The Current State of Short Sales

The Current State of Short Sales

Missing your mortgage payment?

Missing your mortgage payment?

Short Sales in Massachusetts, New Hampshire and multiple other states, are vastly different in comparison to the sales in the mid to late 2000’s, or even back in the 90’s.  Nick and I both started in short sales separately around the 2007 mark and there have been a LOT of changes.   When we started Short Sale Mitigation in Massachusetts, the process was quicker, smoother and a lot more phone work.  You can negotiate a short sale today with very minimal phone work depending on the lender, but it’s not quicker or smoother even though there have been many attempts by lenders and investors to STREAMLINE the process.

Lenders have made attempts to increase privacy, and security of files by introducing platforms like Equator and Res.net or have introduced “secure emails”, however this secures information for the lender, but not for the borrower of the loan.  The homeowner does not get a copy of the correspondence on these platforms, nor a copy of any requests in order to expedite the file.  The lenders have all the control in the platform used to negotiate the sale, and Equator boasts that it’s automated software will  “automate a client’s daily processes, facilitating efficiency, transparency and compliance.”  That statement is laughable.  Anyone who has tried to enter a financial form or HUD through Equator knows it’s not efficient for the person inputting the data.  If you’re dealing with Bank of America there is a minimum of five steps to complete before they will open a short sale on Equator.  Oh how I long for the days back in 2008 where you just had to fax in a complete package and have the lender tell you they didn’t receive it, when you have a clear confirmation receipt.

There are very few servicers today that can get through a file efficiently.  Bayview is one of the smaller servicers that does come to mind, and of course if you are dealing with a small local credit union or bank, they tend to be fast and efficient, however we have found from experience they tend not to release the deficient portion of the note.  Today, after a submission with the larger servicers, it still takes a minimum of 3 days to “image” a letter of authorization, which some servicers have now gone to the extreme of ridiculousness on.  An authorization (LOA) is just a letter that informs the lender who is authorized to speak to the bank or lender regarding the homeowner’s account.  That could be anyone.  It could be the homeowners, brother, sister, kids, lawyer, agent, friend, co-worker, or just about anyone the homeowner deems to be a communication point.  Unfortunately, servicers like Nationstar and Bank of America really know how to thicken the red tape with their LOA’s. hafa They are now a two page disclosure in which you are DESIGNATING a licensed AGENT, that has to be signed by so many parties, that just the sheer nature of the first form in the short sale process would turn most underwater homeowners off.  This is not efficient by any manner, and it also forces the homeowner to possibly contract with someone they don’t want to.

If you are lucky enough to make it past the first stage of submission with some of these servicers, you then get assigned a PROCESSOR that will fine tooth comb your paperwork.  Usually once the processor gives the green light, which can take WEEKS you are then assigned to a negotiator.

 

I pity the homeowner that has a Wells Fargo FHA PFS (preforeclosure [short] sale) – It’s a tossup for me on whether Bank of America has the worst FHA PFS processing department, or Wells.  Last year I think I would have said Bank of America, but this year Wells Fargo takes the cake.  Plan a minimum of 6 months before you see an ATP (Authorization to Participate) letter from either servicer.  The ATP is the green light go for FHA borrowers in a short sale.  Both o need to explore retention options which can push homeowners into a loan modification review even if they don’t want a modification.  Many times homeowners have to call INTO a lender to do a questionnaire with a customer relationship manager, which even when completed, they don’t seem to get into their system leaving the homeowner in a black whole between loan modification and short sale and even if they opt out of the modification, getting the homeowner to the short sale department can still take 2-3 weeks, and then don’t forget about the review time.  This would frustrate any homeowner and of course ANY buyer of a FHA PFS.

