Short sales falling into foreclosure have become a nightmare for all involved—seller,buyer, lender—but especially the REALTOR®.
This scenario is not nearly as prevalent in the Massachusetts market as it is in other parts of the country that face a more severe real estate downturn. But Bay State REALTORS® still face the same systemic opacity of short sales and foreclosures, coupled with an utterly unknowable timetable—possibly six months, maybe a year, or the deal may be dissolving into foreclosure.
Frustrating and disappointing experiences with short sales over the past two years have left Carol Bright, a broker associate at Keller Williams Realty in Northampton, highly reticent to have any further involvement with them. “I don’t recommend any of my buyers look at these properties, because they don’t make it to the finish line,” says Bright.
She recalls an especially egregious example of a short sale in Chicopee, which went horribly awry. Bright took a listing over two years ago, and put in the effort to line up a buyer whose offer was accepted by the seller. But the bank would not respond, and the deal collapsed. “The buyers would get frustrated and back out of the deal,” adds Bright. This scenario played out seven times on the same property—seven buyers willing to pay the negotiated price.
Eventually the Town of Chicopee made an offer that was accepted by the bank, but within a few weeks, that same bank decided to foreclose on the property—with an accepted offer in hand. That particular property is still for sale. “The properties are still on the market unsold,” says Bright. “That is the frustrating thing,” about the whole process.
Rick Sawicki, an agent with Prudential Sawicki Real Estate in Amherst, has had four short sales in the past year. He represented only one seller in those four transactions. Sawicki believes a principle reason the sale was a success was that the property had only one mortgage holder and they were amenable to a deal.
“I was lucky the bank was willing to listen to us in the short-sale scenario,” adds Sawicki. He has become hesitant to represent sellers, and would only represent a buyer he was confident understood the reality of short sales. There are many problems facing REALTORS® in the short-sale process,and they all lead to delays that can eventually result in foreclosures. “The decision-making process isn’t standardized,” concludes Sawicki, about the discrepancies between banks, as well as third parties. “It just seems to be a hodgepodge. Right now it is too much of a gamble,” he concludes.
Finding the personal contact with the authority to make a decision can take weeks, if it is even possible.And finding “willing” negotiators is easier representing a seller in a short sale, according to Sawicki,because a line of communication has, hopefully, already been opened between the client and the bank, as their mortgage predicament started to surface. In his experience, it is critical to have direct and continued communication with an individual at the bank who can be contacted by phone by the REALTOR®—solely exchanging e-mails is not sufficient.
Sawicki has also relied more heavily on attorneys to navigate the real estate process during short sales. “We practice real estate,” says Sawicki. “We don’t practice law.” Their understanding of the court procedures and legal requirements are crucial in the process.
But representing a buyer greatly compounds the problems of communication and ambiguity—since the seller has much more control. The problems in a short sale have become so acute from the buyer’s perspective, REALTORS® have to take special care not only to complete the transaction, but to protect their clients. According to Sawicki, representing a buyer does not provide the “level of confidence” that makes him remotely comfortable.
Reaction from REALTORS®
The agitation from REALTORS® over the entire process has been a prominent issue at the local, state and the national association levels.
The REALTOR® Association of Pioneer Valley has recently established a Short-Sale Subcommittee under its Government Affairs Committee. The association also plans to hold seminars on the topic soon with an emphasis on the major platforms used to process short sales, according to Ben Scranton, executive vice president of RAPV. RAPV recently approved a request, which has been passed to MAR, to consider a statewide study.
In early fall of 2010, the Greater New Bedford Association of REALTORS® held an open meeting with Congressman Barney Frank and executives from Bank of America and Wells Fargo to discuss the short-sale predicament. One significant issue raised with the panel was the problem of secondary lien holders, who can be private mortgage insurers, blocking
the process and not providing an authorized negotiator, according to Marie Cashman, broker-owner at Weichert, REALTORS® in New Bedford, who attended the meeting.
According to Matt Vernon, Bank of America’s short sale and REO executive, the bank has significantly reduced the turnaround time following a large restructuring of their business practices. Everything has been changing, and I think for the better,” says David A. Pelletier, president-owner of Pelletier Realty in New Bedford, describing his dealings with Bank of America.
Pelletier has been involved in short sales for over three years and has seen improvements. “They are more receptive to dealing with you,” comments Pelletier about his more recent experiences. “There is still miscommunication,” he adds. “There are things that don’t seem to make sense. I don’t know if that will ever get straightened out.” [But] “it isn’t going away,” concludes Pelletier. “It is a way of life right now. It is something REALTORS® need to be skilled at.”
The National Association of REALTORS® has been working on legislative and regulatory reform on the short-sale problem since 2008. It has been an “extremely high priority,” according to Jeff Lischer, managing director of regulatory policy within NAR’s Government Affairs division. Those efforts directly engendered the Treasury Department’s new initiative,called the Home Affordable Foreclosure Avoidance Program or HAFA. The intent of the HAFA program is to implement standard forms, procedures, and strict deadlines for short sales. The program took effect on April 5, 2010. On Aug. 1, 2010, both Fannie Mae and Freddie Mac implemented their own version of HAFA.
Without NAR’s rigorous pressure, the government was intending only to remedy the problem with loan modifications and a financial incentive to do a short sale. Prior to NAR’s efforts, the federal government had clearly not acknowledged that the short-sale process was broken.
“We have been disappointed that the implementation of HAFA has been slow and the number of HAFA units hasn’t been that great,” says Lischer. But lenders are also being inspired by HAFA to take their own in-house initiatives to rectify the process. For example, Bank of America has a pilot program called a “cooperative short-sale,” which identifies the value up front. Lischer believes that HAFA’s influence on banks’ proprietary short-sale programs has been a significant mprovement. Further legislative or regulatory action may be in the offi ng during future Congressional sessions, but any other initiatives are at the very earliest stages.
The Equator platform, which was adopted by Bank of America, was an attempt to streamline the shortsale process. REALTORS® report mixed results from the system, which requires strenuous attention, but it is improving. Fannie Mae may be using the system by the spring of 2011.
Linda Kody, broker-owner of Kody & Co. in North Andover, teaches other REALTORS® how to handle short sales. She advises REALTORS® to pay strict attention to the foreclosure side of the two-track foreclosure/short-sale process. In order for the REALTOR® to understand
what is happening on the foreclosure side, it is critical to keep an open and constant dialogue with the party who has the power to cancel or postpone the foreclosure: the negotiator for the bank, asset manager, or third party.
REALTORS® must also be diligent in monitoring public and private sources of information on a specifi c property. They also need to actively track specific deadlines and be fully aware of the requirements of that particular lender. And when dealing with the lender, “Give them everything they need in their language, in the format they are used to seeing,” advises Kody.
Kody also strongly believes that clients need to be fully educated about short sales and their many inherent problems. “They have to stay vested for the entire process,” says Kody.
Timothy J. DeFeo is a freelance writer residing in New York.