The Long Sale…
I liked the headline so much I had to borrow it from the author of the article, Greta Guest from the Detroit Free Press. While the article points out the obvious that short sales can and do take a tremendous amount of time to complete, the article also points out the role the private mortgage insurance plays in further delaying short sale approvals. Be aware if PMI is included on loans that you are currently involved with. Ms. Guest also points out the need to involve an attorney in this process…why wouldn’t you?
Also, a reputable investor that is involved in a short sale transaction can also minimize the time to close. Call me and ask me how.
The following quote from the article is a bit misleading (no fault of the person quoted), “Klorinda Hibbert, a real estate agent at Michigan brokerage Re/Max in the Hills, spends most of her day working on short sales and has 14 in progress now. She’s noticed changes in the past year — and they aren’t for the better.
She said lenders and servicers are requesting more than one broker’s price opinion. The lender works with real estate brokers who put together a valuation on the property based on what similar properties are selling for. They’re also requesting formal appraisals. They are good for only 90 days.
“The banks are willing to go into foreclosure rather than do a short sale,” Hibbert said. “They want to get paid in full.”
The reason I say it is misleading is due to the use of the word banks. The reality is that 90% (give or take) of mortgage notes are being serviced by the “banks”. What that means is that the longer they can draw out the short sale process, the more they get paid. If the servicers drive the property into foreclosure, guess what? They get paid.
The Long Sale…
By: GRETA GUEST
DETROIT FREE PRESS
Buyers and Sellers Find Short-Sale Process Frustrating
DETROIT | Short sales are among the most arduous real estate transactions, often taking six months or more to close — if they get done at all.
Facts
CONSIDER THIS:
Most experts agree that it is wise to hire a Realtor who is experienced in short sale transactions and a lawyer, if possible.
A short sale is less onerous to one’s credit than a foreclosure. For instance, Fannie Mae allows people with a short sale on their record to get another mortgage after two years while those with a foreclosure have to wait seven years.
Once the seller has negotiated a deal with the bank about how much, if any, money to bring to the closing table, the bank usually issues a deficiency waiver that would protect the seller from being sued later on for the balance.
Keep the lines of communication open with lenders/servicers.
Keep detailed records.
Send everything to the lender/servicer by certified mail.
Source: Free Press research
They can be a life raft for distressed homeowners who owe more on their houses than what they’re worth, but the experience depends on a variety of factors, such as the number of lenders involved and whether there’s a hardship, mortgage insurance attached or whether the buyer has the patience to stay with the process.
A short sale occurs when a lender agrees to accept less than what the homeowner owes. The transaction requires that the homeowner has a financial hardship.
Homes with more than one mortgage and mortgage insurance tend to take the longest, said Ellen Mahoney, president of Complete Title Services’ loss mitigation division in Birmingham, Mich. A growing reason short-sale deals fall through or take longer is because of mortgage insurance purchased after the homeowner closes on the deal and the loan is later sold to other lenders and investors.
Unlike private mortgage insurance required for sellers who put less than 20 percent down, these lenders and investors buy insurance to minimize risk. It is known in the real estate industry as pool insurance because it covers a group of loans that have been purchased.
Premiums are paid by the lender or investor, and the homeowner isn’t aware of it.
When the loan defaults, such as in a short sale, the mortgage company may demand that the seller pay part of what is owed to minimize its losses.
“That’s a mess. They are the worst,” Mahoney said. “It is usually the lender mortgage insurance that nobody knew about, and it is usually on the second mortgage. It is real disruptive.”
Often, the bank holding the first mortgage isn’t made aware that the second mortgage had been insured until the end of the process, even if both loans are with the same lender. If the mortgage insurance company doesn’t sign off on the deal, the process starts over again.
These kinds of delays mean buyers walk away because of the time and frustration involved.
Brian Pannebecker, 52, of Shelby Township, Mich., made an offer on a home in his neighborhood only to have the bank reject it.
“I would never, ever look at a short sale,” he said. “I would go right to a foreclosure, which I eventually did. It was much, much easier.”
Instead of buying in Michigan, Pannebecker bought a two-bedroom condo in Fort Myers, near where his father retired. He made an offer that was accepted within 24 hours during the holidays. The whole deal closed in six weeks.
Buyers don’t typically ask to see short sales unless they have the luxury of waiting for an undetermined length of time to move, said Renee Reyer, a Realtor with Clients First Realtors in Canton, Mich.
Reyer does her homework on short sales. She checks the property history and finds how many mortgages the seller has to determine how difficult the deal might be to close. Based on that information, she works out the percentage of risk that the property won’t close and presents that to her clients.
Banks say they’ve been working harder to make the short-sale process easier, but they acknowledge the delays.
At Chase, the average response is 30 days from request to approval, said spokeswoman Mary Kay Bean in Detroit. Chase has completed 120,000 short sales using its own process nationwide since June 2009 and is now averaging 5,000 a month.
Klorinda Hibbert, a real estate agent at Michigan brokerage Re/Max in the Hills, spends most of her day working on short sales and has 14 in progress now. She’s noticed changes in the past year — and they aren’t for the better.
She said lenders and servicers are requesting more than one broker’s price opinion. The lender works with real estate brokers who put together a valuation on the property based on what similar properties are selling for. They’re also requesting formal appraisals. They are good for only 90 days.
“The banks are willing to go into foreclosure rather than do a short sale,” Hibbert said. “They want to get paid in full.”
Even the federal government’s program to streamline short sales — known as the Home Affordable Foreclosure Alternatives Program — has yet to gain traction because it doesn’t allow the lender to collect on the home’s deficiency.