With all the talk about the mortgage meltdown, you would think someone was put in charge of the internal communications to prevent a bad situation from becoming worse. You know, like getting all the department heads together to see how they were going to stop the financial blood-letting -- at least a training initiative for lenders to start discovering the best steps to take from this point forward.
Two cases that have come to my desk just this week have made me wonder who's in charge of the funny farm. If these two short sales -- or at least attempts at short sales -- are any indication of what's going on in the bowels of the short sale/foreclosure departments of lending institutions, then we all better get ready for a really big ride.
Case 1 - the property is in the DC area where condos are selling for about $230,000. An offer from the buyer was in the neighborhood of $219,000 -- a little low, but the agent was hoping to get a good deal for the buyer and the house was in dilapidated condition with leaks in the plumbing, mold issues and the like.
The short sale representative in California for this lender said he HAD to have $262,000, or the offer was a no go. The appraiser in Texas agreed with him, on this VIRGINIA-based property. The agent tried to reason with him, sent him the latest sales, showed what was happening in the region as far as the market was concerned -- but the short sale rep wouldn't hear of it.
"I'm going to stamp this one 'rejected' and send it on," he told the agent. Realizing the deal was dead, she retorted that if he didn't get a better connection with the market in this area, he was going to send a lot of houses to foreclosure. His reply? "Not my department." And, thus, part of the problem.
The eye-witnesses to these type of situations (understaffed short-sale departments handling an avalanche of transactions) confirmed to me that one of the challenges during an upswing in foreclosures is that the two departments don't talk with each other. A second case drives home the point.
Case 2 - this house is in a nearby suburb of Washington, D.C., in a short sale situation. The short sale department has done its job and found an agent to list the house and find a buyer for $550,000 on a list price of $559,000. But, the contract came in only 15 days before foreclosure. Since there wasn't enough time to settle with the buyer's required government-insured mortgage in the 15 days, it still went to foreclosure.
Here's the killer - an investor picked it up for $494,000.
It gets even better. The listing agent followed the case to the courthouse steps to see who would end up with it. He approached the investor and asked him if he would be interested in selling it right away to the buyers who originally had a contract on it. He said yes, and offered to sell it to them for $552,000. The buyers would have taken it, but a title search revealed that there was a federal government lien on the house, which was soon going to make the house a government-owned property.
In both cases, the lender employees didn't talk with each other. Seems to me a simple phone call from the short sale department to the foreclosure department would have saved this lender $56,000. Instead, the savvy investor will pocket the difference if the deal goes to settlement.
Lenders take note: there are people who want your houses -- get the short sale folks to accept realistic offers and take a smaller loss on the front side, rather than a huge loss on the courthouse steps. In addition, before the trustees go to auction, someone in their department should at least find out the current contract situation of the property.
Finally, remember, you make money in real estate when you buy, not sell, the house. Investors like the one above will be cashing in on this latest corporate SNAFU.
