Ultimate Guide to the Short Sale Process

Everything you ever wanted to know about doing a short sale on your house or home. I avoided foreclosure doing a short sale on my house in 2007 and learned a TON about the process.

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Short Sale Resource Posts

Each Banks Short Sale Process

Before the Process, Choosing a Broker

During the Process

Life after a Short Sale

Short Sale Government Resource Links

The Short Sale Buyer

Ever been driving down a side street or a country road, and you notice that a rather large bird or two is lingering on the road ahead?  That they aren’t remotely spooked by your approaching vehicle until the very last moment?

You already know why – they’re having lunch.  Feasting on roadkill.

Welcome to today’s short selling analogy.  Because the hungry bird is your buyer, and the roadkill is you.

And it may require a near miss with disaster before they’ll get out of your way.

It’s Not Personal

It’s easy to resent a buyer who swoops into the train wreck of your financial life looking to pick your bones clean.  The irony is that while you may be sticking pins into a Ken doll wrapped with a Xeroxed copy of their insulting offer, they don’t really see you as a person at all.

It’s not that they aren’t emotional about this.  Rest assured, they are.  In fact, they’re downright giddy about the fact that they can buy your house out from under you for some fraction of the dollar it used to be worth.

It’s just that they don’t care how you feel.  Nor should they.   This isn’t empathy, it’s business.  Pure, carnivorous, kick-em-when-they’re down business.

Because the operative words here are used to.  It is what it is.   Not what it was.

Welcome to the crappiest real estate market since 1929.   The one they said could never happen.

You’ve got to let it go.

Here’s What You Shouldn’t Let Go Of

That said, just because it isn’t personal – really, it’s not – doesn’t mean you shouldn’t put the pads on and get ready to rumble.

When I reduced the price of my home into short sale territory, I was optimistic because the net price didn’t deprive the bank of all that much of the principle that was still owed.  I’d already said goodbye to the $700,000 in equity that was there four years ago (when I first put the house on sale for the same price my neighbor with the smaller house just landed), and had talked myself into believing that someone out there would recognize this win-win-win opportunity and bail both me and my bank out of this mess.

The price at that point was $699K.   The first offer – and for a long time, the only one – to come in the door?  It was for $450K.

And yeah, I took it personally.

The words “short sale” are like dumping a bucket of blood – the stuff you’ve been sweating now for months – off back of your sinking ship.  Sharks ensue, and quickly.

When confronted by the utter absurdity of that offer, the buyer’s broker suggested that, hey, why not just turn it in – “it’s not personal, after all” – the banks are desperate and they’ll take anything.

Newsflash – no, they’re not.  And no, they won’t.

You Actually Need to Help Your Bank

Now that you’re in short sale territory (a place that resembles being stuck with a flat tire six hundred miles of Nome, Alaska on a crisp January day, which is 24 hours long in that neighborhood and will freeze all remaining hope upon contact with open air), there’s a temptation to feel that the price no longer matters.

Again, not true.  Here’s what you need to keep in mind while you’re opening all those reduction of credit limit notices from your friends at the card companies – the more money you can land for your bank, the quicker they’ll say yes to the offer and bail your sorry heiney out of this situation.

Which makes saying yes to a $450K offer on a remaining mortgage balance of $710K is about as smart as skinny dipping in the Nome public swimming pool on that same January day.

You may indeed need to keep slashing at your asking price to finally attract an offer.  Comes with the territory, this is what got you into these shark infested waters in the first place.  But do it in full consideration of the truth – the farther you fall, the less the bank will like you.

They’re not desperate.  They can always sell the house they pull out from under you.  And trust me, they will.

The Only Good News Left On Your Planet

There is a tiny morsel of upside to all this.  Just don’t expect your prospective buyers to notice it, or even be aware of it.

As a short sale seller, you no longer have to do or pay anything a buyer asks of you in terms of repair or inspections or closing costs.  Not a dime.  Everything that used to be on the seller’s tab is now between the bank and the buyer.

The latest offer (long after those $450K folks took a hike) on my house included a contingency that had me paying to clean out and certify the septic tank.  Not an unreasonable request in normal times, but in my situation this is like asking someone who has picked you up as a hitchhiker if you can drop them off and borrow their car for a few days.

