In the last few months we’ve seen a growing number of so-called “short sales” in our market place, and around the country. While the name implies that the sale will leave the borrower “short” of the full amount needed to pay off the mortgage, there’s nothing “short” about the amount of time it takes to actually accomplish the sale. Short Sales, in fact, take forever. In 2008 I personally had clients who tried to buy a Short Sale. After eight weeks of waiting, the case had barely budged through the bureaucracy at Wells Fargo, and we were told it would take at least another eight weeks to be processed and reach the settlement table. National City, to their credit, had cleared the property within two weeks, since they had the second mortgage and were most likely not going to get a cent. My clients, who were purchasing a primary residence, simply couldn’t continue to put their future on hold. We found another house.
This one experience is an all-too-common example of what Short Sales are like. They are the real estate equivalent of Chinese water torture. In the past more than 80% of them fell apart before they could settle. Not exactly an efficient model of disposing of bad assets, eh?
So, its with some relief that we read that Fannie Mae is field testing a process that will shorten the time it takes to achieve a Short Sale. Relief, that is, until we read just what the process IS.
Our brightest financial minds have come up with a plan to “pre-approve” a property for short sale, even before a buyer has been found. Its proponents say that it will save the paperwork and bureaucracy of trying to find out what amount of loss Fannie will take and allow the purchase to proceed much more rapidly. Huzzah!
Except that the short sale I was involved with never got to that point after eight weeks of waiting. Wells Fargo had just gotten around to appointing a negotiator for that property to begin the process with Fannie (and meanwhile, the foreclosure department at Wells had started implementing foreclosure, blissfully unaware that there was a contract pending in the short sale department). And what about the fact that most properties are spending so much time on the market waiting for a buyer that the property might actually depreciate from the time the value was determined and approved and the time a contract is written. Oh yeah, and will the buyer try to negotiate down from that price? YOU BETCHA.
This “new process” is another screwball idea from the people in Washington who didn’t see the problem coming. President Obama seems to be coming around to the point that the previous administration’s appointees never reached… just take over the bad assets. Get the commerical banks out of the picture, get these mortgages off their balance sheets, and lets revive the housing sector. Once these assets are fastracked for disposal, the short sale process can truly be streamlined. Nothing else will really do the trick.