Short-sighted banks lose on short sales

From the Palm Beach Post this weekend:

The overburdened short-sale process is leaving some homeowners with the short end of the stick.

Several months after a local couple tried to avoid foreclosure by selling their Palm City home in a short sale, the bank that rejected their offer has resold the property - for about $40,000 less than the short sale offer they came up with.

Behind on their mortgage and forced to move to Miami-Dade County for work, Reggie and Noelvis Capiro this summer petitioned their lender, Wells Fargo Home Mortgage, and its servicing company to allow a short sale on their three-bedroom, three-bath house. They found a buyer who was willing to pay $400,000, about $40,000 less than they owed on the mortgage.

The bank countered at $520,000, and the deal fell apart, according to the Capiros' agent, Dave Derrenbacker, owner of Water Pointe Realty Group in Stuart.

The Capiros lost the home to foreclosure in June, and the bank this month sold the house to a new buyer. The sale price this time: $360,000, according to Multiple Listing Service data.

In the end, the bank got paid about $40,000 less than it would have had it gone through the short sale offered by the Capiros.

Most stinging, perhaps, is that the Capiros now have the blemish of a foreclosure on their credit record.

Derrenbacker said the problem with short sales is communication, especially within some of the big banks. He dealt with a loss-mitigation department that probably doesn't communicate with the people who set the price for the property as a foreclosure, he said. Wells Fargo has declined comment on the Capiro case.

"There's definitely success stories out there," Derrenbacker said. "But there's a big frustration level on everyone from sellers to buyers to the Realtors who are involved. There really needs to be a more standardized practice on how everybody handles short sales."

This problem is also widespread locally. Banks lose in two ways. They aren't just making bad bets on sales prices, they're also spending thousands of dollars more than they should on legal fees processing the foreclosures.

Comments

[Fuzzy Bear]

Perhaps Sean Snaith could lend his expertise in this subject.

“‘I wish I wasn’t upside-down on my house. But I am,’ said economist Sean Snaith, who bought his Orlando-area home in 2006 when he joined the University of Central Florida faculty. ‘But I’m fine. I’m not going anywhere.’”

[Tino]

Only $40k? I've got one better. For two homes that I was interested in buying, the bank with the 2nd lien (through a line of credit) purchased the first lien at foreclosure to avoid a 100% loss.

Instead, they quadrupled down on a horrible investment.

Example 1:
- Bank One is owed $1.1 million on the first note
- Bank Two is owed $400k on the second note
- Bank Two buys the 1st note, is now in the game for $1.5 million
- To break even on its sunk costs, commissions, marketing and closing costs, it puts the house on the market at $1.65 million FIRM.
- The punchline? The long-vacant house is probably worth about $1.0 to 1.1 million and has been on the market since January 2007. They are not entertaining any offers less than the asking price because they "cannot take a loss"*.

* quote from a Senior VP at this very small bank whose job is probably riding on this property's fate

[Michael Ceparano]

This is probably a perfect example of a person who was negotiating the deal, (probably the listing agent), who doesn't have the knowledge to complete a short sale. They are the ones who are causing only 30% of short sales to be completed. You should be able to close at least 90% of all short sales. The agent must show the lender what the value is in the offer. Had they showed the RIGHT person at the bank, what the numbers were between the short sale and the foreclosure, it would have been a no brainer for the bank and it would have been sold. The major problem with short sales is that the agents just hand the lender the requested paperwork and then just wait to be told what is what, which is absolutely wrong. If anybody is in this situation where they owe more then what their home is worth and can't afford to make the payments (Primary home or Investment)and needs help, go to my website and contact me. I have the knowledge and most times it will cost you, the Seller, nothing at closing. There are NO upfront fees or charges. I either get it done or I get NOTHING. One last thing, which is probably the biggest misconception with short sales, You DO NOT have to be late on your mortgage in order to qualify for a short sale, and if anybody tells you to miss a payment or two, just to complete a short sale, RUN. You need only show a valid hardship. I could go on and on....