Update on Short-Sales Involving CitiMortgage

CitiMortgage is currently running 45+ days behind on starting the short-sale review process. That means that once the ratified contract has been submitted to CitiMortgage, it takes them at least 45 days to even look at the file. Then it takes them another 45 to 90 days to review and process the short-sale. You’re looking at 90 to 135 days to get a response from CitiMortgage on a short-sale.

Why the delay? Three main reasons:

1. A huge increase in the number of short-sales.
2. Being short-staffed.
3. Lack of an efficient internal review process.

One title company who deals with them often said that the short-sale department of CitiMortgage is getting over 130,000 emails per day. Those emails are a combination of borrowers inquiring about the short-sale process as well as agents, sellers, title companies and short-sale negotiators submitting new short-sales or inquiring about ones already submitted. Some of the folks at CitiMortgage and other banks have literally hundreds of cases on their desks at one time and the pile is growing.

Real life example…

A short-sale I’m currently working on with buyer clients involves CitiMortgage as one of the creditors. It’s been about 75 days since the offer was ratified and submitted to CitiMortgage for approval. The case is still in the review process though we’re hoping to hear back soon. 

And we’re lucky - the only reason it’s this far along after 75 days is because the title company and negotiator knew the direct contact information of someone near the top of the food chain who pushed the process along and put this particular short-sale deal at the front of the line.

So, if you’re wondering why things are taking so long with CitiMortgage short-sales, now you know…

Short-Sales Are Now Taking Even Longer to Negotiate

Yesterday, I spoke with with someone who works at a company that specializes in negotiating short-sales - they told me that the time it takes to negotiate a short-sale has increased dramatically over the past 60 days.

The company she works for has about 100 full-time negotiators on staff. All of them have seen their case files go from 30 or 40 to over 100. This is in part to the rise in short-sales, but it's also due to the banks taking longer to process the short-sales on their end. This holds up the entire process and is a vicious cycle. (It's like trying to get your inbox to zero, but receiving new emails faster than you can hit "delete")

In addition, and more importantly, the loss mitigation officers at the banks are getting overwhelmed. In an effort to keep up with the rise in short-sales, many banks, such as Countrywide, are re-hiring people that they previously laid off from other divisions and putting them in loss mitigation (to negotiate short-sales). Not only are these hires new to loss mitigation, they're getting thrown into the job without any real training. That's not a good combination.

The person I spoke with also said they've been seeing this trend - increased short-sales and not enough (good) help - really picking up over the past two months They also said that it's getting worse by the day.

One could argue that this is an isolated incident - it's only this one person, this one company and only Countrywide. But I've seen short-sales taking longer as well and other agents who work with short-sales are seeing it too.

For example, an offer I submitted on behalf of my buyer was accepted by the seller (borrower) mid-February. A negotiator wasn't assigned to the case until just yesterday and the bank told the negotiator to "take a number" and that they "would get to it when they got to it". That translates to "it'll take longer than it usually does". Most likely, that means that it will take well over the 90 day average.

Yes, short-sales can be great deals and, with real estate inventory way down, they may be some of your only choices. Just remember that you must have lots of time on your hands and plenty of patience when dealing with short-sales - especially as of late.

Related Articles

"The Type of Property You Can Buy May Depend On The Time You Have"

Facing Foreclosure or Negotiating a Short-Sale? Watch this Video

If you're facing foreclosure or trying to negotiate a short-sale, this video clip is a "must-see".

(If you don't see the video below, click here)

Hat tip to zsaw.com (aka @zsaw on Twitter)

What Does “As Is” Mean?

Foreclosure and short-sale properties are all sold "AS IS". But what does "AS IS" really mean?

"AS IS" means that what you see is what you get. Ninety-nine percent of the time, the seller (bank) will not make any repairs to the property (the one percent is FHA financing-post on that coming soon). It also means that the extent of the seller's obligation with respect to title will be to provide insurable title to the purchaser.

Here's an excerpt from an "AS IS" clause from Freddie Mac:

"Purchaser understands that the seller obtained the property by foreclosure, deed in lieu or foreclosure, forfeiture or similar process and consequently, seller has little or no direct knowledge regarding the condition of the property. Purchaser accepts the Property in  "AS IS" condition at the date of the Contract of Sale, including, without limitation, any defects or environmental conditions affecting the Property, known or unknown.

Purchaser acknowledges that neither the seller nor its agents have made any warranties, implied or expressed, relating to the condition of the Property."

