Long delays frustrate home short-sellers

Chandler-based realtor Zack Alawi had put together what he thought was the perfect shortsale in Queen Creek. The homeowner was desperate to avoid foreclosure, and a family had fallen in love with the home and made an offer.

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The home was valued by primary lender Wells Fargo at $220,000, and the offer was for $230,000, Alawi said.

In a short sale, the homeowner sells the mortgaged property for less than the outstanding balance of the loan and turns over the proceeds to the lender(s), usually in full satisfaction of the debt.

In this case, the debt was split between two mortgages. Wells Fargo was the first lien holder with the highest percentage of the debt, and Bank of America was the second lien holder with a much smaller percentage.

"Bank of America basically said, 'You know what? We want 10 percent (of the offer) or nothing,'" Alawi said. "If the home goes to foreclosure, they're going to get nothing because they're in second position."

Wells Fargo refused to give Bank of America 10 percent and instead proposed $5,000, he said.

"Bank of America held (its) position, and I escalated all the way up to the vice president level ... and finally the gentleman was kind of enough to say this is kind of ridiculous," Alawi said. "So, I went back to Wells Fargo and said I got the vice president at Bank of America telling me he'll take less than 10 percent and we can negotiate that, but by this time Wells Fargo had it. They were like, 'You know what? We want to stick it to Bank of America ... we're going to foreclose on this house. Short sale denied.'"

Caught in the middle of the tug of war were the homeowners, who now are facing foreclosure and a devastated credit record, and the buyers, who made an offer and waited for nothing, he said.

"It's not in Wells Fargo's best interest because I can guarantee you that house that was valued at $220,000 is going to go on the market three months from now, and they're probably going to end up selling it for $180,000 when they could have had $230,000," Alawi said.

Realtors across the East Valley are fed up with banks derailing short sales by either squabbling among lien holders or dragging their feet. Marleigh Manzo, a realtor in Chandler, said she's tired of seeing people lose their homes to foreclosure strictly because the banks take too long in considering short-sale proposals.

"The banks, if they were my kids, I'd ground them because they just messed up my seller," she said.

Those involved in short sales need to understand it is an extended process because there are many complicating factors, especially when there is more than one lender involved, said Rick Simon, Bank of America/Countrywide spokesman.

"There's no doubt it's a slow process right now," he said. "It's the nature of the volume and the amount of time that is being spent on offers that really are not going to have a reasonable chance of being accepted."

Many homeowners and potential buyers won't speak publicly about their short-sale experiences because they're afraid of retaliation from banks. Sellers also fear embarrassment in their neighborhoods, Alawi said.

WAITING GAME

After submitting a short-sale proposal, Tammy Knight, a realtor with Century 21 Towne & Country in Mesa, begins calling the lenders to make sure they received the proposal and have started a third-party evaluation of the property.

"I sit on the phone hours at a time waiting to talk to asset managers, negotiators, and it's just constant runaround," she said. "In the last six months, I've had probably six that went to foreclosure because the banks were not corresponding with me, or ... they would just completely reject them."

Darlin Gutteridge, a realtor at Model Home Center, which has locations inside malls throughout the East Valley, said many buyers get tired of waiting for banks to make a decision, and walk away.

"I've got a (short-sale proposal) with CitiMortgage, and it took five and a half months to get them to give us an answer," she said.

Some offers made by first lien holders to second lien holders seem intended to fail, Manzo said.

"I had an example where the first bank offered the second bank $1,000 on a $90,000 second mortgage," she said. "Well, would you be happy with $1,000? So that causes its own delay."

More banks are passing mortgages to servicing companies, and in some cases that has quickened the pace of approval, Knight said. These companies service the daily maintenance of a mortgage loan.

"Their role is to service the loan and see what we can do, and if the inevitable is either short sale or foreclosure, they seem to be at least open to the short sale much better," she said.

BANKS RESPOND

Short sales can be a worthwhile option for some customers, but they take time to complete, according to a statement from Wells Fargo. This "complicated transaction requires paperwork from the customer, home valuations, approval from the mortgage servicer and mortgage insurer if applicable," it said.

In addition, approvals are required from the loan investor and potential coordination with the second lien holder, according to the bank. It may take additional time for the first and second mortgage holders to come to agreement.

Short sales are going to move slower than traditional home sales for a variety of reasons, said Bank of America/Countrywide's Simon.

"The offer is going to need to be relatively in line with the current market value, not speculating on where prices are going to go from here on out," he said. "And obviously in any transaction the buyer has to demonstrate the ability to come up with sufficient funds, which is more challenging today than it was a year and a half or two years ago."

Also, the investor that holds the mortgage has to approve the short sale, and it can take time to get investors to consider short-sale proposals, Simon said. Loan servicers do not have the authority to approve a short-sale offer, he said."The seller and the buyer, and the real estate agent, have some responsibilities as well, and they do not always take them very seriously," he said. "They need to respond in a very timely fashion to any requests for information and documentation."

JP Morgan Chase is adding resources and ramping up efforts to consider short-sale proposals in a more timely manner, said Mary Jane Rogers, local spokeswoman.

"We are definitely in an unprecedented volume level," she said. "We appreciate the interest of the homeowner and the realtor to expedite a resolution and we are ... trying our best to work through a backlog. The challenge is these are individual negotiations, but we are stepping up our efforts every week and every month."

A lot of lenders simply haven't ramped up to accommodate demand for loan modification and short sales, said Jay Butler, director of Arizona State University's Realty Studies Department.

"There's a growing sense of frustration over the whole process because you're really trying to negotiate in a very reasonable period of time a lot of serious issues, and the problem is values keep dropping and it's hard to find out that final point," he said.

Shortsale

Shortsale may be an option if a homeowner owes more than their home is worth, and they don't want to declare bankruptcy or face foreclosure.

The basics of short sale:

1. Once an offer on the home is made, a realtor compiles a proposal that includes documents outlining the homeowners' financial status, the offer on the table, the financial viability and credit worthiness of the potential buyer, and other considerations.

2. The proposal is submitted to all lien holders on the home, including those who hold first and second mortgages.

3. All lien holders (investors) must agree on the offer, and the amount each will receive is negotiable.