Short Sales: Treasury Department Follows Lead Of HuffPost Readers

Last Friday the Huffington Post invited readers to share stories of short sale woe.

In a short sale, a distressed homeowner avoids foreclosure by selling his home for less than the value of the mortgage. While the lender loses money on the sale, it is less costly than if the bank forces the homeowner to go into foreclosure.

But lenders, preferring to delay hits to their balance sheets and to avoid disentangling complex securitized bundles of loans, tend to stick with the more familiar foreclosure process, losing money for everybody.

Art David, a realtor in Naples, Fla., wrote to say that the government ought to do something about the problem. He suggested a short sale credit "to break open the logjam of properties that are being held up from being sold as a result of the banks' reluctance to deal with them." The Huffington Post reported his suggestion on Tuesday.

Tim Geithner is apparently an avid HuffPost reader.

On Thursday, the Treasury Secretary announced a new program to give lenders and mortgage services some incentives to do short sales: up to a thousand bucks for a successful short sale. It's not quite what David had in mind, but it's better than nothing.

"It's a positive step," David told the Huffington Post.

David was one of more than 50 readers and counting -- real estate agents, homeowners, would-be buyers -- who wrote in to share their stories.

Story continues below

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Here are just a few of them:

HOMEOWNERS

William and Theresa Taylor of Sacramento, Calif. had a $372,000 mortgage with Countrywide. They got an offer for $325,000. The bank dragged it out and the buyer walked away. Now offers are coming in at around $300,000. Bank of America, now the owner of Countrywide, is rejecting them.

"My husband and I honestly do not care at this point if it goes into foreclosure because we felt that we did the best we could and we were even trying to do the right thing by the bank, by getting a real estate agent to help us short sale the house," wrote Theresa. "The banks have screwed us, and it is time for us to stop participating in their economy."

Wendy Piersall of Illinois wrote that an investment property she owns appraised at $285,000 in 2006. Two years later, her renters stopped making payments. After six months of no mortgage payments, Piersall wrote her banks to say that she had "solid offers" for $225,000 and $220,000. The offers didn't go through: "The mortgage companies took so long to respond we lost both offers," she wrote. The lenders eventually agreed in November to sell the home for $185,000.

"We bought the home in 1999 for $130K and did over $100K in renovations to the property," Piersall wrote. "So it was a huge waste of everyone's time and resources to go through this and have it end like this."

John and Debra Shutz, down in Palm Beach Gardens, battled with Countrywide. At the same time that the Shutz' bought their home in early 2006, for $320,000 with $45,000 down, John injured himself in a motorcycle accident. Out of work, they tried to sell the property into a sinking Florida housing market.

Countrywide encouraged them to try to short sell it, while also bombarding them with debt collection calls. The condo was eventually appraised at $160,000, but the couple managed to get a $200,000 offer. The deal would only go through, however, if the family could come up with $50,000.

"Hello, if I had $50,000 I wouldn't be in this mess," wrote John. "The phone calls stopped for awhile then I got one that just about made me start laughing it was so sad. The caller represented Bank of America. They bought Countrywide and they wanted to know why we weren't making payments on the property!"

A perfectly succinct story from KP, a Maryland reader:

We bought our property back in 2006 for $300,000. I lost my job January 2009. We started the short sale process and received an offer for about $225,000. The bank declined it and said they need at least $255,000. Another offer came in soon after for $255,000 and then the bank declined it and requested $259,000. The buyer walked away. Now the bank wants to foreclose. They are only days away from starting the process and we received a third offer last week and the bank doesn't even want to talk to us or the real estate agent. They are not responding to our calls and faxes. Our mortgage is at Wachovia.

Clinton Wheeler wrote:

Good friends of mine lost their home to foreclosure. They had taken on more than they could afford and when they tried to refinance the market had already begun to crash and their home was worth less than what they owed. They held mortgages for about $400,000 and couldn't keep the home. They had listed it on the market and the best offer they received was for $265,000 which the bank declined. The initial offer was less but they were able to talk the prospective buyer into offering a bit more. After foreclosure the house was auctioned for only $165,000. At that price the new owner got quite a bargain at only about $55 per square foot when the average home in that area was selling for over $100 per square foot the year before.

I can't even begin to understand how a bank can be profitable when they are dragging their feet on short sales and losing quite a bit of money in the process. Luckily my friends were able to get into another home but they are now in the process of filing bankruptcy and I can still remember how excited they were when the staff at KB Homes had told them they were able to afford the home of their dreams. The financing was an ARM and the payment went up before they even set foot in the house and when the property taxes kicked in after the first year they didn't have a chance at making the mortgage payments anymore. In their subdivision about half of these brand new homes are sitting empty waiting to be auctioned, some even before the new homeowners could move in.

