Sellers in short sale situations can be so deluded and emotional that they think they still have control. They do not. Usually, homeowners will try many other strategies before even commencing a short sale (loan modification, as one example). Short sales are commonly their last attempt at maintaining a modicum of dignity, sort of like a controlled stop of a dying automobile. But these irrational, irresponsible behaviors can have the opposite effect, and can expedite the march toward foreclosure, as I have seen in numerous sad situations.
Some short sales have been progressing easier and faster than before. One positive development is the addition of Wells Fargo to the previously Bank of America-dominated Equator system. Many asset managers (or negotiators, as some lenders call them) have become proficient at short sales, and have assisted in streamlining the process. But recently, I have also experienced more investors and MI companies derailing short sales. Sometimes, even when a lender approves a short sale, it can fall apart when an MI company is involved. Since MI usually has to pay the lender when the loan goes into default, they are more likely to demand a cash payment by the financially-strapped seller, or a promissory note that can stretch out for years to come, or some combination of two.
Another problem is investors. In some cases, lenders do not have the final word; the investors do. And they can quickly veto a lender-approved short sale, seemingly not the slightest bit concerned with an imminent foreclosure.
A trend that I despise is one toward lenders, investors and MI companies refusing to consider offers when an auction date is approaching. It used to be that a decent offer on a property could, at least temporarily, stave off an auction while the offer was being reviewed, considered and processed by the lender. But lately, more lenders seem unwilling to delay the auction based on a last-minute offer. I wonder if we real estate professionals have only ourselves to blame for this, since so many times, fictitious offers were created solely for this purpose. That, of course, is unethical, but I know that it happened countless times when agents were desperate to stop the sale and felt that they had no alternative.
We will continue to see the prevalence of short sales in the Las Vegas real estate market for some time to come. Most likely, that will be at least a few more years. Homeowners have come to resent their new neighbors who have bought comparable homes for 50 cents on the dollar, and they are increasingly opting for “strategic default”, meaning that they can make their mortgage payments but choose not to. And I think that we will continue to see a significant attrition rate for real estate professionals who lack the time, experience or dedication to master their short sale files. No short sale listing agent can expect to close all of their files successfully, but I think they should demand of themselves a success rate of not less than 80 percent. In reality, most agents would crave an 80 percent success rate.
As Broker of TRR, I have been teaching the importance of protecting short sale buyers and sellers, as well as the real estate professionals involved in the transactions. I have heard from some attorneys in town that they have been fielding inquiries from former homeowners, who contracted with an agent to do a short sale on their property, only to wind up in foreclosure. This liability scares some agents, too. I teach that a short sale without “full satisfaction” for the homeowner is not a successful short sale at all. In other words, when the agent only obtains “lien release”, which is required in order to close a short sale, it is not enough. The agent must strive for full satisfaction every time. So many times, an approval letter is only the beginning of the negotiation process, especially if it does not include full satisfaction.
Indubitably, short sales are here for the foreseeable future. As of this writing, approximately two-thirds of contingent listings in Las Vegas are short sales. Some days, I feel as though every single parcel in the Las Vegas area has to be resold at the new market value before the market will experience even the slightest uptick. And if often seems as if all of us (real estate professionals, banks, et al) are slowly learning together and from each other how to handle these complex files. But handle them we must, as the only way to get to the other side of the mountain that is the Las Vegas real estate market right now, is to painstakingly cut a path right through the center of it.