Just say no.   And when they kick you to the curb…

Remember, it’s not personal.

The buyer’s broker may not understand this principle of seller-goes-scott-free, but your broker will.

If they don’t, get another broker, and fast.

And if your buyer continues to insist that you jump through more hoops so they can better access your fiscal bones for further feeding…

… well, maybe it is personal after all.

Tell them you’d rather be foreclosed and move on.

Because when the scent of freshly killed meat dissipates and if they really want your house, they’ll follow you.

Sanity and Hope Through Adopting a Short Sale Mindset

This post comes from a friend of mine, Nolan, who is going through some similar situations that I’ve been through the past few years. I think you’ll enjoy his posts a lot – DebtKid

My doorbell rang earlier tonight. It was a little lady that smelled like a working class bar at closing time. Her hand clutched some papers, and even as she asked me who I was and who lived here with me, I knew what this moment was.

Or maybe it was the apology and guilty expression she offered prior to the questions that tipped me off.

The dreaded and inevitable word that had clouded my recent existence had suddenly crashed down on my debt-weary shoulders: foreclosure.

I knew this moment would totally suck, and it did.

But thanks to some recent advice from an empathetic and informed broker friend – actually, he sat me down and straightened me out before the word Valium entered the conversation – this wasn’t the emotional tsunami I’d expected it to be.

Which it certainly can be for folks who haven’t adopted the right short sale mindset.

A short sale, of course, is your attempt to sell your home for less than you owe on it. Sort of the American Dream in a vat of boiling oil.

Rational minds tend to believe that the more money you are offered, the more likely the bank will agree to accept less than they are owed. And while this is true on one level, on another it is this very assumption that makes some sellers their own worst enemy.

You know it’s worth more than you’re asking.

Hell, it was worth more than you were asking back in the days when you actually had a little equity left. And so you stick to your short-barreled guns and wait for a buyer of like minded sensibilities to come along.

All with that ticking sound ringing in your ears.

On the day you get that Notice of Trustee Sale – a foreclosure notice – you have 120 days to get you and your stuff and your ass off the property and hand over the keys.

Unless you have the right mindset.

Then, you just might get to leave on your own terms.

The idea isn’t to get the highest offer you can, the idea is to get any offer you can.

Which means you need to lower your price on a weekly basis until someone shows up with a checkbook and a smile not unlike a lion gives a cornered impala.

A buyer. Any buyer. Even if the offer is ridiculous. Which it probably will be.

Because that ridiculous offer will unlock a secret that the bank has been refusing to reveal.

If the offer is high enough – one buyer’s ridiculous offer might just be your bank’s exit strategy from the loan – you might actually get your bank to play ball.

That’s been your hope all along. But stop holding your breath and get real.

Because if it’s not – and here’s the reason you need to shift to this mindset – they’ll tell you what they will take as they are rejecting it hands down.

And then you’ll know.

Then you can inform any bottom-feeding buyers what the score of this game is, and what they’ll need to bring to the party if they want to play. It puts the ball in your court, not theirs.

Let’s say you’re asking $495,000. You owe $550,000, so you’re nervous that the bank is already writing your obituary.

Someone comes in, moving a little like that metaphoric lion I just mentioned, and offers you $400,000.

A week ago, before your generous broker friend schooled you, you’d escort the blood-sucking opportunist off the property. Now, though, with your new mindset in place, you understand how this game is played.

You say yes. So the bank can say no.

And then tell you that their bottom line is – let’s take a shot here — $440,000.

Now you know. And frankly, chances are your bank’s bottom line will be lower than you thought, so the news is good.

You have a shot. Which you didn’t have at $495,000.

You thought you were in the game, but you weren’t. But with a new short sale mindset, you can be.
All you have to do is say yes to the first offer that comes along.

Short Sales, Dating and How Not to Get Screwed in the Addendum

As if there’s not enough to worry about once you toss your tattered hat into the short sale arena, there’s a seductive and easily-missed little trap that awaits. 

It’s tucked neatly into the paperwork, all of which qualifies as fine print, and all of which you need to read.

It begins like this: someone makes you an offer

The number is good.  For them, at least… it’s something the bank just might accept.  The only thing you’re getting out of this arrangement is your freedom, and something short of a clean-slate, credit-wise.