Roberta Banks:

"The mortgage company talked me into a 'sweet deal,' as the loan officer says. My home was appraised at $580,000 [in 2006] and I ended up with a $460,000 ARM loan, with the intention on selling the home after the renovations," wrote Banks. She then became the victim of credit card fraud, which tanked her credit and complicated her finances, and she couldn't work due to an illness. The house didn't sell as the market plummeted. Once she got into short-sale territory, the bank began blocking sales.

Wrote Banks: "We have had many offers and it has taken almost a year and the offers have come and are gone because the bank has been dragging its feet on it. Now my home has been vandalized and lots of fixtures were stolen and the beautiful home with custom cabinets, beautiful pine wainscoting, designer kitchens and baths, in-ground tile swimming pool, beautifully landscaped, and many other amenities are now going for a mere $185,000. My credit is completely shot and so is my health. I now live with my daughter and grandchildren and have no health insurance."

BUYERS

Hugh and Roshni Freebairn have an offer in with Washington Mutual with proof of funds. They've been waiting a month, a short time judging by the standard wait we're hearing about. "If the bank doesn't approve we will just give up on short sales and try to find a decent foreclosure, but that is difficult since most foreclosures are really trashed out. We looked at one where the previous owners had poured concrete down the drain as an act of spite against the bank."

One "concerned house shopper in Fort Meyers, FL" wrote of the rampant fraud he and his wife have uncovered as they search for a home in the epicenter of the foreclosure crisis. Their story is a reminder of how far the market had spun out of control, and how the banks sometimes become victims of the slap-happy culture they fostered.

"On our most recent offer on a house that is being sold in a short sale, we put a reasonable offer on the house but the woman that owns it would not sign the contract. What is odd about her situation is that she had the house completely paid off a couple of years ago, only to then take out a mortgage of about $330,000, after which she is now in foreclosure. We were told she bought a house in Kentucky and does not care about the house in Fort Myers. My guess is that she borrowed the money for the Fort Myers house, bought the house in Kentucky outright, and is now stiffing the bank for the balance."

Michael Levin put in a $180,000 short sale bid on a house in Columbus, Ohio. He upped it to $200,000 and a bank in California, which held the note, asked for $209,000. He agreed. So they asked for $219,000. The house had deteriorated over several months, as had the market. He said no and walked away. It's now on the market for $209,000 and falling.

"Every day, I thank whatever person or force was responsible for the agent who represented the California bank to ask for $219,000. If the California bank had accepted our final offer, then we would have been boned. I remain baffled by the California bank's behavior," he writes. "Why did the bank not accept our October 2008 offer?"

Margan Green wrote:

My son placed a full price, *all cash* offer on a house for sale in Fredericksburg. It was a short sale, so the bank needed to approve the offer. The bank ignored the offer, and the house was scheduled for foreclosure two weeks ago. My son was there, with his certified funds, to bid on the house. But the auction was postponed, because they said Freddie Mac had a moratorium on foreclosures. So time passes by. No one can tell my son what will happen, and I'm sure he will find something else, because he is motivated and he has the cash.

REAL ESTATE AGENTS

Bruce Lucas with Keller Williams Realty wrote to say that while banks are taking time to decide, "the property remains active on the Multiple Listing Service and is still being shown to other potential buyers who may submit offers that are more profitable for the bank than yours. So after waiting all of this time someone can come in at the 11th hours and have their offer accepted over yours and you have to begin the process all over again."

Lucas said he and other realtors have noticed a pattern with short sales and other efforts at mortgage modification. "It seems that the paperwork has to be submitted several dozen times only to finally get a response saying the modification was canceled because either the paperwork was missing or is now outdated."

Candice Sullivan, a realtor with Country Estates in Solano County, Calif. wrote of one family who bought a place for $825,000 in 2005. They put $200,000 down and took out a standard 30-year fixed-rate mortgage. The family ran into trouble three years later when the father left. The bank blocked all efforts to modify the mortgage or work out a short sale. The mother of two has a good-paying job and could have a afforded a modified mortgage, but instead it's on the way to foreclosure, where Sullivan guesses the bank will be lucky to get $400,000. Subtract from that the legal expenses of foreclosure, and the bank is costing itself hundreds of thousands of dollars needlessly.

