Banks Not Allowing Exceptions for Short Sales?
There seems to be a new game in town. Sellers who are seeking short sales are encountering a new twist to the approvals from banks and lenders. The lenders are agreeing to let some short sales go through, however, they want the home owners to sign a note promising to pay some or all of the balance due. These debts that could burden borrowers for the rest of their lives in terms of their credit and financial viability to rent currently or buy another home in the future.
Moody’s Economy.com estimates that about 10 million home owners have negative equity, a condition known colloquially as being upside down or underwater. By next June, the forecasting company expects the total to rise to 12.7 million; this is a quarter of all home owners who have mortgages.
“The first wave of foreclosures involved a lot of investors who just disappeared,” says Lance Churchill of Frontline Seminars, which teaches real estate practitioners how to negotiate with lenders on short sales. “Now, home owners with jobs and assets are underwater and want to sell. The banks want as much as they can get, today or in the future, and the owners want to get away clean.”
Now comes the conundrum. If the lender does a short sale without extracting anything from the seller, everyone in the country who is upside down could try to wiggle out from under and banks will take a fresh wave of hits. But if the lender pushes too hard, the borrower will default, leaving the bank in worse shape. It’s a extremely difficult balancing act to find a mutually acceptable solution.
The real estates agents are the primary solution to this issue. The real estate agents have to stop using the short sales as a gimick to drive business to themselves. Since we expanded into the pre-foreclosure market we have heard some real horrendous stories from home owners about some of the agents that they have spoken to or have dealt with. It seems that a large majority of the real estate agents in our market are using the short sale as a gimick to entice home owners to sign a listing agreement with them by either touting themselves as experts in that field or guaranteeing the short sale will go through fast. Both of these advertisings are WRONG. Every single short sale is unique becuase each bank and each case worker has their own set of guidelines and rules they use. Additionally, with so many agents pushing short sales onto unsuspecting home owners, and those home owners being led to believe that they will be getting something (a clean slate) for nothing, the lenders are being overwhelmed with short sale applications. This results in thre lenders taking more time to make a decision.
So, it does not come as a surprise that the lenders are now pushing back and not going to allow that many debt forgivenesses. Lenders are also pushing back on the listing agent by trimming the commission that they will allow. The agent who proposed the short sale and listed the property under those conditions now attempts to short the agent who represents the buyer.
The listing agent (LA) is told by the lender that they will only pay a 3% commission on the sale. The LA then tells the buyers agent (BA) that the lender will only allow the BA to get 1% commision, thus keeping the lion’s share for himself. The LA also tells the BA that if they don’t accept this 1% then the deal is off and they can explain to their buyer why they allowed the deal to collapse.
As Foreclosure Prevention Consultants we never recommend that a financially distressed home owner entertain a short sale as a primary alternative. Why do other agents do so? Because many other alternatives do not put any money in their pockets, even though they would be of more benefit to the home owner. Our recommendations are always to avoid foreclosure, first and foremost, then to try to stay away from marketing the home as a short sale. Always, and we do mean ALWAYS, try to work out a mutually agreeable solution with the lender. They don’t want the house and they don’t want to lose any money, either. It is to their benefit to keep the home owner in the house, making some type of payment, and allowing the market forces to increase the value of the home at a normal rate and over the long-term.
With this new revelation of lenders not alolowing as many forgivenesses the only people to gain from using a short sale as a primary solution is the real estate agent and everyone else who will charge a fee for the transaction.
Terry Iwaniw
Foreclosure Prevention Consultant
REALTOR Associate
RE/MAX Home Team
609-417-1086
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[...] (ed. – We hope that they closed the loophole that many lenders MAY be using when it comes to short sales, which we posted about [...]