And, it’s a clean offer, they aren’t asking you to replace the doorknobs or sharpen the blades on your garbage disposal, things they might ask for in a normal sale.

Your realtor writes up a nifty counter that, while accepting the offered price, clearly states that this is a short sale, and that not only will the seller (you) not incur any closing costs (those will be borne by your bank, which is, in effect, the true seller in this case), but also that the sale is contingent upon that lien holder(s) releasing you fully from any future liability.

In other words, they can’t chase you into the grave attempting to collect the short-fall.  They accept it, they write it off, and then they write you off.

Not every contract has these words.  Unless you like living under a black cloud that looks a lot like your banker’s frowning mug, you should.

This is worse than a divorce.  More like a funeral.  Don’t expect a Christmas card, either. 

Anyhow, you might have missed that little trap back at the initial offer stage.

It’s a date

Specifically, the date of closing.

It’s easy to miss because everybody involved in this transaction knows that the bank will select the closing date, not the seller. 

In fact, everybody knows that it can and almost certainly will take orders of magnitude longer than the normal 30 to 60 days until you sign on the dotted line and the nightmare ends.

And yet, that’s precisely what your buyer will put into the contract – a closing date that’s from 30 to 60 days out.

Your bank, of course, will totally ignore this date, they couldn’t care less when your buyer wants to close.  The ball – which they own – is in their court, and they get to make that call.   Which they will when they’re darn good and ready — they’re busy with other people just like you — and not a moment sooner.

Which only comes after they’ve either accepted or renegotiated the terms of the short sale contract.

Here’s where it gets sticky. 

The language in the sales agreement, and in the Short Sale Addendum — which always accompanies a short sale offer and your counter; if it doesn’t the brokers don’t get it – seems to undo all those assumptions.

But it doesn’t.

In fact, in Part 4 of at least one Short Sale Addendum (mine), the legal jargon clearly states that the buyer can, in fact, pull out of the deal at any time prior to the bank-defined closing date.

Which means, granted, that you no longer need to be sitting at a prayer vigil asking for your bank’s approval of the deal prior to your seller’s requested closing date.

That’s history, and was laughable from the moment it hit the page, anyhow.

No, now you’re sitting there – same prayer vigil – hoping on bended knee that your buyer will wait this out.   However long it takes.

Two months, four months, even 12 months.   Sound crazy?  It’s not.  I have a real estate broker friend with a short sale contract for a client that’s entering its twelfth month without the bank either approving or shutting it down.

Somehow that buyer is hanging in there.  Proof positive that those prayer vigils work.

Bottom line: the buyer can walk.  At any time.  Or, they can wait.

It’s their call, not yours.  Which sucks.

Unless it’s not.  Which means, unless you have wording that says otherwise.

Ask your realtor about this.  See if there is a negotiable approach that commits the buyer (and their earnest money) for the whole waiting period, just like you.

It’s like a date.  One party is expected to pay.  The other is expected to put out.

Which of those roles you assume as the seller is up to you.  If you want your suitor to be there in the morning, get it in writing.

Short Sale in Stock vs a Home

The great irony of the current Short Sale phenomenon in real estate is the fact that many of those forced into this prone position find themselves under this bus because of the stock market.

We got blind-sided.  The bottom fell out.  We lost our jobs.  Duplicity ensued to the extent that we can no longer lay blame at the feet of anyone specifically, but almost everyone wearing a suit, collectively.

Including ourselves.  We were over-leveraged and under-funded.  And now we’re munching at the banquet of consequences the markets are ramming down our throats.

And let us not forget, the same banks that are sitting in pious judgment of your short sale application are the ones who significantly contributed to this mess by giving you that easy loan in the first place, then selling it to someone with the ethics of a mafia enforcer and the financial acumen and foresight of a Boy Scout troop treasurer.

Now we can’t afford our mortgage payment without gutting our retirement funds – which have been eviscerated by half – and we’re suddenly, after two years of trying to at least break even, attempting to sell our homes for less than we owe.

That’s called a short sale, of course. 

A term that, if you have been involved with the stock market in the past, rings familiar. 

