Short Sales on a Short Leash
Brent Tantillo • October 21, 2009 • Uncategorized
According to Businessweek, many banks are reluctant to approve short sales as the lending market and government bailouts has provided cash flow for them to make payroll.
Today banks take 9.5 weeks to respond to short-sale requests, vs. 4.5 weeks a year ago, says research firm Campbell Communications. “When the banks couldn’t make payroll, it was a lot easier to deal with them,” says Jake Naumer, an adviser in St. Louis who has negotiated with lenders on behalf of homeowners. “Now they want to extract every nickel.” Lenders argue they have every right to pursue the money they’re owed.
Of course they have every right to pursue what they are owed, but at what cost? The market needs to flush these properties out of the system at the highest cost possible, and banks are going to lose less on a short sale than a foreclosure. One example in Las Vegas metes this out:
Las Vegas real estate agent Rob Jenson lost a deal after lenders dragged their feet. In April, buyers agreed to pay $747,000 for a five-bedroom Spanish-style home, the owner of which had $1.3 million of loans on the property. Jenson contacted the lender, Bank of America (BAC), about forgiving the remaining amount. BofA responded four months later, saying it wanted an additional $19,000 in cash from the seller, or a $38,000 promissory note payable over 10 years. Says a BofA spokesman: “A selling homeowner may be expected to reasonably participate in the shortfall on a sale, unless a financial hardship is demonstrated.”
When the homeowner wouldn’t come up with the money, Jenson agreed to give the bank $7,500 of his commission. BofA agreed to the terms. But by then the buyer had walked away. “They’re losing more money in the long run,” says Jenson.
This policy clearly doesn’t make sense. The buyer here was clearly underwater on his loan, and was suffering financial hardship. Rather than foreclose on the house outright, the seller was trying to be responsible by selling it and achieving the most value for the bank. To lose this transaction, for a mere $19,000 is poor stewardship of the government TARP money that was provided to Bank of America. Clearly, new rules from the Treasury and Federal Reserve are needed to encourage short sales.
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