Mortgage crisis victims wanted. Short sellers and their agents encouraged to apply.
With all the talk about how lenders are more responsive to distressed borrowers these days, the following story, ripped from the pages of real life, may be of interest.
A few months ago a client finds a short sale she's interested in buying. What's a short sale? It's when a homeowner tries to sell his or her property for less than the outstanding loan balance. Because the lender (or lenders, if there are two loans, as there often are) takes a loss on a short sale, it has the right to approve or, often, disapprove the sale price. The homeowner accepts, rejects or counters any offers he receives, just as in a normal transaction, but his acceptance is always subject to lender approval.
In other words, the lender calls the shots in a short sale. Or actually, it's some faceless committee of anonymous bureaucrats back at Dark Empire World Headquarters that no short seller or agent will ever talk to and may not exist that calls the shots. The only contact the seller or his harassed agent has with the lender is through an overworked, cranky paper shuffler or, more likely, a chain of overworked, cranky paper shufflers who either lose the seller's paperwork or pass it aimlessly back and forth, never quite having time to review it, or both.
Like any distressed sale, a short sale is never a pleasant experience: not for the seller, not for the buyer and not for their respective agents. And in our case, just to add drama and poignancy, the homeowner is a homebuilder who's built the house for himself. It's his dream house, built with the sweat of his brow, the fruits of his labor and a loan he's quit paying. And people assure me he's a swell guy, people you'd expect would have a dim view of him considering the pain he's inflicted on them.
Not long ago, when he was flush, the homeowner turned down an offer at $2.2M. But that was then, and now his home is on the market for considerably less. My client, sensing a "short sale opportunity", offers even less, although it's still a fair offer, from a well-qualified buyer, and deserving of at least a counter if not an unqualified "yes". Two other buyers also make offers. All three are submitted to the listing agent, an agent I know well who works in my office.
My client and I wait for the homeowner to respond...and wait...and wait. While we're waiting I call the listing agent several times, not because I think he knows anything, but so I can tell myself and my client that I've called the listing agent several times. As I suspect, he's as much in the dark about what the seller is thinking as we are. I think, "this is never a good sign", but assure my client that selling a home is highly emotional under the best of circumstances and this isn't the best of circumstances. We express more sympathy for the homeowner than we feel and agree to cut him some slack.
A few days later the seller lays a deus ex machina on all of us, his agent included: he says a friend noticed his home was for sale, called to ask why and, when he heard the story, offered to "help". The exact nature of this "help" is unclear, although it appears to involve refinancing the home. What is clear, however, is that the home is no longer for sale. Thank you for your interest, and never darken my door again.
My client takes this about as well as you'd expect, but eventually simmers down and, a month or so later, buys another home. I don't know what the two other buyers do.
In the meantime I have another buyer interested in the house, should it reappear on the market. And, not surprisingly, about six weeks later it does. The "help" hasn't helped because the homeowner is beyond help. We write an offer, coincidentally for the same amount as the first offer but all cash. Again we have competition, two buyers, apparently the same two from the first round. This time the homeowner accepts one of the offersnone of the buyers knows which onebut the lender requests that all three offers be submitted for review. I settle in for the usual lengthy wait while the paperwork gets shuffled, passed around, sat on and lost.
While I'm waiting, one day the listing agent tells me about the relationship he has with his lender contact, the overworked, cranky paper shuffler in the short sale department. "She's impossible to deal with. She doesn't want me to email her, and since I never hear from her, I end up calling her, and that really pisses her off. I mean, she's incredibly hostile. I asked her why once and she said she hates me because I'm making money off the deal. Like this is going to be a big money maker for me: I've got hundreds of hours into it and I'm not even close to getting paid, and I may never get paid. It's like I'm the enemy, like she doesn't know the lender will lose less money with a short sale than if it forecloses on the home."