"The irony in all of this," wrote Sullivan, "is that if the lender had just initially worked with Beth on a mortgage workout none of this would have happened. She is an educated woman with a good income and could easily have afforded her mortgage if they had worked with her. In markets where homes values have declined up to 50 percent the mortgage crisis hits everyone. The solution is simple the government needs to mandate lenders to rewrite mortgages with 3-5 year pre-payment penalties if seller is to sell at a profit. Their faulty loans become A+ paper, it costs banks nothing in comparison to all of the fees and commissions paid in either a sort sale or foreclosure, not to mention the emotional and economic toll it takes on all parties and communities involved. Then again, the banks and government obviously don't care."

Robert Searcy, a realtor in Houston, sent in a listing for a property now going for $190,000. The bank, he said, previously rejected a $209,000 offer. He gave up and doubts, at this point, that they'll get what they're now looking for.

Ulysses Torassa, a realtor in Northern California:

"I'm a real estate agent in northern California and have seen how horribly banks have acted in the short sale process -- passing up the chance to get 75% of their money back only to find they end up with 50% or less many months later because they wouldn't agree to the short sale."

While the market burns, some lenders and servicers are doing whatever they can -- legal and otherwise -- to grab a few bucks on the way out the door before the whole thing goes up in flames.

From Peter J. Pike, an attorney in Florida. Follow along, this one gets interesting:

The price offered (after being on the market for years, constantly dropping the price until offers came in, which is truly the only way to determine what the true fair market value is of a home), was not enough to pay off the first mortgage. After about three months of negotiations (actually, just waiting - negotiations indicates that we were going back an forth on issues, the only back and forth involved Wells Fargo losing our file on more than one occasion), we were told that FHLMC [Federal Home Loan Mortgage Corporation] would approve the short sale, allowing the second mortgage to be paid approximately $3,000.00 (10% of the amount of the second mortgage) out of their proceeds. They also wanted the Sellers to bring $10,000.00 to closing, to make up some of the deficiency. My clients were able to borrow the $10,000.00 from their parents and siblings.

Not so fast, said Wells Fargo Home Equity. They also wanted $10,000.00, not $3,000.00. When I pointed out that the first mortgage holder (remember, also Wells Fargo) would not allow us to make any additional payments on the second mortgage as part of this transaction, they suggested that the Sellers borrow more money from their family, and just "make a pre-payment of principal on the second mortgage, before closing. There's nothing illegal about doing that, is there?" I pointed out that under Federal Regulations, it felt to me that they were suggesting that we commit bank fraud, so, I asked them to give my clients a get out of jail free card, in the form of a letter, on Wells Fargo letterhead, spelling out exactly what it was they wanted my clients to do, and opining that there was nothing fraudulent about it. Not surprisingly, they were unable to put anything in writing. I then asked them to speak with the negotiator from Wells Fargo Home Loans (the first mortgage holder), to work out a way that we could pay the additional $7,000.00, without breaching any ethical, moral or legal boundaries. They had the nerve to lie to me (okay, not out and out lie, just fail to tell me what really happened) by saying that "the only way we can get approval on this deal is if your client makes the pre-payment of principal prior to closing". I had already spoken with the first mortgage's negotiator, who told me in no uncertain terms that Freddie Mac would not allow any payments to the second mortgage holder prior to closing. The only thing they would allow would be for my clients to sign a promissory note at closing (which, my clients were willing to do, and offered to do).

Adding insult to injury, Wells Fargo Home Equity (second mortgage holder) sent an approval letter, stating that they would allow the short sale only if they got $10,000.00, but, they would not forgive the balance of the debt. Rather than getting $3,000.00 honestly, or even $10,000.00 dishonestly, they put the end to the entire deal, since I had no explanation for my clients when they asked, why should we borrow $17,000.00 from family, that we will have a really hard time paying back, when we will still owe over $20,000.00 that we cannot pay back?

I am appalled at the severe conflict of interest at Wells Fargo on this (and I am certain many other) transactions. Their refusal to act honestly (in the name of generating more money for Wells Fargo), cost our federal government (we do own Freddie Mac now, right?) the maximum amount of money we would see on repayment of the first mortgage. It also should (but, try to find the right people to tell this to) cost Wells Fargo their servicing contract with Freddie Mac (after all, they forgot their fiduciary responsibility as servicing agent on the first mortgage, in order to try to line their own pockets at that first mortgage's expense).

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Comments

[arami55]

It is about time we came to terms with the fact that not everyone will qualify for a loan modification. The alternative does not have to be a foreclosure. Short sales are definately a better option but unfortunately many realtors do not know how to execute them. This often results in the short sale falling apart and foreclosure. If you are going to short sale, use a company that specializes in them like www.housingassist.com or shortsalecenter.com

[spirit22]

NESERA Now!!!

[spirit22]

NESARA, oops!

