California short sale snafus worsen

Even more real estate agents than last year characterized closing short-sale transactions as a drawn-out process laden with communication snafus, lost documents and "dual tracking," according to the California Association of Realtors.

by Broderick Perkins
© 2011 DeadlineNews.Com

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Deadline Newsroom - The short sale system in California isn't just broken, it's getting worse.

Unfortunately, that means home owners who were looking for the short sale alternative to foreclosure could be out of luck and need to consider other cures for their mortgage distress.

This year, even more real estate agents than last year characterized closing short-sale transactions as a drawn-out process laden with communication snafus, lost documents and "dual tracking" -- lenders proceeding with foreclosures even when short sales are underway, according to the California Association of Realtors.

A short sale occurs when the bank allows the sale of a home for less than the existing mortgage balance, typically, provided there's a qualified buyer in the wings. Home owners likely to seek short sales are often those floundering "underwater" with mortgage balances larger than the value of their home in a state of negative equity.

Negative equity can occur because of a decline in value, an increase in mortgage debt or both. Many home owners suffer both because they used their home equity like an ATM machine during the housing boom. When housing crashed, values tumbled exacerbating the effects of equity-tapping.

Short sales can be a better option than foreclosures for a consumer's credit history, depending upon how the lender reports the deal to credit bureaus. Instead of having the black mark of a foreclosure that can last seven years, short sellers may only take a credit score hit they can overcome in a few years.

Other options for struggling mortgage holders include refinancing to a new loan, but that's virtually impossible for home owners underwater. Another option is a mortgage modification, which retains the original mortgage, but lengthens the loan term, reduces the interest rate, or reduces the principle, or includes a combination of the three. Some lenders have additional options to foreclosures

The short sale option is long on promise but short on delivery for Californians.

CAR said 77 percent of California real estate agents reported closing short-sale transactions as "difficult" or "extremely difficult," up from 70 percent in December 2010 when CAR first gauged real estate agents' experience working with lenders in on short sale transactions.

"Despite promises by lenders to improve their short-sale processes, clearly, they are not doing enough," said CAR President Beth L. Peerce.

Kim DiBenedetto, a real estate agent with Coldwell Banker Del Monte Realty in Carmel says the problem stems from lenders kowtowing to bottom-line thinking investors, who may see a foreclosure as a better deal.

"I think the lenders are trying, but they have so many different investors and limited authority," DiBenedetto said.

"We have to stop thinking of Wells Fargo, Bank of America, CitiCorp, etc. as the 'lender.' They are the servicer for as many as 2,500 investor groups. How much authority the servicer has to negotiate with the home owner, depend upon which investor group owns a particular loan, which is why short sales are so hard to get processed," she added.

CAR said real estate agents' most frequent obstacles in the short-sale process were communication issues during the slow response time to package a short-sale (cited by 66 percent of agents); poor communication with lender representatives (55 percent); and repeated requests for documentation (51 percent).

More than 15 percent of the agents polled in June this year said the lender foreclosed on the home before the short-sale transaction could be completed.

Two-thirds (67 percent) of agents said it took more than 60 days for lenders or servicers to return a written response on the approval or disapproval of the short-sale agreement submitted; 43 percent of agents said it took the lender more than five days to return any form of communication and fewer than 20 percent of agents said lenders responded "within one business day" or less to agents' communication attempts.

Real estate agents' overall satisfaction with lenders in their most recent short-sale transaction remained extremely poor, with 75 percent saying they were "not satisfied" or "not at all satisfied," up from 67 percent in December.

Because of their dissatisfaction, 78 percent of real estate agents said they were "not likely" or "not at all likely" to refer buyers to the lender for future home purchases.

ForeclosureRadar.com's Short Sale Report offers a five-star rating system for lenders' short sale success or lack thereof and CAR offers ShortSalesCalifornia.org to rate lenders, but DiBenedetto says it's still a crap shoot. (http://www.foreclosureradar.com/short-sale-report)
(http://www.shortsalescalifornia.org/)

"This is what slicing and dicing home loans (bundling mortgages as securities sold to investors) on the secondary market has done to the process. You are no longer talking with the actual owner of the loan. You can have one short sale with a particular servicer that goes really well and another with the same servicer that doesn’t go well at all," she said.

The latter is the norm, according to CAR's survey.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

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