Here's an excerpt from an "AS IS" clause from IndyMac Bank:

"Buyer acknowledges and understands that the Property is being purchased and sold as-is, where-is and with all faults. Buyer further acknolwedges and understands that the Property was acquired by Seller through a foreclosure or other similar action and therefore, Seller is not an owner-occupant and Seller's information concerning the Property and its condition is extremely limited. Accordingly, Buyer acknowledges and understands that, except as otherwise disclosed in writing to Buyer, Seller is unaware of any latent defects in the Property or any appurtenant systems including, without limitation, plumbing, heating, air conditioning and electrical systems, fixtures, appliances, roof, sewers, septic, soil conditions, foundation, structural integrity, environmental condition, pool or related equipment. Seller makes no representations or warranties as to (i) the condition of the Property or any of the Property's systems or improvements, or (ii) the serviceability or fitness for a particular use of the Property or any component of the Property."

As you can see, "AS IS" clauses are also a huge C.Y.A. for the banks. As a buyer, you must understand that the property is sold "AS IS" and that you'll need cash and/or sweat equity of your own to fix it up.

For those of you that have the cash and/or sweat equity to perform the repairs, there are some great bank-owned deals out there, especially from Fannie Mae and Freddie Mac. For those who don't have the cash or sweat equity to invest in a foreclosure property, don't worry…there are great deals on foreclosures that require very little work, as well as on traditional resales.

NOTE: This is not meant as legal advice nor should it be taken as such. For guidance on any and all "AS IS" clauses and contracts in general, contact an attorney.

Trying To Avoid Going Into Foreclosure?

If you're trying to avoid going into foreclosure, you should check out some of the possible options available to you. One is Hope for Homeowners and the other is Hope Now.

Hope for Homeowners offers assistance to those who bought their home prior to 2008 and have a monthly payment that is over 31% of their income. It allows for banks to write the mortgage down to 90% of the home's current value. To learn more, check out the Hope for Homeowners FAQ page on HUD's web site and the Hope for Homeowners Fact Sheet.

Hope Now is a program that is offered by select lenders and mortgages providers that helps homeowners renegotiate their mortgages, and or defer or reschedule monthly loan payments. For more information, check Hope Now's web site. To contact Hope Now, call (888) 995-HOPE (4673).

Another option is to try and negotiate a short-sale. Though they say that short-sales are not as bad on your credit as a foreclosure, there are a lot of strings attached to short-sales and the chance of them being approved is pretty slim.

In my opinion, trying one of the first two options first as well as speaking with a tax professional and a financial planner for guidance would be a good place to start.

Related Articles

"Guide To Avoiding Foreclosure" - HUD

"Home Seller Needs Serious Help To Avoid Foreclosure - Short-Sale or Deed in Lieu" - Trulia Voices

"How much foreclosure relief will homeowners get from the bailout plan?" - Peter Y. Hong, LA Times

The Issues With Short-Sales

Many sellers and buyers ask me if a short-sale is the way to go whether it's to "get out" of their current mortgage/property or when buying a property in order to "get a great deal". There are lots of issues with short-sales whether you're a homeowner or a buyer and the cons many times outweigh the pros.

To better explain the issues with short-sales, check out the post entitled "Short Sales Not The Solution For Eveyone" by Joe Ferrara and Gustavo Blachman over at the Sellsius Real Estate blog. Here's an excerpt:

"Short Sales are simply not the solution for everyone. It is a dangerous idea that preys on people’s hopes, not to mention makes the current mortgage crisis worse. The truth is that most short listings will never get to the closing table. There are just too many factors to take into consideration. The short sales agreement is subject to the lender’s approval. Closings can be subject to marketable title. There could be multiple liens on the property. The offer presented could be too low for the bank’s expectation or below the appraisal/broker’s price opinion. The seller may not qualify for the program. The buyer may lose interest during the process, which can take as long as six months. The area or condo may be blacklisted. There are simply too many uncertainties surrounding this dangerous practice in these unprecedented times."

The moral of the story is that short-sales are not for everyone. If you're a buyer trying to purchase a property that's a short-sale, you may be wasting your time if your buyer's agent, the listing agent on the property, the seller and the bank are not all on the same page and know what they're doing. And even then, the chance of it being approved is less than that of you winning at a Blackjack table in Vegas.

New Bank of America Rules for Short-Sale Negotiations

If you're trying to negotiate a short-sale with Bank of America, you may be in for a rude awakening. According to a post by Dameon Russell of Century 21 Landmark Group in California, Bank of America has tightened up their policies regarding short-sales, specifically with their junior liens (2nd+ trusts).