And perhaps confusing (in addition to being ironic), because the term means something completely different when it comes to your upside-down mortgage.

In the stock market, a short sale means you are selling stocks you don’t own to someone you don’t know.  You do this because you think the price will go down in the near term, and you want to profit from that demise. 

You want to stick it to that other schmuck, make some dough from his bad decision to buy.

The dark side of the American dream, that.

And so the industry contrived a way to get that done for you.  If you have a margin account at a brokerage house (you probably don’t these days), you can actually borrow – literally – someone else’s stock and then sell it on the open market. 

To the aforementioned schmuck. 

Then, later, you’ll need buy it back so you can repay that loan (the borrowed securities), hopefully at a lower price.

If you’re right and the stock tanks, you make money.  If not, you fund the difference from that margin account, putting you in the hole on the trade. 

Sounds easy, doesn’t it.  Especially lately.  Everything’s gone down.

One of the ironies at hand is that hardly anybody took advantage of this strategy as the market crapped out in ’07 and ’08. 

Who’s the schmuck now?

This process is as old and established as it is easy – the mechanics of it never enter your field of vision as an investor, you just place a “short” sell order and treat it like any other trade, though you need to remain mindful that you need to “close” the short by buying the stock back at some time in the future.

Still looking for that irony?  Here it is.

This is the dictionary-definition paradigm regarding a “short sale” that investors had stuck in their numb heads when the real estate market crashed. 

Suddenly the term “short sale” was being kicked around as frequently as Bernie Madoff’s reputation… and because the two definitions have virtually no common ground, stock market types were – and still are – a bit confused.

When someone first suggests a short sale of your house, you may begin wondering who you’re going to sell it to at a doomed price so you can buy it back later at a lower one, which you already know you can’t afford anyhow.

Of course, one phone call with your bank will erase all confusion on that count.

As you’re talking to the ten-bucks-an-hour clerk with whom, you suddenly realize, rests your entire financial future, you also realize that it doesn’t matter if you get it or not.

Because your stock market trading days are over, that margin account is dead and buried and your former stockbroker is now bagging groceries at Ralph’s Superstore.

Irony is a beautiful thing.  Now if we can just get Madoff’s children to return that 80 billion dollars they claimed they earned fair and square, the universe will have righted itself.

Meanwhile… start packing.

Nolan realizes that the point of this post is as elusive as it is ironic, and he wants you to know he doesn’t care.  Ranting is good for the soul.  He just hopes you’ll stop kidding yourself that you can get out of this mess by finding a stock that will go to the moon – in either direction – before they come for your house keys.

The Most Important Decision in Your Short Sale

If you’re short selling your house – the asking price is less than the sum of what you owe on it – it feels like you’re dying.  At least financially.

That’s valid, because you’re fighting for your financial life.  Not only has your equity completely evaporated, but you’re battling impending foreclosure and possible bankruptcy if the bank comes after you shaking a big stick.

Not to mention you have to come clean with the suck-ups at the country club.

Given this reality, it’s a fair comparison to view this as a medical analogy.  As in, an emergency.

One in which, perhaps more literally, you are also fighting for your life.

The most important decision in that scenario is who you choose as your doctor.  And perhaps, your willingness to change doctors along the way.

Which leads us to today’s point: perhaps the most important decision you will make during your short sale process (or, if you prefer, battle), is your realtor.

Bend Over, Please

Chances are you visit your regular doctor on an annual basis for checkups, and on occasion when you’re sick or injured.  But in this world, if something is wrong with you beyond the need for antibiotics, your general practitioner will send you to someone else.  A specialist.

If you need a colonoscopy, you’re given a bottle of rather nasty cleansing pills and sent to a clinic where – Lord help them – they do this all day.  If that turns out poorly, you move on to a proctologist.  Or worse.

If you have hormone problems you head for a urologist.

If your feet hurt you see a podiatrist, not to be confused with that proctologist.

And – here’s the biggie – if you have heart problems you go see a cardiac specialist.  Imagine your general practitioner, perhaps a gentle old country doctor who gave birth to you in rural Somewhere, telling you, “yeah, your ticker needs a by-pass, I can squeeze that in Friday before my tee time.”

