Short Sales Can Take A Long Time

The Record ( — Sunday, April 11, 2010

The Record

When Mohsan Jan bid on a short-sale home in Bergenfield last spring, everyone involved was fairly confident that Jan and his family could close within 30 days.

But short sales — home sales in which the seller's lender must agree to accept less than the seller owes on the mortgage — are notoriously hard to predict. Jan had to pay $7,000 to extend locks on his own mortgage interest rate for three long, nail-biting months.

Agreement to the short sale from the seller's lender came through just as Jan was about to walk away from the deal. "It's like a gamble," said Jan last week. "You have to go through multiple stages, and at the end they [the seller's lender] can say no. You can win; you can lose."

You can win by getting short-sale homes at bargain prices.

But many potential buyers have found that the lenders who have to approve short sales are like bad boyfriends: They don't call for months, they fight behind your back, and when they finally make contact, they often ask you to give more than you expected.

This month, the federal government aims to limit those behaviors as it rolls out guidelines to streamline the short-sale process. The Home Affordable Foreclosure Alternatives Program — or HAFA — would require the seller's lender to agree on what price it would accept before the house is listed for sale; would set clear and short deadlines for the seller and lender to respond; and would offer cash incentives to get the deal done.

To qualify for HAFA, lenders must be part of the federal government's home loan modification effort, the Home Affordable Modification Program, or HAMP. More than 100 loan servicers covering 89 percent of the country's mortgage debt participate in HAMP.

Distressed homeowners who have applied for a HAMP mortgage modification and have been denied, or who have been unable to meet the terms of their modification, are eligible for the HAFA program. One of the highlights of HAFA is that lenders cannot require or sue sellers to pay off the difference between the sales price and the loan amount.

The length of time bidders have to wait for a decision on their bid is particularly trying, and it's an issue HAFA is tackling.

"I've had cases where the appraisal was done quickly, then it went to the bank where they put it on a desk and it waits to get to a negotiator," said Paula Clark of Coldwell Banker in Hillsdale. "That takes two or three months. Then it gets to the negotiator and he goes over to the person who makes the decision. That person looks at [the buyer's] offer and comparable sales, and goes back and makes another offer to the buyer."

Clark said she listed one short-sale home at a very low price to get multiple bidders. The sale nonetheless took 11 months to close.

Lawyer Gary Giannantonio of Hackensack added, "Every deal is a disaster. It's five times the work. It took one lender two months to acknowledge they had received a 50-page fax."

To cope with situations like this, the HAFA program has imposed deadlines on various stages of the process.

Once a potential buyer has submitted an offer, the seller's lender has 10 days to accept or reject it.

And to simplify the decision-making process, the HAFA program requires the lender to get appraisals done in advance, and to declare how much money it expects to clear BEFORE a home is listed for sale.

But Sal Poliandro of Re/Max in Saddle River sees problems with that.

"Everybody gets very excited for the pre-approval short sale," he said. "One of the challenges we are clearly going to face is when the banks say, 'We'll definitely do it for $300,000,' and the house is only worth $270,000."

Yet another difficulty with the short sale is that many sellers have not only primary mortgages, but also multiple home equity loans.

"Some of the problem is dealing with second mortgages and third mortgages," said Nick Tselepsis of Nicholas Realty in Clifton. "They [secondary lien holders] have to agree to the short sale to clear the title, and they play so tough."

Giannantonio said: "Sometimes the second-lien holder holds things up. The first-mortgage holder may say, 'Give them a thousand,' and the second says, 'No, we want $5,000.' "

The HAFA program aims to move the process along and reduce the fighting among lien holders by offering cash all around.

The seller would get $3,000 for moving expenses. The loan servicer would get $1,500, and investors would get up to $2,000 for allowing $6,000 in short sale proceeds to be distributed to subordinate lien holders. To receive the incentive, subordinate lien holders must release all liens and waive any future claims against the seller.

But Jeff Adler of Re/Max Legend in Mahwah said that is not much money to induce second- and third-mortgage holders to agree to a short sale.

"It's more of a challenge with Bergen County's expensive housing," Adler said. "When the average second mortgage is over $100,000, this is little incentive for the bank to write it off."

Jacqui Atcheson, senior mortgage consultant with Prospect Mortgage in North Bergen and New City, N.Y., said that many in the real estate business have adopted a wait-and-see attitude about HAFA because the federal government's mortgage modification program has fallen so far short of expectations.

Still, said Atcheson, "I think HAFA can make a little bit of difference. The deadlines are really wonderful. I think personally if people are in a bind they should try this. Anything is better than a foreclosure."

Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, said that while she agrees the short-sale process needs to be streamlined, government and lenders should focus more on helping people keep their homes.

"If financial institutions are willing to take $50,000 less on the short sale of a house, they should be willing to reduce the principal and keep the person in the house," she said.

Staff Writer Kathleen Lynn contributed to this story.

Other components of the HAFA program

Homes for sale and sold in Bergen, Hudson, Passaic, Essex

  Single-family All residential

Active (as of 3/25/10)

5,718 10,706
Short sales 431 912
Percentage of actives that are short sales 7.54% 8.52%
Sold (1/1/10 to 3/15/10) 984 1,660
Short sales 57 105
Percentage of solds that are short sales 5.79% 6.33%

Source: New Jersey Multiple Listing Service
All residential = single-family, 2- to 4-family, condo/co-op/town house

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