Banks Remain Difficult to Deal With in Short Sale Approvals
I have previously written about Congress’ efforts to speed up the short sale approval process (see Congress Sits on Legislation Designed to Help Borrowers, July 30, 2015). As I discussed, The Vacant Homes Act (the “Act”) would require lenders and servicers to act upon a short sale application within 30 days of completion of the file. Sometimes, as a lawyer/blogger, I need to vent. I have been working on 2 different short sale applications for quite some time, with 2 different banks. In both cases, the banks have delayed for months on end and I would be very grateful if the Act were in place so that my clients could close on their properties and move on with their lives.
My first client is an elderly couple. She is 89 and he is 90 and in poor health. The husband has a full time aide who costs about $9,000 per month. They decided to sell their condo here in Florida and move back to Ohio to be closer to family. The mortgage was current until the day the condo went under contract. The deficiency between the mortgage balance with closing costs and broker fees and the purchase price is about $35,000. The sale price is about $258,000. When the contract was signed and the short sale application was made, the clients moved to Ohio and rented an apartment and began paying rent for slightly more than their mortgage payments. Therefore, they stopped making the mortgage payments in anticipation of closing. They continued to pay condo fees.
The servicer on the date of contract execution was Ocwyn. However, about 20 days after application, Greentree acquired the servicing rights. Both Ocwyn and Greentree assured us that once the application was submitted, it would flow through without interruption. This was the first lie. The review of the application came to a complete stop when Greentree took over. A month later, Greentree required that we completely re-submit the application and all paperwork. Then, about a month later, Ditech bought Greentree and the process again halted for a short time. Approximately 100 days after the original application submittal, Ditech advised that the application had been approved, but that the investor, Freddie Mac, still had to approve the application. This, the negotiator assured us, would only take 2 weeks. Four weeks later, we were told that the application was rejected because the clients had too much money in their retirement account. The clients began to discuss with their children whether they could afford to make up the deficiency and the children began to make arrangements to transfer money to their parents to help.
The following week, the negotiator called to tell us that they had made a mistake. In reviewing the application, Freddie Mac had considered the Buyer’s assets, not the Sellers’. The difference in assets was over $500,000. We were invited to re-apply for the short sale. The Sellers’ assets consist of two Charles Schwab accounts totaling just over $400,000. If the Sellers were required to contribute the now $38,000 deficiency, they would be using almost 10% of their assets to close the condo, notwithstanding that they had no other income and were spending almost $9,000 per month on home health care costs. This is an extreme hardship. To date, we still have not received an answer on our new application.
The other client having short sale issues started with a loan modification request to Bank of America about 5 years ago. The client attempted to obtain a HAMP or HARP modification and was told no modification would be considered because the loan was in good standing. The only way to obtain a modification was if the loan was in default. So the client stopped making payments. Instead of getting a modification, the client became a defendant in foreclosure. For the last 3 years we had to defend a foreclosure while attempting to obtain a modification. The process to obtain the modification required submittal of bank statements, tax returns, financial statements and like documents multiple times. Finally, after 3 years, the modification was denied. We appealed and were again denied.
The client decided to place the house up for sale and immediately received an offer. The offer price was $200,000 below the outstanding balance of the loan. We started the short sale approval process. After fighting with Bank of America’s Equator system for 45 days, all the documents were accepted. However, the contract was rejected because it was received too quickly. We were told that a property had to be listed on MLS for at least 5 days including 1 weekend. The broker received the offer before he had fully put the property into MLS. It took 3 more months to obtain another offer at the exact same price. We then submitted the exact same paperwork into Equator. It has taken us nearly 60 days for Equator to accept this paperwork and we now wait the Bank’s decision.
Despite the call for reform, it does not appear that banks are willing or able to do anything to help borrowers with their problem loans either through modification or short sale. This means that banks will continue to show distressed assets on their balance sheets and the foreclosure crisis is not going to go away any time soon.