And yet, if you’re facing a short sale situation, that’s precisely what too many suffering homeowners do.  They hire their general practitioner realtor to handle the most important, high-pressured and complex selling transaction possible.

Why?  Because unlike pretty much any doctor worth the sweat on their stethoscope, your realtor is likely to assure you that they know how to do this.  That they’ve done “several of them” and that it’s really no big deal.

Newsflash: it is a big deal.

It’s complicated.  It has a timeline, at the end of which is the surrendering of the keys to your front door.

Which, returning from our analogy to the dark real world of your short sale, will be the financial death of you.

There are two immediate avenues of investigation you should pursue when the prospect of a short sale looms.

First, interview your broker.   Don’t naively buy into their claim that they know this end of the business.

The short sale rules and expectations of the banks are constantly changing, especially in light of the current administration’s efforts to put Federal programs and lender regulations in place.  A weekend seminar at the local Holiday Inn isn’t going to turn your broker into someone who can confidently surf this learning curve.

Ask how many short sale transactions they’ve done in the last year.  In the last six months.  Ask if they actually closed – if the patient lived or died.

Ask what they know about the latest – as in, since early April – Federal programs and lender mandates.

Ask who in their office actually negotiates with the bank.  Chances are it won’t be your broker, so pay attention to the direction in which that baton is tossed.

And then, get ready to get pitched.

Because your broker is as likely as not going to tell you to relax, that all is well.    That they’ve got this. They probably won’t lie to you, but they’ll want to keep the sale on their plate with the best spin they have.

Some brokers work in an office that has a legitimate short sale specialist sitting in the next cubicle.  This is a good thing, especially if you are told that your broker will hook up with said specialist on your deal.  Which, of course, you should verify by asking that specialist these very same questions.

If you don’t like the answers, however, you’ll need to overcome the guilt factor that is working in the broker’s favor.  They’ve labored long and hard over your listing, they’ve shown your home nearly a hundred times, and they’ve suffered with you through the continuing descent of your asking price.  What once was a Mercedes-worthy commission will now only get them a used Pontiac.

You’ll feel like you owe her or him this deal.

You don’t.  Not until you verify her or his qualifications, and proximity to a legit short sale expert.

If you can’t do that, find a resource that covers your bases.  Hire an attorney who specializes in these transactions, and have them ride parallel with your broker or actually take over the bank negotiations, and have that fee come out of the broker’s cut.

Or, explain that this is your life and you need to go elsewhere.

Just like you would when your friendly old country doctor wants to slice into your chest and pull out those nasty calcified hard thingies.

It’s your short sale.  It’s your life.  And the consequences of flat-lining during the procedure are yours and yours alone.

The Two Most Important Words in Short Selling Your Home

Your house is on the market. After a painful and woefully unsuccessful effort to sell your home at even a miniscule profit, you’re down to this: you’re now asking less than you owe your bank.

Or if you’re like most people this situation, banks.

You’re short selling. Welcome to the hottest unwanted, life-is-unfair trend in the history of real estate. Your options all suck at this point, but you do have them.

There are two ways to go about this process, one of them – the seemingly honorable one – being less strategic than the other.

You can keep paying your monthly mortgage bill.

But if you do that, there is a chance your bank won’t want to talk to you about a short sale. And why should they? They’re still milking you of your remaining cash.

Or, you can stop making your payments. It’s common knowledge that lenders won’t give you the time of day until you do.

This is the most common state of things in the dark world of short selling, and the one your lawyer will probably recommend when this freight train starts bearing down on you.

You won’t want to do it. You’ll feel terrible about do it, because that’s just not how you roll.

If you feel less than honorable about not paying, consider the bigger picture. You’re already asking the bank to take less than you owe. Don’t add being foolish to the list of things you choose to lose sleep over.

Get ready to be harassed.

After the first thirty days without hearing from you, someone from your bank will start calling you. And whether you answer your phone or not, they’ll keep calling.

Most lawyers will advise you to take the first call. You can explain your situation to the collection agent, who may or may not seem to care. The young woman who kept calling me – I wasn’t smart enough to stop taking the calls, believing that I could reason with this person – kept asking me what my strategy was, and I kept answering: “I’m going to short sale the house.”