[arami55]

It is about time we came to terms with the fact that not everyone will qualify for a loan modification. The alternative does not have to be a foreclosure. Short sales are definately a better option but unfortunately many realtors do not know how to execute them. This often results in the short sale falling apart and foreclosure ensuing. If you are going to short sale, use a company that specializes in them like www.housingassist.com or shortsales­centers.co­m

[ibsteve2u]

Our economy functions as a circulatory system, with money flowing around and around endlessly with the exception of what is siphoned off by America's "elite" - our "wealthy and"corporate oligarchy". Once upon a time, that "lost" money could be almost undetectably replaced by the Treasury's creation/printing of "new" money.

Of late - well, since January 21st, 1981 - our "elite" have gotten greedier and greedier, sucking ever greater portions of America's money out of our economy's neck and out of circulation, and now have effectively set aside their roles as symbionts in favor of pure parasitism. (Which can be visualized quite easily by charting our nation's inequality curve/Gini coefficient.)

Our "elite" are fast putting themselves into a position where the American people, faced with the choice of either saving the American economy and "the American Dream" or rolling over only to face a future of decay and ever increasing poverty, may have to reach out and swat them.

Of course, people like Fox would say that I advocate class warfare; they always do whenever someone attempts to undo the inequality the Republicans have foisted upon "the average American".

However, if you do take a look at America's inequality curve, you will see that the war actually started around 1981, and it wasn't America's middle class and poor who started it - and it isn't America's middle class and poor who are winning it.

[Retrofuturistic]

Another thing that happens is that after the bank gets control of a property, they turn the water off. This means that the pipes freeze in the winter, and then the house ends up with fallen ceilings, water damage, warped floors, and mold. Then NO ONE wants it.

Furthermore, even if you pay cash for a formerly very expensive house with very high taxes, you then have the equivalent of a mortgage payment in property taxes.

[watchTVgetSTUPID]

New career profession ... HOUSE STRIPPER

A house stripper removes all possible components that can be sold as used parts or scrap metal. This includes
copper wiring,
whole air conditioners,
aluminum wiring,
all plumbing fixtures in the kitchen and bathroom inluding stainless steel sinks & toilets & and bathtubs,
circuit boxes,
Doors
Windows & their frames
Floor joists, rafters, 2 by 4s, plywood, etc


The HOUSE STRIPPER bids $5,000 given to the home owner in return for everything he can remove and sell. I also see a specialist Carpenter House stripper. An unemployed construction worker will come in and remove all possible lumber and pay the home owner 10% of the new price. The capitalistic self starting carpenter will then sell it as used lumber on craigs list for 30% new price.

Very little is left of the house. Even the bricks, septic tank, ventelation, siding, underground sprinkler system, patio blocks, landscaping plants, might be worth recycling.

Finally the homeowner will sell truckloads of dirt and just leave a big hole in the ground

[watchTVgetSTUPID]

This is just as legal as what the self serving CEOs are doing. Only the CEO extracted the maximum money from the Wall Street institution leaving a bankrupt hulk, while the homeowner did the calculation and minimized his losses.

[watchTVgetSTUPID]

$1000 is a tokin amount spent strictly to buy some positive publicity but not intended to make a significant difference. $12.7 trillion for the banksters often with bogus toxic assets as collateral is the real meat and potatoes. That is equivalent to $1,000,000 for 12.7 million homes. For every potential bad mortgage there is an average of 3 Wall Street bets that the mortgage will fail (Credit Default Swaps)

Wall street owns our government and they are destroying main street, the dollar and Social Security.

[mykulbee]

If it is the case that the Obama administration reads the Huff-post, please let us have a moment for the healthcare debacle that is about to proceed!
Can we, the people, get representation a little less slanted toward the healthcare industry and a little more TOWARDS US!!!??? Senator Baucas does NOT belong on this committee and, unfortunately for all of us, former Senator can't-keep­-it-in-his­-pants John Edwards was right...this WON'T HAPPEN with the insurance and pharmaceutical companies at the table. A single payer system is REQUIRED for our country to catch up to other leading democracies in getting both mentally ill and disabled people off our streets and into care.
It IS okay to look at our country through crystal clear glasses and say. "Yeah, we're NOT where we should be at this time in history...but we can catch up!". Anyone waving the banner of "My country, right or wrong" has had their opinion polluted with false patriotism to a system that has not only let down the middle class, but also benefited an elite echelon still fighting real change.
We came close to violent revolution in the late sixties-early seventies...let's not go there again!
That same fervor will again return if a false and hollow excuse for change is proffered as a 'cure' for one of the world's most powerful nations inability to take care of her own...or to preserve the 'experiment in freedom' we so glibbly call ourselves.