The amount of affidavits, arms length transaction forms, short sale addendums, waivers, certifications, acknowledgements, disclosures, and any pullinghairoutother possible forms you think may accompany a purchase contract has had a major impact on the speed and efficiency of short sales today.  There were some possible derivatives of these forms back when I started, but not to the extent you see them today.  Lenders are so paranoid about short sale fraud, they have constructed every possible form to try to protect them.  Unfortunately some of the language in the forms doesn’t make sense at all.  We are led to believe there is wide spread fraud in short sales, through publishings from companies like Corelogic, but if you look closely at who is publishing the data, you’ll see these companies have something to gain by spreading panic in the field.  The fact of the matter is if you research the actual data pertaining to short sale fraud charges, you will see there is very little.  Lenders are highly suspicious of anything that sniffs a violation of an arms length transaction.  In reality there is no law stating you can’t sell a property to someone you know, or assign a contract.  In fact in Massachusetts recently the Attorney General is suing some of the big (F) investors; Fannie, Freddie and FHA due to the fact there are non-profits established in Massachusetts that will buy a property from a homeowner and then resell it to the same homeowner giving them a loan a bit above market rates for market value.  Of course the three F’s don’t like this, but there is nothing inherently legal about this.  Unfortunately lenders are so scared about losing money they have instituted restrictions on deeds and profitability on sales.  Buyers are forced to hold property a minimum of 30 – 90 or more days in many transactions or cap the resale of the property.  It’s ludicrous.

failedshortsaleWhat is troubling me now is the amount of paperwork homeowners and buyers must sign stipulating there is no relation that exists between the parties, keeping everyone on equal footing, however LENDERS such as Nationstar and Ocwen seemed to have formed relationships with companies like Auction.com and HUBZU to AUCTION their short sale properties.  At least Ocwen discloses the relationship between themselves and HUBZU, but none of the Nationstar paperwork is that forthcoming.  It’s extremely frustrating to see someone like Benjamin Lawsky a Bank Regulator out of New York an Steven Antonakes, deputy director of the Consumer Financial Protection Bureau publically call out the two servicers in question about their business practices, but neither has penalized the servicers for forcing homeowners to breach already existing contracts.  Both servicers are forcing homeowners to list their properties on  auction sites.  This practice legally implicates a homeowner and forces them to breach already in place listing agreements and even worse, purchase agreements with buyers.  Why this practice hasn’t been rapidly and swiftly put to a stop, I’m unsure, other than it seems the servicers have more power than the regulators.

Even if s short sale makes it all the way through the system, gets approved and closes they are still bogged down with red tape.  This is the first year I’ve seen wires returned on a closed short sale.  We’ve had three wire returns.  One had no reason for return, so the closing attorney had to just rewire it back, one lender felt they couldn’t read a signature, so they returned the wire, and one lender forgot to include an affidavit for closing so after the closing the attorney had to jump through hoops to find the buyers and sellers again to have an affidavit signed that appeared AFTER the closing, which should have been given to the sellers upon approval.

Homeowners will suddenly face more hurdles this August if their loan is Fannie Mae backed with Fannie’s recent announcement that any secondary property liens on title that aren’t mortgage related will not be covered out of proceeds from the short sale transaction.  This means if a homeowner has overdue condo association fees, and the association puts a lien on title, those dues will not be paid out of sales proceeds.  The same is true with executions from credit cards or municipal liens.  This puts homeowners who are already under a HUGE financial strain into even more of a spiral.

We are being led to believe we are in recovery, but our firm has seen the strongest growth in short sales in 2014 than over any other first quarter of any prior year.  Yes, mortgage delinquencies foreclosure rates are down, but keep in mind when a loan that’s delinquent moves into the HARP (refinance) program, that loan is now categorized as a refi and NOT a delinquent loan.  Keep in mind Transunion published that 60% of all loan mods end up in a re-default situation within 18 months.   Also any shadow inventory outside of FNMA and FHLMC are not required to be reported.  These programs are temporarily keeping foreclosure rates down.  Unemployment is still an issue in today’s default market.

Short Sales will be around for a while and it seems that even with attempts to streamline programs, the red tape is just making sales more difficult than easy.  It’s no wonder agents are steering clear of short sales and opting for third party help.  Forms for short sales keep changing and unless you are focusing on short sales for a living, you are likely not going to know about recent changes in the industry.  I see an increase in bankruptcy coupled with short sales and or foreclosures as homeowner still struggle with job loss, divorce and too much debt.  Even agency regulators can’t seem to step in and dictate any type of lender regulations in regards to short sales.  It seems as if we are all at the mercy of long, cumbersome short sale transactions where lenders are even dictating to lawyers how to do their jobs.  I would love to see a change in the market, but unfortunately year after year the state of short sales has gotten worse.

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