, but if the second will not release their lien then there will not be clear title at closing and the seller (the borrower) cannot close on the deal. For the most part lenders are already on top of the game, but with the majority of California loans having 80/20s it easier to wipe out the 2nd lien holder at the foreclosure auction than try and negotiate with them to accept a significant loss on their lien (some of them are over 100k). I’ve had some lenders like HSBC and Wilshire accept 1k on 70k balances since they do understand that 1k is better than nothing. Some banks are easier to deal with than others.

[Author]

Posts