[mcjorich]

I am still waiting for people to figure out that we really do not need banks and their financial system... interesting though it is, it does not work for most regular folks and people just keep trying to work within their rigged system. Those that are too big to fail need to be taken apart, sold piece by piece, dismantled and the proceeds returned to the government (taxpayers). Also I would vote for the rapaciously greedy thieves on Wall Street to go straight to jail, if not free all of the bank robbers, treat them all equally.

Also it might behoove us well to think over this credit score crap the financial system keeps pushing. How about their credit scores? The credit system can't even get the information correct, a report replete with misinformation and they won't remove the inaccurate information. The financial system ties getting a place to live, a job, to a credit score... anyone feeling like a slave to the financial oligarchy yet?

I'll sign up for that '70's revolution if that is the only way to get things changed. Get the insurance companies out of the medical system and institute a single-payer system and regain control over our lives. Better a central single payer government system than insurance company flunkies. The government actually does some things quite efficiently, and medicare is one of them.

Perhaps President Obama needs an adviser someone with a View from a Trailer Park.
Thank you.
MJ Richards

[blood1]

One could only hope that Geithner does read the follow-up.

I won't even start on the banks and mortgage companies....with all the money we have given them, you would think that we would have some say in their business practice..­..obviousl­y no one does or is willing to take them on, not the Fed, Not Treasury....

It's friday and my feeling for the week: WTF!

[KarateKid]

I never thought i'd say this, but I am a happy renter after getting rid of my home. I'm glad I didn't waste my time or money trying to short sell the home, I got all of my equity out and told IndyMac Bank to take the home and shove it where the sun don't shine. Now, they're stuck but good, and I'm free as no banker has me by the gonads. They wanted to cut off their noses to spite their faces, and they got what they wished for. Wait until they see the repairs that have to be made in order for it to be sell-able.

[Deaninphilly]

Very adult to destroy the house before leaving. I never and still don't understand that behavior.

[watchTVgetSTUPID]

Maybe he was just pulling all the copper to sell as scrap in order to make his last payment.

New career profession ... a house stripper who removes all possible components that can be sold as used parts. This includes copper wiring, whole air conditioners, aluminum wiring, all plumbing fixtures in the kitchen and bathroom inluding stainless steel sinks & toilets & and bathtubs, circuit boxes, etc.

Finally an unemployed construction worker will come in and remove all possible lumber and pay the home owner 10% of the new price. The capitalistic self starting carpenter will then sell it as used lumber on craigs list for 30% new price.

[TXfemmom]

Geitner and the government should put fire under the lenders. They should have to keep track of everything regarding the possibility of short-sales. Then, if the banks fail to act in a responsible manner regarding the possibility of a short sale and then have to go to foreclosure, with the accompanying expenses, then the bank should not be able to deduct the costs of the foreclosure and the loss incurred. Were that to happen, then the banks would be getting down to doing short sales and save everyone a lot of money.

[Mehmet Aydalga 1]

http://vimeo.com/user1055646

meet to ilkon and aydalga...

[Mehmet Aydalga 1]

http://activerain.com/

[eposter]

How to make millions in short sales just three easy payments of $39.95 but wait there's more we'll throw in this sham-wham for free call in the next ten minutes and reserve your copy of Free Government Give Aways. This informercial will repeat at 3AM EDT on most cable stations probably beyond this administration.

[BurtonOerney]

Well that's a very nice thing Tim Geitner did. Those stress tests that everybody hates don't seem to have collapsed financial stocks - markets seem to be accepting the results, so good job there, too.

Also, the IG is investigating SEC lawyers for insider trading. That's good. The government is putting pressure on the BoA board to get more bankers on there. Good! The credit card holders' bill of rights: what's bad about that? Torture memos released and Congress holding hearings: good. The stimulus package is certainly better than no stimulus package and the mortgage assistance plan? I'd say that's good too. We're talking seriously about health care reform and the insurance industry can't just laugh it off. There's a committee in Congress with Elizabeth Warren on it working on financial regulations. Can't complain about that.

It seems to me like while this administration is making a lot of compromises, it's heading in the right direction.

[skymuffin]

I'm interested in buying a little house and my real estate agent said that short sales are very difficult. Most realtors don't want to touch them. Apparently, you have to call the bank every day, they take months, and it's a miracle if you can close on one.

I went to see foreclosures and there was one that was advertised as "needs a little TLC," well, it had just rained that morning, and when we went in there, WATER WAS POURING DOWN INSIDE THE HOUSE and mosquitos were in the entryway.