What Lenders Won't Tell you about Short Sales

7074443_2The short sale business changes every day, every hour, every minute.  We may not have the problems here that many areas do, but no place is untouched from the market.

The lenders, investors, collections agencies, government agencies and everyone involved in this mess are still trying to figure out what happened, let alone what is happening right now.

I’ve been working on a short sale for a friend on a 4th level LA condo right across from Staples Center, and we’re going on 12 months now.  How the lenders are behaving just hasn’t made any sense at all.  I wanted to share some information adapted from Felix Santiago’s recent blog post on short sales.  I thought he summed it up really well:

“1)  The lenders still are not sure that what they are doing is right FOR THEM.  They are constantly changing their short sale and loss mitigation process to figure out what will make the most return on the loss.  It will change at the whim of those assigned to review the pipeline disaster that is their loss mitigation.  And, time and time again, the changes usually are not for the best.  They only further complicate the process.  The banks are in the business to lend money.  The whole loss mitigation and short sale business is still a blur to them.  Think about how absurd this business is…they will forgive $300,000 on the property without blinking, but will kill a short sale for the remaining $5,000.

2) The property is ONLY A WIDGET!  The lender will never see or visit the home.  The only one that cares about how the home looks is the homeowner.  The lenders and their investors DO NOT CARE ABOUT THE FEELINGS OF THE BORROWERS/HOMEOWNERS.  They have NO emotional attachment to the property.  However, they want to assure that the borrower absolutely HAS an emotional attachment.

3) Lenders and investors make secret deals for billions of dollars every day behind your back!  Many agents remain shortsighted on the housing industry, alltogether.  They only want to see and believe that their real estate transaction is the only way the lender can move the property.  In fact, this is not by any means the principal manner of unloading their inventory.  REO’s, performing and non-performing notes account for the majority of their swaps.  However, those sales are never recorded in public records.  Most of them are sold for pennies on the dollar.

4) The housing crisis is NOWHERE NEAR A BOTTOM!  The biggest reason for this is the tremendous amount of inventory.  And I’m not simply talking about the inventory in the lender’s hands.  I’m talking about inventory yet to be taken back.  There are millions of homeowners living in their homes for free.  I have clients going on 2 and 3 years without a mortgage payment.  The lenders and their investors are simply overwhelmed by this crisis and they would rather see someone in the property taking care of it.  Once they foreclose, they are responsible for all the bills on the house.  Only 30% of the lender inventory is even available for sale.  Nearly three times the current inventory is pending foreclosure.  And unless everyone behind on their payments gets back to work and starts paying their mortgage, the crisis will not be going away any time soon.”

If someone you know is going to be coming up short on mortgage payments in the near future, then let’s talk.  Just like cancer, the earlier you catch a potential problem, the more options you have and the healthier the outcome can be.

Always consult with your CPA, tax attorney and/or financial advisor before selling any real estate.
Dawn Rickabaugh is a RE broker with expertise in seller financing and RE notes.; 626.641.3931;

August 3, 2009

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