Lenders Falling Short on Short Sales
More and more people who find themselves “upside-down” on their homes — meaning they owe more than what their properties are worth — are trying to negotiate a “short sale” with their lenders. In a short sale, the lender agrees to accept less than what is owed and forgive the remainder of the debt.
Both sides suffer in a short sale: The borrower’s credit gets dinged, and the bank loses money. However, it’s far better than the inevitable next step: foreclosure, where homeowners’ credit ratings take a harder hit, and the bank typically loses substantially more money than it would have in a short sale.
Yet short sales rarely happen. As any agent will tell you, lenders are notoriously slow about responding to short-sale offers; weeks and months can drag by. Few potential buyers are willing to wait that long, and they move on. Meanwhile, the distressed owners often have no choice but to let their homes go into default.
The problem is detailed in this news story from Reuters, in which the National Association of Realtors accuses lenders of “dragging their feet” on short sales. A Wells Fargo official explained the bank’s position:
“Lenders have pre-established guidelines from investors that we must follow when doing a short sale, and this includes the minimum amount an investor (or) mortgage insurer… will accept,” the bank said.
Really? Guidelines didn’t seem to stand in the way of doling out thousands of nothing-down, no-doc, adjustable-rate, interest-only subprime loans. Lenders are largely responsible for getting us into this mess; now they’re helping to keep us in it. Maybe they’re stalling until the big government bailout kicks in.
On Redfin, I’m seeing plenty of listings where the asking price is less than what the property sold for a year or two ago. In many cases, the listing description doesn’t say “short sale,” but in the sales history, you can see that the asking price is lower than what was paid (like this listing). Since most people put little or no down, you can be pretty sure you’re dealing with a short sale.
If a buyer makes an offer, the agent and owner can take it to the lender to try to negotiate. Unfortunately, short sales usually aren’t good deals for buyers. In addition to the problem of having to wait, lenders often aren’t as flexible on price as they should be. Sadly for owners, buyers often fare better when wait until the house becomes bank-owned.
Recent Redfin posts:
Real Estate Trivia: Alan Greenspan Had a Thesis
The Mysterious Desert Rose
