Each Monday for the past 3 Monday's I have called the lender, Countrywide to get a status.  Today I called one number I had, was transferred to a second department before being told I needed to talk with the "workout department".....all the paperwork they had requested has been received (until they ask for something else, of course), and the nice lady in the workout department I finally got to speak with said that the file has not yet been assigned a "negotiator" yet however she said she would walk the file over to her boss and she if she could move it along and get it assigned, because the sales process is in a holding pattern until the negotiator get the file....I spent about 30 minutes on the phone today to find all this out...

Next Monday I will make the call again to see if the negotiator has been assigned.  For any Realtors or buyers who might be reading this, if you get into a short sale transaction, keep in mind each lender is different....the seller also has to be willing to cooperate...I read that Countrywide has 3000 employees assigned just to doing workouts like this, and I guarantee that 3 years ago they probably did not have 300 who were doing this.  You would think with so many people it would not drag on like this.....but......we will see what happens.

One other bit of news regarding short sales:  I read the new tax law offers sellers involved in a short sale a big break:  No 1099 from the lender as debt relief....talk with your tax advisor to learn more if you are in that situation. 

This blog is about one long time Realtor's opinion about the ongoing saga of a transaction, and how one lender in particular seems to handle business.

I recently sold a property where it is necessary to do a "short sale" which is a sale where the owner owes more on the property than they could sell it for, or in other words their equity position is upside down.   That is not an uncommon deal in most parts of the country these days.

Now I have been in this business 21 years and went through a brutal real estate market in southern California in the 1990's (stay alive in '95).  I have not been involved in a short sale transaction for many years.  Since those dark days in the 1990's the world has changed, most especially the internet has changed the way business is done.  People expect answers NOW!   Most buyers applying for a loan could typically close a deal in 30-45 days, no problem.   Wouldn't you think a short sale, albeit a more complicated transaction, should be able to close within at least 90 days, right?

Well my first experience in many years with a short sale began with an accepted offer which of course is subject to lender approval.  That is where the fun begins.  Countrywide is the lender.  They are the largest originator of home loans in the USA.  First, I called the title company handling the escrow and asked them to provide me with an estimated payoff, as I was told the short sale department (or workout department as they call themselves) would need that to get the ball rolling.   I called the 800 number and was able to get on the phone with a pleasant enough woman in customer service who advised me to hang on the line while she directed me to the appropriate department...after about 10 minutes I got on a conference call with another pleasant woman who is one of several departments in the complex food chain who will be handling the deal.

She informed me that the first step in the process is to fax over the purchase contract and estimated closing statement. I had the title company prepare one.  Easy enough.  She also needs a Reason for Default letter and bank statements from the seller.  That should be no problem (I hope).  Now comes the big question:  How long will this process take?

First she informs me the process of beginning the short sale whereby the lender agrees to absorb the costs does not begin until a "negotiator" is assigned to the file.  How long does that take?  Well, it could take 2-4 weeks before anyone begins to look at this file.  Now keep in mind most typical escrows (where the seller has equity to sell) can close in 4-5 weeks and in many cases sooner.  Of course my next question is "How long will this take to close?"

After the negotiator is assigned (2-4 weeks), I am told it could be another 8-12 weeks on top of that to close!  That blew me away: 4 months!  I was on the phone a total of 35 minutes with Countrywide in my initial contact with them. 

You talk about stupid business practices - literally it could take 4 months to close this deal, and all the while the seller is not making payments, his loan balance accrues, the lender ultimately is out more money (the classic time is money scenario) and the amount of taxable debt relief increased. Keep in mind the seller will get hit with a 1099 for the amount of the short sale and potentially have to pay taxes and the longer this drags on the greater the tax liability.  Everyone loses.  Don't you think in this day and age of hi tech, the internet, and instant communications that even a short sale could (should) close in the same time a standard escrow would take?  In the meantime where does this leave the buyer?  How many buyers would be willing to hang in there?  What if rates go up?  What if they don't approve the short sale?  In this case, Countrywide stands to gain much more than it would lose (minimize loss on sale) if it processes the sale quickly as opposed to losing the deal, having then to foreclose on the property, and ultimately sell the property for a much greater loss later than now.  I have heard there are lenders out there that won't negotiate short sales at all, and would rather go all the way and foreclose.  Why are so many losing money?  Could an absense of common sense business practices have anything to do with it?

I have heard story after story from agents about the same thing:  Lender stupidity and bad business practices in dealing with homeowners in default.  This entire short sale may have been avoided at great savings to Countrywide if they had been willing to remove a $9000 pre-payment penalty the seller has, which in this case is the difference between needing to go short sale and not.  That $9000 would have enabled me to drop the price sooner, get the house sold sooner, and closed sooner. Anyone reading this:  Never get a loan with a pre-payment penalty.  It is the rip-off of the lending business and has hurt countless borrowers, sqeezing equity unnecessarily.   You don't hear any of the politicians talk about this....they talk about debt relief, what is needed in many cases is prepayment penalty relief.

Since this transaction is its beginning stages, I thought I would tell a running story on what happens (leaving out the names, addresses, and locations to protect the innocent) as a way to keep my sanity on what may become the escrow from hell (I hope not) and although I am resigned to not making money on this sale, it will be a learning experience and also want to help out a nice seller who has had some hard times.  It would be interesting to hear experiences from other agents and consumers who have had to negotiate through a short sale. 

Countrywide Funding, this country's largest lender, recently announced it was to be acquired by Bank of America for around $4 billion.  Its CEO, Angelo Mozilo in 2007 as the sub-prime markets crashed, cashed out of $138 million in stock options at the same time the company announced plans to lay off 12,000 employees.  He is being investigated by the Securities & Exchange Commission.