Thursday, March 18, 2010
As I continue to sift through the saga of a short sale that started last September I’m continuously reminded just how screwed up the banks really are.
A few weeks back I cited an example of a short sale I had started to work last September with two lien holders: Citi Mortgage and US Bank. At the onset of the deal Citi Mortgage was to receive a full payoff of their note while US Bank was to receive $14,500 (approximately).
US Bank took 90 days to get the approval needed to release the deed and move forward, however because it was such a lengthy approval process the buyer got tired of waiting and decided to pursue another property. I put the house back on the market in late December and received another offer this week.
Here’s the problem with the second offer and why it was immediately rejected. It came in $32,000 lower than the initial offer. But, it’s the only other offer received since last September.
Because US Bank took so long to get the approval on the short payoff for its loan, it now will be lucky to receive $3,000 versus the $14,500 I initially locked down. This week US Bank told me it couldn’t take less than $12,400. I told the bank it would be a long time before it would see that amount in the form of a payoff on this property.
Let me explain how it works: I listed a short sale back in September for $139,900. Within roughly 30 days of listing the property we come to terms on a $137,000 price. Of that $137,000 there were several payoffs: Citi Mortgage (lien holder #1), US Bank (lien holder #2), agent commissions, taxes from 2009, title fees, homeowner association fees, sewer district fees, etc. Out of the $137,000, Citi was to receive a full payoff of its note. US BANK was to get roughly 30 percent of its payoff and everyone else was to be paid accordingly.
In a second or junior lien position many times that lien holder is lucky to receive $1,500. In the case of US Bank, it should have been a “no-brainer.” The fact it was receiving roughly 30 percent of its payoff was huge in a short sale situation. To take 90 days and jeopardize losing the deal was a big risk, one it was willing to take.
Ironic as it seems, I received a phone call from US Bank this Monday after receiving an offer Sunday evening. The negotiator wanted to know if I had received another offer on the property. The expiration for the approval US Bank gave me for the $14,500 payoff was Feb. 19h so when the bank realized there was no payoff coming it called to see if I had another contract.
I told the negotiator I had received another offer but it was substantially lower than the first and the bank’s payoff was going to be substantially lower. Of course, that’s not what the negotiator wanted to hear. Even though the bank had a bonafide, written offer five months ago, it didn’t work because of the internal, bloated processes. Immediately the response was it would not accept a $3,000 payoff.
With that said I asked him about the HAFA Program that US Bank and many of the lenders are partaking in effective April 5. One of the stipulations of the program is to accept a $3,000 or less payoff if you’re a second lien holder in a short sale situation.
The response was it doesn’t start until April and my response back was we had $14,500 for you back in September that you could not seem to get approved in a timely manner. Since that time, property values have continued to decline and other distressed properties have closed within the area, driving down the overall price per square foot.
Initially, Citi Mortgage was going to receive a full payoff. They came to me this week when I submitted the 2nd offer and denied it stating it was too low. They did agree to do a second BPO (Brokers Price Opinion) of the property to get a handle on how values have declined since the first BPO in September. The lien holders typically will take 85-90% of that appraised value on a short sale. So, my goal is to get them to do another BPO that will show the value has dropped, thus a smaller offer will support the payoffs needed to get my client out from under both liens, avoid foreclosure and get both Citi and US Bank some money versus nothing.
Doesn’t this sound like a lot of unnecessary extra work on behalf of all parties? Lack of efficiency, personnel, incentives and ownership by each employee of both of these banks, creates an apathetic attitude where no one ends up winning. In Citi’s defense, the negotiator I’m working with is trying to work the deal and has taken the extra steps to make it a short sale versus a foreclosure.
In regard to US Bank, it has never been willing to take the extra step to try and get the short sale through for the buyer. Late news this week indicated President Obama may force all lenders to stop foreclosures. We’ll see if there’s any legislation forthcoming to aid in the overall mess that still exists; including in the market here in St. Louis.
Joan Tabash-Curbow is a native St. Louisan with more than 20 years business experience. Her business acumen and strong communication skills allowed her to more easily transition into the residential real estate and distressed sales market in 2004. Curbow is co-author of "Should I Short Sale My Home?" Her real estate contact is CurbowGetsItDone.com. E-mail her at joancurbow@kw.com
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