Her enlightened response, straight out of her Collections 101 mail order training course, was, “But sir, what is your strategy? What are you going to do?”

“Again, I’m going to sell my house. I’ll keep lowering the price until I do.”

“But you can’t live there for free, sir. You need to send us your payment.”

“I don’t have the money. Otherwise I would pay you.”

“So what’s your strategy, sir?”

“Excuse me?”

“You need to send us your payment.”

“What part of I don’t have the money right now don’t you understand? I’m selling my house. That’s my strategy.”

“But what are you going to do about this, sir?”

“Really? You’re really asking me that again?”

“You can’t live there for free!”


That’s the third most important word in short selling: click. Hang up on them when they go all screw-loose on you. Which some agents will.

It’s the ones that seem to understand that will get you.

Once in a while you’ll get a collections agent who has been there. Or so they say. They get it. Times are tough.

They’ll ask you if you can borrow some money from a family member. A friend. Just enough to make the most recent payment.

They may suggest that you send in a partial payment as a sign of good faith. They’ll imply – if not come right out and say it – that a partial payment will be interpreted by the bank as a sign of good faith, and could delay the collection effort in your favor.

If they smell your fear, they’ll push that button until you cave in.

Don’t do it. Don’t buy into that simpicato baloney.

They’re just trying anything they can to get you to write a check. Because that’s how they – the $10 an hour collections agent who has absolutely no power or say at all when it comes to the bank’s position on your loan– are evaluated and paid.

Ask your lawyer, I’m betting she or he will agree. The smartest two words when it comes to short selling your home is… don’t pay.

Not a dime.

Because everything you send will be wasted money.

It will not change the timeline of the collections effort, nor will it influence the bank’s ultimate decision when an offer is put on the table.

The money you send in during the overdue period will first be applied to late fees and legal charges, if any. And it doesn’t matter that anything left over might reduce the principle owed, because at the end of the short selling day you’re not getting a dime anyhow.

So don’t pay ‘em. Not a single dollar. No matter what the collections agent says.

Focus on getting an offer on your house, and on getting the ensuing negotiation done competently and efficiently.

And for that, get your lawyer involved. If you’re going to write a check during this process, write it to her or him, not the bank.

No matter how nice they seem to be. That’s just their strategy.

The Unexpected Downside of Short Selling Your Home

The decision to short sale your house is always the lesser of two evils.  It’s either that or wait for the bank to kick you to curb and change the locks, also known as foreclosure.

In both cases you have an appointment with a moving van, and either way you walk away with absolutely nothing.  Not even your pride.

The reason to avoid foreclosure is, of course, a question of credit.

If you go that route you’ll have a black mark branded into your financial forehead that will last for about seven years.  For short sales, the duration of that credit scar can be erased in about two years, provided you can find new and desperate sources of credit and aren’t as much as ten minutes late with a payment when you do.

Getting a loan – any loan – will be next to impossible.

And if you’re looking for a job, your credit rating can cast a dark shadow over your game if a prospective employer decides to check the numbers.  You can hide your fiscal plight from the gang at the country club for a while, but don’t think you can fool Big Brother for an instant.  They’re on to you before you can sell your stamp collection on eBay to pay your next health insurance bill.

Of course, that’s the expected downside of short selling, along with your significant other losing their hair from all the anxiety.  What you may not expect is to see your financial life shutting down before your eyes long before either option – short sale or foreclosure – becomes your reality.

A Cold Slap of Plastic Reality

These days most foreclosures are preceded by an attempt to sell the house, and many of those fall into the short sale category.  Part of the standard approach to short selling is to stop making your mortgage payment.

Which opens up another little can of nasty fiscal worms.  Banks aren’t interested in your financial problems until those problems become theirs.  And now, with two stubs still in the payment booklet in your desk drawer, it has.

The lawyer or trusted advisor who recommends you ignore your late payment notices will assure you that you won’t find a foreclosure notice glued to your front door for three to six months.  You will, of course, receive nearly daily calls from an increasingly aggravated, and therefore aggravating, ten-dollar-an hour swing shift bank hack calling from a drab cubicle trying to guilt or scare you into sending them a check.

And right about then you realize that this entire process completely and totally sucks.   The bad news is that it’s going to get worse before it ends.

