A Word from the Broker: Short Sales “Catch 22″
Posted by Jim Browne | Visited 229 times, 1 so far today | Currently 1 Comment »
Just about any real estate agent in the United States who has had the pleasure of representing a buyer or seller, in a real estate purchase transaction where the property is now worth less than the loans on the property, will attest to the fact that these are extremely difficult and frustrating deals to get closed!
Many of the so called “Short Sales” involve properties have two mortgages recored against (i.e. secured by) them, making the 1st trust deed holder the “senior lien holder” and other(s) would be “junior” to them.
Senior Lenders recognize that junior lenders must be dealt with in order for the property to be sold at the new market value. Simply put, without the release of all existing lender’s liens, the current buyer’s new lender would not fund the purchase loan.
Negotiations with the secured lenders takes an inordinately long time and is difficult at best! After several months of processing time, it is common to receive a verbal, non-enforceable, decision from the negotiator who represents the actual owner of the loan(s).
Most of the time, this entails the first trust deed lender approving a net dollar amount, which includes between $1,000 to $5,000 going to the junior lien holder. On the other hand, the junior lien holder who has been processing a request for a short payoff during the time period typically decides that they will not release their lien unless they get thousands of dollars more than the first lien holder is willing to allow them. They make it no secret that they don’t care where the money comes from- as long as they get it.
Most people have little sympathy for the lenders having to take such deep losses which, in my opinion, is somewhat short-sided. This is a subject for another day, but suffice it to say that these losses are real and most of us will end up paying for them in some obscure, but effective, way.
Of utmost concern is the very real and difficult effects the lenders’ actions have on the buyer, seller and agents involved. They are, in affect, creating an environment wherein someone in the transaction will have to commit fraud against one of the other lenders in order to generate the extra money, or end up working 3 or 4 times longer, and much harder, just to be squeezed by the lenders into reducing their income (often in the 17% to 33.3% range) AND then having to reduce even further when they donate their income to satisfy the lender’s requirement.
If you’re interested in learning more about this subject, you can check out This Article published Nov. 1, 2009 in the North County Times: .
Great post, Jim. We are facing very difficult times. Hopefully soon there will be a way to avoid these problems.