Suppose you are underwater on your mortgage, and can’t afford to make your house payments. You don’t want to walk away, and you don’t have the $100K+ over and above what your house is worth to bring to closing. You’ll probably want to try a short sale then, where you can sell a property for less than you owe with lender approval. What do you do though if you can’t close a short sale? This is a big problem in California, where a recent survey of California realtors showed that short sales aren’t closing 43% of the time. Here’s what the survey found: [Hat tip Freedom's Phoenix.]
- Survey respondents say that 43 percent of all short sale deals that go under contract end up falling apart. Just 57 percent end up closing.
- Seventy percent of respondents characterized their most recent short sale as “difficult” or “extremely difficult,” while only 10 percent said it was “easy” or “extremely easy.”
- Forty-four percent said that lenders took more than five business days to return any form of communication to an agent, while 14 percent said lenders responded “within one business day.”
- Sixty-three percent said that lenders took more than 60 days to return a written response of the approval or disapproval of the short sale agreement submitted. Only 4 percent said they received a written response in less than 14 days.
- Sixty-four percent were “not satisfied” or “not at all satisfied” with the timeliness of lenders’ response to their inquiries. Only one in five were satisfied with response times.
California isn’t the only state with short sale problems:
Although the survey only covered agents in California, National Assn. of Realtors spokesman Walter Molony said similar complaints had come from across the country, especially from states with hard-hit housing markets such as Nevada, Florida and Arizona.
“Banks just have not been equipped or willing to make quick decisions on this,” Molony said. “It’s unfair to all parties concerned.”
When you consider how many homeowners are underwater, this is a big concern:
Nevada had an eye-popping 65% of all its mortgage properties underwater, followed by Arizona (51%), Florida (47 %), Michigan (36 %) and California (32 %).
To be fair, the high percentage of failed closings is not just the fault of the lenders:
Frances Hicks, an agent with Keller Williams Realty in Mission Viejo, said that agents add to the difficulties, either through inexperience in dealing with short sales or eagerness to close a deal. For example, she said, some agents allow their clients to enter several short sale purchase agreements at once to see which one will close sooner, then back out of the others.
The long and “short” of it? [Bad pun intended.] For underwater homeowners, there are options, but none of them, whether it be walking, modifying, or short selling, are easy.
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I short sold my house in Las Vegas in ’09. It was a major pain. Much like the banks listed above, it was a matter of several days if not weeks to hear back on any issue. We went through three separate buyers because they were taking app. 60 days to accept/reject any offer. My RE Agent had advertised herself as being proficient in short sales. However, that was not the case; she was very eager to close the sale, to the point of pressing me to trust the verbal assurance of the bank not to pursue the post-sale deficiency between sale and mortgage values. (I didn’t accept their verbal statement and insisted they put it in writing). Had I not had an approved offer from the bank at that point, she would have been out of a client.
What saved me (IMHO) and allowed me to close the sale was my insistence on talking directly to the bank weekly; in these calls, I took specific notes to include name/date/time and reasons for delay, etc. Several times, I caught them in direct lies which I would call them out on (professionally). Finally, I knew my rights and options and was not afraid to wield them, to include using bankruptcy as a blunt object (fortunately, I did not have to use it).
I write all that to say, I concur with this article. It’s a major effort and not for the faint of heart.
My sister in law owned eight rental homes in Los Angeles through the bubble. She was retired with little income, but continued to get equity loans and sap the equity from all of the properties. She ended up declaring bankruptcy. The home where she lived ended up foreclosing while she was attempting a modification. Two others were successfully short sold to close relatives for well below market. She was forgiven well over 250k on each for the difference between loan balance and current sale price. She is now remodeling one of the short sales and plans to move back in or rent it out. The short sale process took fifteen months during which time she paid no mortgage. Her other income homes have all had successful modifications. If this is an example of the current short sale situation, I don’t understand how this is helping anyone except the speculators and investors who were blowing money like drunken sailors in 2005 and 2006.
I am now hearing a radio commercial that purports that some LA bankruptcy law firm can help current income property owners to get their principal loan balances adjusted to current market value for their underwater income properties. I hope this is not what is going on now, but I am not surprised if it is.
TO; there are a lot of commercials everywhere advertising the same service. However, having lived in Vegas and having maintained ties with a number of people from there who are trying to sale their homes it’s been my experience that modifications are not happening with any degree of frequency. Short sales are being approved with a slightly higher rate; foreclosures remain the most likely outcome.
For what it’s worth, mine was the result of the extreme valuation drop, my wife having lost her job in the veterinarian industry, and being a military member who had to move. We simply could not afford to maintain the home when we left. In fairness, nor would it have made sense to do so.
I remember those daily/weekly phone calls with short sale negotiators back in 2006 and maybe thru 2008-2009 – it was very frustrating! With new shortsale program softwares, my recent experience as a short sale specialist has become easier, faster, and more efficient. I have had short sale approvals within 2-3 weeks versus 3-5 months back then. As sad as it sounds I also discovered that short sale lenders don\’t respond well to homeowners short sale status inquiries and turns into homeowners being more upset and with bank representatives turning the conversation into a collection! My heart goes out to homeowners who had to get personally involved in short sale negotiations – it’s the listing agents job.