by Sean Hess (www.SeanHess.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com). Follow us on Facebook.
There have been a lot of articles floating around the real estate world lately about the big bad banks and how they drag their feet on short sales.
When you try and sell a home for less than is owed on it, it’s called a short sale. In other words, the market price for the home is less than what the mortgage is.
Short sales are notoriously slow. Typically it takes 90 days or more to get an answer from the bank on whether or not they will accept a short sale price. There is almost no communication from the bank during a short sale. They routinely lose or mislay paperwork, which has to be submitted again and again. And when they don’t accept a short sale price they will often counter at a price that is demonstratably out of line with the market.
As these loans go into default it costs the bank’s shareholders money, which is bad enough. But when they drag their feet on a short sale, or reject a short sale, foreclosure is their only other option. And they don’t get a better price. And they have to hire two companies to make the sale happen (an REO manager and a real estate agency), which adds more costs, and the shareholder gets hit again.
The sellers are complaining, the buyers are complaining, the Realtors are complaining…everybody is complaining about this lengthy and wasteful process. So you may find it odd that I have some empathy for these banks.
Look at it this way. You loan someone $200 and for whatever reason they can’t pay you back the full $200. Instead they demand that you take $100 and do it quickly so they can get on with their lives, and by the way, don’t you dare come after them for the other $100.
That’s kind of the way it is with short sales. The bank lends a complete stranger thousands and thousands of dollars for a house, and now this person can’t make the payments. So the bank initiates the foreclosure process. And then the person comes back to the bank and demands that they take less than what is owed, and do it quickly so they can get on with their lives, and by the way, don’t you dare come after the amount owed. And by the way, the person is not making payments on the house and is either living there rent free, or worse, is renting the house and pocketing the cash.
So if you look at it from the bank’s point of view…heck, I’d make the short sale process a difficult and time-consuming one as well. I wouldn’t want it to be a pleasant experience. The idea being it’s like prison, hopefully an experience that you’ll never want to repeat. Because there are people out there who will get themselves into this situation over and over again if they can manage it.
A little dose of reality now. The real estate market really did collapse. Many people who had no intention of defaulting on a loan suddenly found themselves upside down. These people will never be in a short sale situation again.
As for the bank, please make the best decision for your sharholders. Foreclosure is bad for the bottom line. You’re not going to get a better price than the short sale price, and you will incur more costs. But if you’ve made up your mind and are going to foreclose, just hurry the **** up and do it, and quit wasting everyone’s time.