Because there’s another snake in this unpleasant grass.

And its bite is worse than the tone taken by that debt collector you’ve been avoiding thanks to caller I.D.

Somewhere along that three month safety timeline, before the sky falls – while you’re praying for an offer on your house – you’ll try to use a credit card as you normally would, only to discover it no longer works.

Or you’ll get a chilly letter informing you that your credit limit has been slashed to a fraction of its former self, or perhaps shut down entirely.

Even if you’ve never missed or even been late on those payments.

Even if you’ve paid off the balance each and every month for the last two decades.

They’ll throw you under the credit rating bus without so much as a glance at your payment record.  And they couldn’t care less how unfair you claim it to be.

The reason links back to those two or three unpaid monthly mortgage bills.  Soon after the first month becomes officially unpaid – which occurs on the day the second missed month’s check is due – those three nosey credit bureaus turn on you.

Your credit rating, the one that got you that mortgage in the first place, heads south like the price of BP Oil stock.  And you can rest assured, the folks loaning you money – any money – will hear about it before you will.

The Bumpy Pre-Foreclosure Credit Ride

In the span of thirty days I had two personal lines of credit and two credit cards basically tell me that they no longer wanted my business, even though I’d never so much as missed a payment.

The credit card folks won’t even bother to write.  No, one day a waiter will bring your VISA back to your table with the news that the card has been denied, and after a few hours of blind denial and anger, then you’ll know.  Because, armed with righteous indignance and your bank register, you’ll call to set them straight.

Good luck with that.  They’re expecting your call, and the script of your fall from credit grace awaits a bland reading into your lame, credit-abusing ears.

My advice – if you’re into your second month of late house bills, is to start carrying cash.

When I called on the first invalid card, which I’d used five times the day before, I was told my available credit had been slashed from $25,000 to $1700, which was interesting because my accrued balance at that time was $1685.   The reason?  A 100 point slide in my latest credit score, with two noticeably high balances – those would be my first and second mortgage loans – in arrears.

Trust me, the term “in arrears” takes on a slightly darker interpretation in these moments.

Had I racked up only $467 as of that day, they’d have cut the top end to $500.

As for the lines of credit, they were a bit more civil.

They sent letters, one telling me that I could no longer withdraw any cash advances from the line, though I was of course expected to maintain my monthly payments.

The other, which arrived a few months later, was bit more cagey.

They waited until I had strategically reduced the balance owed from just under $50,000 to nearly zero.  I’d used money from an investment account for this purpose in order to reduce the illusion of liquid cash on hand for the short sale folks, who might get grabby for a chunk of that to make up the shortfall had it been otherwise highly visible.

Better to raid your cash for debt reduction than to leave it on the table for the banks to jump on, which they will.

Within two days the bank cut my credit line from $50,000 to $5000, and told me that my perfect payment record stretching back to 1978 would be of no influence or relevance upon appeal.  A temporary set-back reported by three computers trumps a 32 year flawless relationship anytime.

Human beings in the banking world, it seems, are as helpless to change these outcomes as they are to understand the computers that are running their business.

So if you’ve stopped paying your bank in favor of keeping up those credit card payments, don’t get to comfortable.   Just because they’re not calling you like the mortgage folks are doesn’t mean they don’t know about your sinking ship.

Top Ten Things You May Not Expect From Your Short Sale

Our title today brings up a good point.  When it comes to a short sale, you don’t really know what to expect. 

Because anything can happen.

But there are a few things about a short sale that do indeed defy logic, if not belief.  There’s a reason there aren’t any short sale books on the shelf at Barnes & Noble: nobody really knows all there is to know.  And this market changes on a daily basis.

So buckle up, it’s gonna be a bumpy ride.

10.       You won’t get your first short price.  In fact, you won’t get any price at all until you lower it to the sweet spot,  which will be about 80% of what you think it should be.

There is a temptation to think that once you add the words short sale to your listing, you’ll need a security guard in your driveway to keep the onrushing buyers at bay. 

That’s just not gonna happen.  Chances are the real price is way lower than you think it is.

