So you finally figured out the difference between a short-sale and a foreclosure. Congratulations. But do you know what a shortclosure is? I thought not.
At our mid-winter business meetings, CAR debated the possibility of sponsoring or supporting legislation to create a hybrid between a short sale and a foreclosure called a ‘shortclosure’.
Anybody who has attempted a short sale has been frustrated by the lack of responsiveness by the lender/lenders to negotiate in good faith or in a timely manner. Realtors often cite the delays as being ‘deal killers’ because by the time a bank responds, even if it’s an affirmative response, most Buyers are long gone.
But it’s also generally acknowledged that a short sale will net the lender a higher return, not to mention reducing inventory and abandoned properties. It is ‘in their best interest’ to work with an agent but they just don’t seem to realize this. So the question was – how can pressure be applied to landers to at least respond in a timely manner whether the response is positive or negative. You can decide not to proceed but dammit don’t take 2 or 4 or 9 months to let us know.
The shortclosure hybrid would allow a property owner to require their lender to respond to a bona fide short sale offer within some maximum time period OR that lender would be required to accept a deed in lieu rather than completing the foreclosure process. The procedure would create an incentive for the lender by treating junior note holders as ‘sold out juniors’ on the property, thereby making the deed in lieu more attractive and keeping the juniors from interfering with the short sale.
In committee this proposal was defeated for a number of reasons – chief among which would be the backlash from lenders and the mortgage banking industry. Realtors would, in essence, be butting into their business in a big way trying to tell them when and how to respond to our offers. More than a little self-serving on our part. It would also severely dampen the secondary market by freezing out junior lien holders. While they are not playing a major role in the current market, they were a major player in the most recent run-up and they will also play a critical role in rebuilding the industry.
We could also expend a lot of energy trying to craft a bill, fight with people who are customarily allies of ours to get it passed and by the time it got all the way through (supposing it even did), the current crisis would have passed and the bill would no longer even be relevant. You’ve gotta pick your battles.
CAR determined instead to focus on creating aids and education assisting Realtors to work short sales more effectively including outlining a template for providing a successful financial argument to the lender for their consideration. Realtors who have worked numerous short sales claim a higher percentage of success by following a simple yet detailed process which posits an ‘iron clad’ financial argument to the lender which has a higher probability of getting a positive and timely response.
Bottom line – don’t look for ‘shortclosure’ relief anytime soon but you can increase the odds in favor of your success by putting together a sound financial package for your lenders. We’ll let you know when CAR as a package in place.