Short on Smart

Somebody's got to tell the bankers that this business of rampant incompetence in the short sale process is reprehensible. And then somebody's got to make them fix it. Here's how it currently works, and when I say works, I mean it doesn't work: A seller with a property at risk for foreclosure lists the property with an agent at a price that seems reasonable for the product and the market. The agent, we hope, knows the product and the market so this is a responsible and well-thought-out listing. The agent pursues a marketing strategy geared to the product and the neighborhood to draw in the target buyer. A buyer, however cautiously, eventually makes an offer - usually a lowball because 'getting a deal' is the name of the game right now. The agent works with his/her seller to determine whether or not this will be a viable offer from the lender's perspective. This process is conducted in pitch-dark, because banks won't provide concrete guidelines for what they will and won't find acceptable, values are constantly in flux, and most of these at-risk sellers also have 2nd tier loans on their properties that complicate the whole mess... but I digress. The seller finally accepts an offer he/she thinks will work, and sends the offer, along with a sordid financial history and documents to prove hardship, to the bank.The bank then sucks that packet of documents into the vacuum they like to call 'loss mitigation', where it sits collecting dust and the frustration of all interested parties. In the meantime, the average short sale seller doesn't get more capable of paying his/her debts, but less. Often during this time, the bank, unbeknownst to itself, initiates foreclosure. The seller panics. The agent makes a call. At which point, the bank - like a dad taking credit for remembering his wife's birthday when it was really the kids - has a moment of clarity. The short sale might prevent the need for foreclosure. With this mantra temporarily installed the bank sets out on a course of institutional schizophrenia which would be funny if it weren't near-criminal in stupidity: it pauses its own foreclosure in favor of allowing itself time to further delay the short sale. By the time the bank assigns the short sale file to a caseworker, who will likely admit he/she received little or no training except being burned by the long-line of on-fire files he/she has to work on, the buyer has grown weary. We're usually four months into it at this point.The caseworker does little or no work to establish the validity of the short sale claim - hardship is pretty easy to prove these days - so he/she goes straight to the ordering of a BPO (Broker Price Opinion). Remember way back when - at the beginning of this process - when an experienced agent reviewed the market statistics with some actual knowledge of the area and the product and came to a conclusion on a reasonable list price? Well, now this BPO is going to drive by the house - which is usually some 40 minutes away from his/her area of expertise - and completely eradicate the validity of the listing process by telling the bank that they could get way more for the property. The bank believes this drivel and counters the buyer with some absurd number. Everyone's supposed to be grateful that they're still willing to 'play ball'. The seller's agent wrings hands together with the seller and, in a later call, with the buyer's agent until finally, the buyer is approached with the new number.If you're working one of those miracle sales, the buyer still wants it and is willing to up his number.The bank is notified and sends the package with the alacrity of a dead-tulip race to the holder of the 2nd mortgage. If it's with the same bank, the speed dials down a notch or two. The 2nd mortgage lender receives and assigns the file, using the same dust-collecting method of the first lender. Like minds and all that jazz. As luck would have it, the 2nd mortgage company is willing to approve the short sale! But wait - the approval is conditioned on receipt of a promissory note from the current owner, indicating that - sight unseen - he/she will promise to pay an amount three times greater than his/her current income (which is often zero at this point). Not to belabor a pretty obvious element in our story but - the seller is broke! The banks know this - they're the ones that broke him! So making him promise to pay is like making your dog promise not to pee. Meet "Stupid". Your seller, worn and withered at this point, agrees. What's another promise he can't keep? The bank accepts with smug satisfaction and orders that everyone now remember the 'time is of the essence' clause in the contract, requiring everyone to complete all the remaining work in less than three weeks. Meet "Irony".All parties lurch into action; the buyer spends on an inspection, has his attorney review the contract, the buyer's lender sends out an appraiser and then.... screech... STOP right there mister! The buyer's lender finds that the property isn't worth as much as the buyer is willing to pay. For those of you still hanging on for the anti-climatic conclusion, this is the part where Stupidity and Irony meet, fall in love and have a baby.Further hand-wringing ensues, with some bad language and a few glasses of wine thrown in. Through a bible-worthy act of God, let's say the buyer is willing to make up the difference in cash and wants to keep at it. The seller's lender is notified and away we go. Naaaht. Because at this point in the primer on 'How Incompetent Can We Get?' the bank re-assigns the person who's been working your file and the documents get transferred to a new person. This person's got about the same level of short sale processing experience as a Malaysian goat, but proffers the attitude of that babe who ran the magazine in "The Devil Wears Prada". Ultimately, the outcome of this scenario is irrelevant. The seller is already ruined, the buyer is already disgusted, and the agents on both sides have spent more money on cell phone minutes than they'll make in the transaction. This is the bank's contribution to recovery. Really?This is not how we're going to resolve this problem. Banks need to apply the same level of zeal to short-sale processing that they did to looping all these hapless, unqualified buyers into buying these homes in the first place. The faster and more efficiently these properties change hands from the overwrought to the eager the sooner we can all return to a stable and healthy market. Don't kid yourself - that market is a long way off - no doubt. But the rampant incompetence in the short sale process is equivalent to poking a hole in your gas tank right before you take off on a long and arduous road trip. Smell that?Somebody does need to take notice of this and somebody does need to fix it. We do. We, as real estate professionals, must demand a more competent and effective partner in our recovery. We as community members, must cooperate with one another in controlling and managing the property inventory. And we, as citizens, must require our elected officials to do the jobs they were hired to do: regulate, oversee, make accountable. Otherwise we, as Americans, will all suffer the consequences.