To paraphrase Steve Jobs, once in a lifetime, a product, a thought, an observation comes along that changes everything you know...about Real Estate and the Realtor's job.
This is precisely what happened to me during my last short sale transaction during which I realized how much the untold power of the second lender can alter a home owner's life just by saying 'No', thus preventing a short sale transaction to go through.
This realization made me write this blog
which was recently featured on the popular site Realtor.com. The original and unedited version of the same article can be found here
By endorsing and sharing this blog, I hope that you will join me with in elevating the debate and making our national and local professional leadership team aware of how the grim foreclosure and short sales US landscape could be radically changed by just a little kick from the legislator, thus ending the nightmare of thousands of distressed home owners faced with foreclosure and having to deal with multiple lenders.
Without further ado, here is the full and unedited version of the article:
In this economy, most of you will agree that the worst things that can happen to you is # 1 losing your job and # 2 losing your home.
If you are behind your mortgage payments and want to avoid the damaging consequences of a foreclosure on your credit score, you will probably try to short sell your home. In other words you will try to get your lender(s) approval to sell your home even if the proceeds of the sale are not enough to pay off the remaining balance of your mortgage(s).
Since January 1, 2011, once a home owner’s first lender has given a written approval for a short sale, the lender cannot seek to obtain a deficiency judgment against the seller. In other words, the lender will have to accept the proceeds of the sale as full payment and will discharge the seller for the remaining debt. If you are lucky enough to have only one lender, you can reasonably expect that your short sale go through and you will not own anything to your lender when it is over.
Unfortunately, if you have two or more distinct lenders, short selling your home might not be so easy. In this configuration, to be able to short sell your home, you will not only need to have the consent of the first lender for the short sale (as described above) but also the agreement of the second lender on the amount the first lender is willing to give them on the proceeds of the sale. When the second lender is asking for more money than the first lender is willing to give, the short sale process is on hold until both parties agree.
This disagreement over the contribution of the first lender (to the second lender) can sometimes lead to a request from the second lender to be paid directly by the parties involved (buyers, sellers and even Realtors) unbeknownst to the first lender. My advice to short sale candidates and parties involved faced with this kind of situation: Stay away from any direct contribution to the second lender as such practice might constitute a Mortgage Fraud or a RESPA Violation.
Despite the fact that legislators have already done a lot to help distressed homeowners keep their home, in case of multiple lenders, I would advocate for a change of legislation to ensure that the short sale process is not jeopardized by the refusal of the second lender to agree to terms offered by the first lender. In particular, I would ask legislators to define precisely in which circumstances the refusal of the second lender should be considered abusive and sanction it. I am confident that such legislation would not only significantly increase the ratio of successful short sales but also accelerate the short sales handling time by lenders.
© Sophia Delacotte CDPE, SFR, CHS
San Jose Realtor
Cell: (408) 717-2575