Double Trouble!
Foreclosure process doesn’t stop during short sales
When I started reading the article written by Jason Hidalgo, I was hopeful of its content. It starts off with a case study where a realtor working on a short sale was unaware of the fact that the lender was still proceeding with the foreclosure while a short sale was being negotiated. The agent was socked to find out that while the short sale was approved by the lender and she had a buyer ready to close, the bank foreclosed anyways. The issue was that the “short sale” department didn’t speak with the “foreclosure department” at the lender/servicing company.
Where I deviate from Mr. Hidalgo’s solution is where he recommends that the realtor that the seller hires must be equipped to handle the short sale process , beginning to end. Just like a plumber isn’t equipped to operate on someone’s brain, it is my opinion that a realtor is not fully equipped to handle a short sale, beginning to end (especially in states such as Florida which is a judicial state.) Foreclosure defense attorneys are the ones that are fully equipped to handle this process.
While I am a firm believer that realtors should be educated as to the process, they really need to be utilizing law firms when a short sale is presented to them. One quote from a realtor in the article astonished me. It was, “I always tell my clients that foreclosure is still a possibility so they should be ready for it and think of closing as a bonus.” Can anyone say CYA!!!!! A short sale closing is a bonus???? Really???? That statement was amusing…at best!!
Double Trouble: Foreclosure process doesn’t stop during short sales
BY JASON HIDALGO • [email protected]
Seller OK? Check.
Buyer agreement? Check.
Bank approval? Check.
For local real estate agent Jennifer Capurro, one short sale transaction she was working in 2009 was as close to a slam dunk as she was going to get.
But even with approval from the bank for the sale, a foreclosure filing on the property caught all parties involved by surprise — including the bank. Apparently, someone on the bank’s foreclosure team didn’t get the memo about the approved short sale.
“The bank actually wanted to do the short sale,” Capurro said. “But the wires got crossed, and the attorney handling the foreclosure wasn’t contacted properly, even though the bank wanted to hold it off.”
Capurro’s experience underlines one of the biggest misconceptions seen among distressed homeowners: that filing a short sale staves off foreclosure.
“The foreclosure process does not stop even when you’re negotiating a short sale,” Capurro said. “And just because a bank gives you approval doesn’t mean the short sale is going to close for sure. Until that closing is recorded and the buyer takes possession of that home, you can never really be 100 percent sure that a short sale will go through.”
Besides presenting a less severe hit on a seller’s credit, short sales allow lenders to potentially recoup more of their investment than they would from a foreclosure sale.
It’s no surprise then that short sales have grown in popularity within the past year.
Shorts sales jumped from 18 percent of total sales in Reno and Sparks in the second quarter of 2009 to 38 percent of the market during the same period this year. In contrast, foreclosure sales fell from 48 percent of the market to 22 percent.
But even as short sales enjoy a rise in popularity, many distressed borrowers — and even real estate agents — are not adequately informed about the short sale process, said Jim Fitzgerald, a real estate consumer advocate.
“Most people don’t look into it,” Fitzgerald said. “They just assume, ‘Hey, let’s cut a deal,’ and it’s as simple as that. But I tell you what, it’s a heck of a lot more complicated than that.”
Getting the process started requires plenty of paperwork, including financial statements, hardship letters, pay stubs and tax documents, to name just a few.
Maintaining consistent and adequate communication with lenders also can be a challenge. It doesn’t help that a lot of people already are delinquent when they start the process.
“It’s not an issue if you’re underwater but still current on your payments,” Fitzgerald said. “But many homeowners look into short sales after they’re already late on their payments. Add the fact that it takes four to six months to get a short sale approved, and there’s a chance that a house will foreclose before then.”
Meanwhile, banks that work on delinquent mortgages typically do not own those loans. Instead, they act as servicers for the investors who own the mortgages. This adds another layer in the short sale chain of command that has to be cleared before any transaction is approved.
“In most cases, we don’t have the authority to do short sale decisions by ourselves,” said J.K. Huey, senior vice president of Wells Fargo Home Mortgage. “So, we have to go to the investors and ask them if a foreclosure can be stopped or postponed. In some cases, judges don’t even allow us to stop a foreclosure sale.”
Seeking Help For Short Sales
Hiring a short sale specialist can go a long way in alleviating the headaches.
But not all self-proclaimed specialists are as knowledgeable as they claim to be.
Before the housing market’s collapse, short sales were relatively rare beasts, and only a select number of agents were truly familiar with the process.
Even with the recent increase in the popularity of short sales, finding agents who are knowledgeable about short sales still can be a challenge, Capurro said. Given what’s at stake, hiring the wrong person can potentially lead to disastrous results.
“If you hire an agent, that person needs to make sure nothing (foreclosure-related) gets filed,” Capurro said. “And if something does get filed — like a notice of trustee sale, for example — that person needs to make sure it gets postponed. If an agent does not stay on top of the foreclosure process, a house can still foreclose.”
Complicating matters is the absence of a licensing board that regulates short sale specialists, Fitzgerald said.
There are organizations, however, that provide certifications for agents who go through short sale training. One is a Certified Distressed Property Expert or CDPE certification, which offers a list of certified agents at www.cdpe.com. Another is a Short Sale and Foreclosure Resource Certification or SFR, which is offered by the National Association of Realtors.
“Besides education, these groups also provide certified agents with packages that contain exactly what they need for a short sale, including the necessary forms,” Capurro said. “Despite having years of experience with short sale closings, I still got a lot of things out of the certification training.”
Realistic Expectations About Foreclosure Process
Even with the help of a top notch specialist, no short sale transaction is guaranteed a 100 percent success rate.
Distressed properties with multiple lenders and lien holders can be especially tough to close. Even properties with the most ideal conditions for a short sale aren’t immune to failed negotiations.
“I’ve seen cases where a short sale should’ve been a slam dunk, but the bank still chose to foreclose,” Capurro said. “The I’ve seen cases where a property had several liens and I think, ‘There’s no way this short sale is going to go through,’ but it actually does. Sometimes, there’s just no plausible explanation why some shorts sales go through and some don’t.”
Short sale decisions, however, are not as simple as they may seem on the surface.
Even situations that look ideal at first glance might have other factors weighing on them in the background. One example involves distressed borrowers coming in with their third or fourth short sale offer to the lender.
“Generally, if a borrower makes a short sale offer for the first time and the transaction can be closed within 30 days of a scheduled foreclosure sale, most investors allow us to postpone the foreclosure,” Huey said.
“But if someone is presenting an offer for the third or fourth time because prior offers fell through, then investors may feel that they can’t take a chance at another delay. Some of these delinquencies have just gotten so far up that investors don’t want to risk ending up with another short sale that does not close.”
Because of the uncertainty that surrounds short sales, the best approach is to always hope for the best but also be prepared for the worst result, Capurro said.
“I’ve worked on a lot of short sales, and I’ve seen some crazy things happen,” Capurro said. “I always tell my clients that foreclosure is still a possibility so they should be ready for it and think of closing as a bonus. Sellers who hear that tend to deal with the process a lot better.”