I've cautioned my client that lenders typically take weeks, even months, to respond to short sale offers. So I'm surprised when, less than two weeks later, we get a response: no. None of the three offers are acceptable, because all are below a new appraisal ordered by the lender. None of us gets a counter, mind you, just a flat "no". My client's not interested in paying more, and neither are the other two buyerswhich makes you wonder about the appraisalso the listing agent has to look for a new buyer, one willing to pay more than anyone else thinks the home is worth so he or she can get jerked around by the lender's short sale department. And, oh yes, the listing agent also has to resubmit all the seller's paperworkthe "hardship package" establishing his eligibility for a short salejust as if he'd never submitted it months ago when the home hit the market.
Not exactly forgotten in all this, but kind of pushed to the back burner by all the other rioting, is the disquieting fact that the homeowner stopped paying his mortgage. The lender has filed a Notice of Default, the first step in the foreclosure process, but the cranky, overworked paper shuffler in the short sale department assures the listing agent he has at least two weeks to find another buyer before the cranky, overworked paper shufflers over in the foreclosure department do anything drastic like sell the house on the courthouse steps.
A few days later, the listing agent gets a call from someone asking him what he thinks the home is worth. "Why do you ask?", he responds suavely. "Because it's being sold on the courthouse steps tomorrow morning, and I'm thinking of making an offer".
I have to say that the listing agent, who I know and who works in my office, took this well. I didn't see any holes punched in the walls of his office, although I can't vouch for the walls of his home. Hundreds of hours down the drain, plus a truckload of grief and enough tankersful of drama to fuel several seasons of your favorite soap opera. A lender short sale representative difficult if not impossible to deal with, one that either lied to him or, more likely, knew as little as he did. A committee, hundreds or thousands of miles removed from the scene, turning down the best deal it's going to get. A lender that not only allows this dim-witted short-sighted hard-nosed attitude to thrive but almost certainly feeds and waters it.
In other words, a huge financial institution acting like a huge financial institution. It can ruin your day if it wants to, and it just might want to.
A few weeks later I see the listing agent in our office workroom and mention that I've managed to avoid inadvertently taking a short sale listing. I'd have taken it without hesitation, I explained, if the homeowner was a previous client, but he was someone I didn't know and, more important, had never trusted. It'd taken several meetings just to pry enough information out of him to realize that we were moving toward something that most likely wouldn't get him off the hook or put food on my table. And a gut feel finely honed by twenty-plus years in real estate gave me the distinct impression that there was more of this kind of information waiting for me to trip over. Experience has taught me this valuable operating principle: anyone who wants me to invest my time, money and good will in them has to earn my trust, just as I have to earn theirs.
The listing agent looks pained and says, "You know, I feel we have an obligation to help short sellers".
It's an interesting point of view, one I think may show not only how good-hearted the average agent is, but also the collective guilt the industry feels over distressed sellers. And while you probably think that's commendable, I think it's dangerous and misplaced.
Agents aren't ships' captains, paid to go down with the ship when someone else runs it on the reef. It's a hard truth, one impossible to sugarcoat but one that has to be said: we have only so many hours in the day, and the agent who puts too many into deals that won't close jeopardizes not only his livelihood but the welfare of his family and creditors. Even knowing this, I sometimes wonder if I should have taken that short-sale listing. The successful agent believes that no challenge is too great, that every business relationship will end in applause, undying gratitude and a commission check. But what we agents forget, if we're even aware of it, is that we benefit from a system that's been fine-tuned over the past eighty years to enhance the likelihood that deals close. Not that selling homes is easy, as the agent wash-out rate attests, but at least the system hasn't been designed to fail.
The story I've told is typical. Lenders stack the deck against the distressed borrower and his agent, and we're long past the day we could ascribe this to a lack of staff or experience. Instead of saving the borrower from the iniquity of the lending industry, his agent more often than not falls victim to it. Instead of minimizing the social cost of distressed borrowers, his agent compounds it. Instead of taking the best deal it can get, more often than not the lender cuts off its nose to spite its face.
Anyone who reads about the old days learns sooner or later that the average Joe used to fear financial institutions and hate them with a passion. Then somethingmaybe it was insured deposits, or EZ credit or all those free toastersmade Joe relax, except for some carping about credit card rates.
That interlude may be over.