If Short Sales are better than foreclosures for banks, why are they so difficult and take so long?

Short Sales | 16.6.2011 | No Comments

Short Sales seem to take forever.  The average time-frame we see Short Sales get approved is approximately 120 days but some of these can take far longer than that, even up to over a year.

It not only seems intuitive that Short Sales are better financially for banks versus taking a home back through foreclosure but statistics also show this is indeed true.  Some experts state that banks may actually make 30% to 45% more on a Short Sale than a foreclosure (keep in mind this isn’t true for all cases – each situation is individual and unique).  But, if this is the case, why do Short Sales take so long and why does it feel like banks aren’t willing to push these through their systems more quickly?  If you’ve done Short Sales chances are you have encountered many obstacles along the way; faxes not received, lost paperwork, files being closed without your knowledge, being placed on hold for hours on end only to learn that nothing new has happened to your file, promises made by negotiators not met, and the list goes on and on.

Some of these seem like stall tactics by the banks, and some may very well be.  But there are many reasons why Short Sales take so long (whether these reasons seem justified or not, they exist).  First of all, banks were not prepared for the sheer volume of Short Sales they continue to receive on a daily basis.  For example, a few months ago, we were told by Bank of America that they were reviewing over 725,000 Short Sales at that specific time.  Banks did not expect this inundation and were not properly staffed nor had processes in place to handle this overwhelming volume.  Secondly, what many people do not realize is that the banks are simply the “servicers” on these loans; they do not own the loan.  These loans were packaged up and sold on Wall Street as mortgaged backed securities and the actual owner of the loan is an investor and in some cases there can be multiple investors that have ownership on one loan.  It is the investor that controls the direction, acceptance, approval or denial of the Short Sale.  Also lenders continue to receive pressure from the government to do loan modifications and other government sponsored foreclosure alternatives.  Unfortunately, many of these programs have been ineffective.  Another challenge the lenders face is the number of incomplete or files of poor quality that are submitted to them on a daily basis.  When they receive incomplete files, they are forced to waste time reviewing these versus working on files that are complete, legible and make it as easy as possible for them to process.  And lastly another huge obstacles lenders face are the number of phone calls they receive on requests for status updates on Short Sale files which some banks have told us has reached up to 80,0000 – 90,000 calls per day.  Add these factors to issues that are out of the banks control such as Buyers walking, Sellers changing their minds part way through, other liens and judgments on the property that hold up the process etc. and you can see how this can all add up to lengthy timeframes.  So what is the take home message?  Have a little understanding of where the lenders are in these situations and although they often add to the frustration, try to keep a positive attitude and an attitude that shows them you are working to help them mitigate their loss.  That is what their main goal is and if they have the sense you’re on their side, you’ll find more cooperation and response.  Also understand that the lenders don’t hold all of the cards when making a decision of whether or not to approve a Short Sale, the investor(s) that owns the loan truly has that control.  And finally, do everything you can to make sure the packages you send in are complete, legible and you follow the lenders timelines of when to call rather than use the tactic of badgering them every day.  Do your homework before taking a listing to ensure the homeowner has evaluated all other options and is committed to the Short Sale process and also qualify that Buyer whose contract you accept and make sure they’re in it for the long haul.  Keep in mind, every one of these Short Sales is like a fingerprint and are a unique scenario with many variables.  Do your best to stay positive and stay the course despite these time laden challenges!