Shorting Bank of America
We all know a short sale is when a homeowner and the bank that holds their note agree to sell for a price that’s less than the amount of that note. It’s sort of a win win, in that the seller walks away without having to fund the deficiency, and the bank doesn’t have to worry about taking back another property via foreclosure.
Short sales are, in short, all the rage. Along with other distressed sales, including straight up foreclosure auctions, and REO sales, short sales are painfully common these days. I too find that they’re all the rage, but for me the rage is more like the way they make me feel and the frustration that boils into a mild form of pencil throwing rage. The problem is that banks treat short sale requests as if they’re doing the buyer a favor, and I think it’s the other way around.
Last August, while searching for a run down home to buy in hopes of making some money off a future sale, I stumbled upon a forlorn home outside of Fontana. It was a sad little home. Hiding behind Williams Bay style weeds. This humble shack had been abandoned, and it was a perfect remodel candidate for the less puffy lipped Lake Geneva Jeff Lewis.
I remembered that the home had been on the market a few years earlier, so I contacted the previous listing agent only to discover that my little weed adorned pig was heading to foreclosure. In an attempt to stall the foreclosure, I wrote an offer and had it quickly accepted by the seller, pending short sale approval by the lender.
The lender was Countrywide, which is now big bad Bank of America. In order to really follow the baffling nature of the short sale process, I must provide you with some detailed financials. The purchase price was $125k, while the loan with B of A was for around $116k. There was a small amount of commission due to the previous listing agent (since she was nice to me), and that was the deal.
What transpired over the next 11 months would blow your mind (unless you deal with these often, in that case, it’ll sound familiar), so you better put your ear plugs in to contain the mess.
This short sale catastrophe was punted around within the less than focused BA short sale department. We’d have the file opened, but only after faxing the paperwork literally 10 different times (probably 30 pages per fax), and then, systematically, BA would close the file down after a few months. They’d schedule the property to go to foreclosure, only to have the foreclosure auction postponed at the 11th hour. They’d call us looking for additional documentation, which we’d provide, and then they’d go dark on us.
The short sale department and the foreclosure department are two different departments that seemingly communicate with each other via the soup can and string method. So poor is the communication in fact that the day before the property was foreclosed on at sheriff’s sale, I had communicated with the short sale department who had asked for yet more documentation.
The attitudes of those working these short sales is pretty horrible, with no motivation to provide anything resembling customer service, and seemingly possessing no idea as to what the goal of BA should be. That last sentence is the problem, and it’s really unfortunate. BA and other large banking institutions, for all of their losses in the market, have employees who are either misinformed of the goal, or who are being led by supervisors who don’t understand the goal either. The goal should be to own fewer properties. Banks lend money, they don’t manage real estate portfolios that now number in the hundreds of thousands of units.
Bank of America, please listen up. I know what’s wrong with you. I know that even though your earnings looked ok last month that you’re struggling, and you’re taking on water faster than the Titanic post iceberg.
The problem in my opinion is in the attitude of your short sale and distressed sale department. If you want to limit your losses, why are you impossible to deal with? We’re not talking about loan modifications here, we’re talking about short sales. We’re talking about cutting bait and running, which represents a clean and concise option for moving forward. Unlike doomed loan modifications, there’s nothing confusing about a short sale and the intended result. The goal should be to own less property, limit losses, and get the bad loans off your books. If that’s the goal, why is your procedure running in an entirely counterproductive manner that makes that goal nearly impossible? I don’t get you BA, and I’m here to help.
As much as I love selling real estate, I will consider helping you out. Not because I’m some real estate savant (oh fine), but because I know what your problem is, and if you‘ll lean in a little, I‘ll be quite clear.
If you know on a C level what it is you want to do, that message is being lost as it makes its way to the processing departments. The short sale is there to help the homeowner yes, but it’s more important in my opinion when used as a method to limit losses on the bank end of things.
The short sale gives you an out, and it’s a determinable, quantifiable loss that you’re facing, which is a far cry from the time and additional money lost when you consider the REO option. Need some proof of what I’m talking about?
I was at a closing last week with an agent, and we were discussing how much we hate short sales. She gave a great example, and it involved a home that had an outstanding mortgage of around $500k. It was a BA loan as far as I remember, and she wrote an offer on it with a short sale contingency for $416k. BA rejected the short sale offer, and claimed the property via foreclosure a couple months later. When the property was relisted as REO, it ultimately sold for $260k. (these numbers are roughly correct, but not down to the penny). You see what I mean BA? You outsmarted yourself to the tune of $156k, not including commission paid, attorney fees paid, and additional interest lost, which probably brought the total much closer to $175k. $175k loss on one sale? Some studies say that an average foreclosure costs a bank $50k, but that seems too high for me, so I’ll stick with the lower figures. I don’t care how good your second quarter earnings were, just imagine if you didn’t lose $175k quite so often.
What happens now? Well, now I wait and buy this home back when it’s reborn as REO property. I originally bid $125k. The auction price was around $130k, and I’ll make a wager that I’m able to buy it for less than my original bid in about 60 days when it hits the market as an REO property.
BA, you’re the loser here, and I wish you’d just contact me so I can show you how to limit your losses and make even more money. Until then, I’ll continue to benefit from your sloppy short sale department, a department that interjects every obstacle possible as it fights to avoid short sales, preferring instead to lose more money several months later via foreclosure.
Just remember the bank is the beneficiary of the short sale just as much as the homeowner, and until that simple concept is understood by the banks themselves, pursuing short sales will continue to be a magnificent waste of time.
David Curry is a Realtor in Lake Geneva, WI. He writes a blog at www.genevalakefrontrealty.com/blog
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