By BOB TEDESCHI
Bob Tedeschi from the New York Times wrote a timely article on short sales. His observation is that they can take a ton of time. One factor that he cites involves 2nd and 3rd position lien holders that are holding out for more money than the the first lien holder will “allow”. I must ask each and everyone of you, as a real estate professional how do you handle it when a closing hinges on this scenario:
A second lien holder demands $40,000 when the 1st lien holder is only allowing them $3,000? Make the assumption that the buyer won’t bring $37,000 CASH to the table and the seller doesn’t have $37,000 either. Sorry, a prom note isn’t the correct answer (do you really think a prom note is in the best interest of the home owner when there is another solution? I don’t!)
Some of you may “volunteer” their real estate commission but I would guess the majority of you can’t afford to give up that kind of commission. We deal with this EXACT situation on a monthly basis when we purchase short sales. No…I’m not going to give you the answer here. If your interested in learning how we deal with this predicament without harming the homeowner, buyer or requiring the realtor to contribute one red cent of their commission, call me or email me!
SHORT sales — in which mortgage lenders agree to accept less than what is owed, allowing borrowers to escape foreclosure — were expected to grow easier this year after the Treasury Department proposed industry guidelines to navigate these complex transactions.
But that has not yet happened, industry experts say, largely because lenders and investors who hold the liens on second mortgages and home equity credit lines often fight for a larger piece of the short sale proceeds.
In late October, the Treasury Department officially adopted the guidelines, first proposed in April, which include suggestions for how these second-lien holders might be paid in such situations. Lenders and short sale specialists say the new measures could help when they go into effect in April 2010, simply because they offer some structure to a process that has often been chaotic.
Until then, lenders and foreclosure counselors say, homeowners can continue to expect a painfully slow process that sometimes fails, and can ultimately lead them back to foreclosure.
“It’s been tough sledding,” said David Sunlin, Bank of America’s real estate management executive. “We’ve been wanting to improve the short sale process, but our focus this year has been on retention efforts,” he said, referring to loan modifications and other foreclosure-avoidance initiatives.
Mr. Sunlin says that more borrowers are seeking short sales this year than in years past, thereby further straining the bank’s ability to handle them in a timely manner. He declined to provide specific numbers.
Real estate lawyers and mortgage industry executives say it can take as long as nine months to complete a short sale.
Lenders say they prefer loan modifications but will accept short sales because they lose less money on such transactions than they do in foreclosures, which often require them to carry the house for months before selling it.
Short sales still show up on a borrower’s credit history, but lenders are generally willing to offer them a new mortgage two years later, according to Mr. Sunlin. After foreclosures, borrowers typically must wait at least five years before a bank is willing to grant them mortgages, he said.
The Treasury guidelines focus on a range of elements in the short sale process. They suggest, for instance, that lenders offer second-lien holders up to $3,000 of the short sale proceeds, with Treasury reimbursing lenders up to $1,000 for doing so.
Under the guidelines, homeowners who are considering a short sale are encouraged to speak with their lenders early in the process about an acceptable sales price for the house, rather than simply contacting a lender when a buyer has made an offer.
And owners who complete a short sale will receive $1,500 from the federal government for relocation costs.
Travis Hamel Olsen, the chief operating officer for the Loan Resolution Corporation in Scottsdale, Ariz., which represents servicers and investors in short sale negotiations, said the Treasury Department’s incentives would do little to encourage second-lien holders to agree to a short sale. Many delinquent borrowers have second liens, mortgage industry executives say.
In some states, like Connecticut, New Jersey and New York, second-lien holders can pursue a borrower for the unpaid balance of a loan after a short sale. That point is often a major hurdle for parties in a short sale, especially if the second-lien holder knows the homeowner can liquidate other assets.
Against this backdrop is the ticking clock of a home sale negotiation.
Susannah Gillette, the director of program quality and impact at Neighborhood Housing Services of New York City, a housing counseling agency, said that one property in the Bronx had been through three prospective buyers since April. And in that short sale, she added, there is just one lien holder.