Short sales gone awry have become a recurrent theme in real estate circles.
Here’s the common narrative: A home goes on the market as a short sale – priced at less than is owed on the mortgage, so the lender must approve any sale. The bank either declines offers as too low or takes months to decide, which drives away potential buyers. Either way, the short sale never happens. Eventually the lender forecloses on the home, the owner or renter is evicted, and it is put on the market again by the bank.
This is my story…back in May I wrote an offer on a short sale in Rohnert Park. The offer was submitted three weeks before this young couple were to be married. When the agent called to acknowledge the offer he said it would be approximately four weeks before he had any informaton. Well four, five, seven and eight weeks went by. No answer. Finally the agent called and said sorry another offer was accepted and the house is in escrow. We continued to look and one day in late August I noticed the same home came on the market as a REO and listed for $50,000 under what we had offered. We immediately prepared another offer. The list price was $300,000. We wrote an offer for $320,000. I called the agent while my client was driving to Santa Rosa… I was told by the agent that our offer would not be accepted, looked at and have the client turn around and go home. I was shocked! When Brian arrived he was told the same thing. He was told…this was listed with the intention of generating multiple offers. Well the house finally did sell for less than our original offer six month earlier. The ordeal was very frustrating.
While real estate agents, buyers and sellers say they are frustrated with the short sale process, Rick Simon a spokesman for Countrywide (B of A) said banks are working as hard as they can to keep up.
“The volume of short sale requests is at unprecedented levels,” he said. “More than ever, buyers are making low-ball offers just to test the pricing levels. Each requires the same time and trouble to review as offers that actually will be accepted. A lot of offers are being reviewed that are not going to be in the ballpark for being approved.”
Nationwide, 1 out of 7 homeowners is underwater – owing more than their home is worth, according to real estate information service Zillow.com. In the Bay Area, the figure is even higher: 1 out of 5 is upside down, as the situation is also known. An underwater borrower who needs or wants to sell will generally be in a short sale situation.
Theoretically, a short sale should be a win for the borrower and the bank. The homeowner’s credit isn’t hurt as much by a short sale as by a foreclosure. And the lender doesn’t incur all the costs and holding expenses of a foreclosure.
But although no one keeps firm statistics, according to many real estate experts, the reality seems to be that banks are extremely reluctant to approve short sales, and often let properties go to foreclosure, even when there are decent offers on the table.
Besides looking at the price, lenders consider whether the homeowner can show financial hardship that he or she cannot meet the payments.
“You can’t ask the investors (the actual owners of the mortgage, for whom Countrywide and other lenders act as servicers) to take the hit on the property just because someone is looking to walk away and doesn’t want to make payments anymore,” Simon said. “They need to demonstrate, make some declaration that they are in a situation where they cannot continue to make payments on that loan. If they are capable of making those payments, there may be other alternatives that need to be explored.”
Simon said Countrywide tries to determine whether a loan modification or work-out plan might make it possible for borrowers to stay in the home.
Countrywide, like other lenders, has added employees to meet the increased volume, Simon said. In October, the lender completed 3,000 short sales – triple the number from a year ago, he said.
Information taken from S.F. Chronicle 11/30/08