Bank of America stated that short-pay offers for release of lien are to be declined unless the offer is equal to or greater 10 percent of the oustanding balance. And this is only the starting point/minimum - the amount may be greater in some situations.

In addition, the "offer" has to be cash and it's due at closing. No promissory notes in lieu of cash or dividing the sum into some cash and a promissory note.

In addition (excerpt from Dameon Russell's post):

They [Bank of America] now clearly state that they fully intend to pursue the balance anyway.  Important also to note that the 10% figure is not automatic, meaning this is a MINIMUM starting point.  They are now also requiring the verbiage on the HUD, line # 505, to not include the word "settlement"; it must say offer.

Apparently, using the word "settlement" potentially curtails their ability to pursue the balance of the debt in the future.  Whereas, if an offer of 10% is accepted by them, they want to be absolutely certain it is understood that the remaining balance is NOT forgiveable and that they reserve all available recourse to collect that debt from your client after C.O.E.

IF, the cash offer to BofA for release of lien is equal to or greater than 85%, they will consider that a "settlement" and the balance forgiveable.

Note that this policy is retroactive to July 1 so if you have a short-sale negotiation currently going on with Bank of America with a junior lien involved, you will be affected. Check with your agent and/or loss mitigation contact at Bank of America for more information.

Can You Protect Yourself From Short-Sales That Don’t Disclose?

Have you ever thought a property was a "regular resale" only to find out it was a "short-sale" at the last minute? If you have, you were probably disappointed and possibly upset. You may have even thought that the seller and listing agent/broker were lying to you and the general public by not disclosing it was a short-sale.

Before you go off calling the seller and listing agent/broker "interesting names", let’s look at a few things first that will help you understand why this happens so you know how to best protect yourself…

1. Listing agents/brokers are not allowed to disclose "confidential financial information" about the seller without the seller’s written permission. Announcing to the public (you) that the it’s a short-sale situation is considered to be disclosing "confidential financial information" about the seller. If the seller does not allow the listing agent/broker to do so, they can’t. (I wouldn’t accept a short-sale listing if the seller wouldn’t let me disclose, but that’s me)
2. Though most sellers know that it’s much worse to not disclose that it’s a short-sale than to disclose that fact up front, some may keep silent anyway. Sellers aren’t obligated to disclose that they’re in a short-sale situation. In fact, the burden is on the buyer to do their homework and find out.
3. What about the ones that are right on the cusp? These are the sellers right on the brink of owing money once all the costs of selling their property are paid. If they accept an offer at their current asking price, they’ll be fine. But if they accept an offer lower than their asking price, they won’t have the money to make up the difference in what they owe. This means that the "regular resale" just turned into a "short-sale".

Is there a way to protect yourself as a buyer? The answer is yes.

There is language you can add to your offer that, if the seller accepts it, will force their hand and tell you if they are facing a short-sale situation. An experienced and knowledgeable Buyer’s Agent will know what that language is and where in the offer to put it.

-Danilo

Short On Time And Patience? Short-Sales May Not Be For You

"Short-sale" seems to be a buzz word these days with many buyers going after short-sales because they think they can get a great deal. Yes, there is a chance you can get a great deal on a short-sale. But you must have a lot of patience and not be in a hurry to move.

Let me repeat…

You must have a lot of patience and not be in a hurry to move if you’re trying to buy a short-sale.

Why must you have patience and a lot of time? Because the bank makes the final decision on whether your offer is approved and that process takes an average of 60 to 90 days. In some cases, it may take up to 6 months.

Why does it take so long? Because the first thing banks did when profits plummeted is cut staff. When you mix a huge increase in case files and a staffing cut of 50 percent or more, you get overworked and underpaid employees that care more about finding a new job than your offer.

I have to move into something in the next 30 to 45 days…should I consider short-sales? I wouldn’t say that you should not go after a short-sale, but have "Plan B" in place so that you’re not homeless come time to move. You may get extremely lucky and get a response in less than 60 to 90 days, but don’t bank on it (pun intended).

Should I call the listing agent regularly to check up on the situation? If you consider "being patient" calling the listing agent every week asking whether they’ve heard a response, think again. By calling the listing agent over and over, all you’re doing is annoying the agent. The listing agent is trying to sell the house as quickly and as much as you’re trying to buy it. Trust me, the listing agent will call you the second they get a response from the bank.

Why doesn’t the listing agent call the bank and hurry things along? (insert "bank" for "listing agent" in the above paragraph)

So remember…when it comes to short-sales, you must be patient and not be in a hurry to move. You have to understand that the process takes much longer than a traditional resale. And know that the listing agent is doing everything they can to make the process go as quickly as possible.

-Danilo