Trying to get a short sale approved by Bank of America has been frustrating and agonizing for real estate agent Carol Clapp and her seller. The process has dragged out for nearly a year without a decision.
The home in North Las Vegas entered escrow in October for $160,000, which was the listed price and in line with two separate bank-ordered appraisals. Now the bank wants a third appraisal.
Bank of America needed 30 days to review documents before assigning the file to a negotiator, Clapp said. It took another 30 days to get an appraisal or broker price opinion. After that it went to a final asset negotiator, who then came back with a counteroffer.
“It’s absolutely ridiculous,” Clapp said. “Our real estate market could be in better shape if banks would respond to offers in a reasonable amount of time. The bank has had 10 months to verify the value of the property so we could move forward. Either they’re understaffed or they’re not equipped to deal with it.”
People are frustrated in their efforts to buy a home for less than the principal mortgage balance, commonly called a short sale, which must be approved by the lender.
Bank of America spokeswoman Jumana Bauwens said several factors contribute to a short sale’s length. Some investors require the bank to order a second appraisal or broker price opinion to determine if the property value has changed.
In this particular case, the bank had not received a Federal Housing Administration loan package from the seller’s agent despite six calls to the agent requesting the documents, she said.
“The short-sale process has taken longer than we would have liked to complete,” Bauwens said. “But after receiving the materials we needed from the real estate agent two weeks ago, we are in the final stages of completing the short sale approval.”
Short sales have surged in Las Vegas over the last two years, accounting for 31 percent of homes sold in July, nearly surpassing foreclosures. They were about 8 percent of sales in 2008.
Nevada Title Co. reported 4,608 short sales on the market in August, 1,008 closed and 7,994 in escrow. The average number of days from market entry to closing escrow for the listing period was 232 days. Median short-sale asking price was $140,000 in August, while median closing price was $135,000.
Both short-sale supply and demand are rising, while inventory in escrow continues to decline, the report showed. The absorption rate in August was 54 weeks, compared with 59 weeks in July, signaling progress in drawing down inventory in escrow without replacement.
Relative to standard sales and foreclosures, the escrow closing process for short sales remains “inefficient and challenging, but improving very slowly,” the Nevada Title report said.
The Obama administration’s Home Affordable Foreclosure Alternative program that took effect in April provides $1,500 for loan servicers to cover administrative and processing costs and up to $2,000 for investors who allow short sale proceeds to be distributed to subordinate lien holders on a 1-for-3 matching basis.
Apparently, that’s not enough.
“Banks have to be better incentivized by the federal government to modify loans. Currently, it’s in the bank’s best interest to sit on mortgages, scoop up houses for cheap and then wait for the market to improve,” said Sylvia Alayon, senior vice president at Fort Lauderdale, Fla.-based Consumer Mortgage Audit Center.
“Better incentives for loan modification would allow homeowners to start paying off their mortgages, decreasing the number of homes that are being foreclosed on and reducing the excess inventory of homes on the market,” she said.
Things have improved for short sales over the last two years, but there’s still need for improvement, Realtor Tim Kelly Kiernan of Re/Max Pros said.
He took a short-sale listing in May 2008 and closed on it 18 months later with Bank of America.
“This was when short sales just hit our market in a big way,” Kiernan said. “There were several factors that caused this to be delayed, including Bank of America being very unorganized, unresponsive, uncooperative, assigning a new negotiator midway through the process. Then the original buyer became impatient and walked just as we got the approval.”
That starts the process anew.
Clapp said the delayed short sale has placed added stress on her seller, a Nellis Air Force Base serviceman who was deployed overseas. He had to move his family to Colorado in January.
“Our armed services members who are overseas fighting for our safety deserve better,” she said.
Bank of America has made tremendous progress improving the short-sale process over the past year, increasing its staff to 2,800 short-sale specialists from 1,500 earlier in the year, spokeswoman Bauwens said.
In the second quarter, the bank completed 25,000 short sales, nearly triple the number completed in the year-ago period. Almost half of those were already in foreclosure, she said.
“Demand for short sales continues to grow and we understand that it will play an important role for many distressed customers,” Bauwens said. “We want to do short sales. We really, really want to do short sales instead of going down the road of foreclosure. That costs money and takes time and it’s not good for anybody. This provides a dignified option.”
One major factor that can extend the approval time frame is determining who owns the loan, Kiernan said. Is it a delegated or nondelegated mortgage?
Once the seller accepts the buyer’s offer, the bank has to get approval from the noteholder — in some cases a pool of investors — as well as the mortgage insurance company.
“This takes time … a long time it seems,” Kiernan said.
He went through three buyers before closing on a short sale with Citibank in May on a listing taken in June 2009.
There also must be dialogue between the listing agent and homeowner, he said. The bank requires updated financial information from the homeowner on a monthly basis to make sure nothing has changed that would affect the short-sale approval.
When the bank does approve a short sale, it will often require the borrower to sign a note for mortgage deficiency judgment or come in with cash at closing, Kiernan said.
“The entire transaction could blow up after many months of work. In that case, the homeowner usually stays in the home until foreclosure occurs,” he said.
Not all short sales are painful. Bank of America approved a short sale with a Veterans Affairs loan in less than 60 days and closed escrow four months after the listing.
“I was amazed at how this one went,” Kiernan said. “The bank negotiator was wonderful to work with and responded to all my e-mails and did a terrific job in getting the transaction approved.”
Contact reporter Hubble Smith at
email@example.com or 702-383-0491.