9.         When you finally get there, you’re likely to get more than one offer. 

8.         In fact, some of them might exceed your already ridiculously low asking price.

In my case, we had finally lowered the price to $650K after absolutely no action at what we believed to be a series of give-away prices.  Zilch.  When we went down to $599K, three offers came in immediately, all of them above that asking price.  The best was $631, which would have been a reasonable offer at the former price.

Go figure.  

Just shows you how crazy this situation is on both sides of the transaction.

7.         It’s not your house.  It doesn’t suck.  It’s the market.  Which does suck.  Don’t take it personally.

6.         Buyers will still ask you to jump through hoops. 

Even though they’re stealing the place out from under you, and even though the standard procedure for a short sale holds that the buyer need do nothing further to the home and spend not a single penny at closing, some bottom feeding schmuck will still ask you to repair your deck before closing.

Just say no.

5.         Not all short sale buyers are evil.  Some are actually bidding at the very upper limit of their price range, and your house happens to fall into that category. 

A week ago, when you were a few dozen grand higher, they skipped right over your listing without a second thought.

Which is precisely why you need to keep swallowing your pride and slash your price even more. 

4.         That said, not one of them will experience a single moment of empathetic thought or as much as a nanosecond of sympathy to your situation.  For them, your loss is your gain, and on the day they move in they’ll raise a toast to your financial demise.

Don’t hate.  Just move on.  Chances are they’ll be in foreclosure before long, too. 

3.         The banks will shock you with their unresponsiveness and ineptitude.

They will lose your data.  They will put you on hold.  They will hang up on you while you are on hold.  The person handling your file will disappear and you’ll need to start over.  In the middle of it all someone you’ve already spoken to will tell you they have no record of your application.

You, or your broker, or both, need to become the world’s biggest pain in the ass where your bank is concerned.  Call them daily.

And remember this as you sit there wanting to throw your phone through the plate glass window: the person at the bank can’t help it.  They’re making ten bucks an hour and can’t wait until their next smoke break.

Yeah, that’s what your situation is worth to the bank.  They give it to someone who just got fired from Walmart to clean up.

And if that’s why you’re in this mess… consider applying at the bank.  They’ll hire anybody.

Just sayin’.  Adjust your expectations accordingly.

2.         You may not need an attorney after all. 

The best reason to have a attorney involved – barring any unusual circumstances… it’s bad form to remotely suggest that it’s not a good idea to use an attorney… then again, this whole mess arises from the fact that you probably can’t afford one, so you might consider this – is because you don’t believe your broker really knows how to pull this off.

Which is highly likely to be the case.

If you have a tried-and-true short sale specialist as your broker, then you can relax.  The ins and outs of this process, while just as frustrating for them, are old hat.  And it won’t cost you three hundred bucks an hour.

Always remember, they don’t get paid until the deal is done.  Which means, they want this to happen as much as you do.

And the #1 thing that might surprise you about your short sale?

1.         At the end of the day – which is a long, long way off – you’ll be a happy camper.  Really.

No matter what it took, no matter how mad your neighbors are at the new bargain-basement price standard you’ve imposed on the ‘hood.

At the end of this nightmare, the only thing you’ll lose that really matters is that load off your shoulders.

Ways to Save on Housing Without Moving in With Mom and Dad

Image credit: Freedigitalphotos.net (federico stevanin)

1. Get a roommate, or ten. It doesn’t have to be forever. Just until you get out of debt.

2. Rent a room. Being someone else’s roommate is a whole lot less commitment than letting someone live in your house. If you don’t like it, just move.

3. Get an RV or 5th wheel. Many camping locations allow you to park and reside long term, some have weekly or monthly maximums. Some have no fees at all (around here, many casinos will let you park indefinitely in their camping lots). Don’t have a truck with a 5th wheel hitch? No worries—many companies will move your rig for you when you buy it, even if you buy it used. I have friends who did this for several years in a long-term RV lot while they were launching a business.

4. Boondocking. It’s like camping, but really rough, and always free. Pitch a tent somewhere that it’s allowed. Get a gym membership and shower at the gym. At my college there were a number of students camping in the woods around campus. I’m pretty sure they were smoking their tuition funds. There are many websites dedicated to the sport of boondocking, that even map GPS coordinates of known sites and their amenities. Combine boondocking with living in your car for optimal results. (See “How to Live In Your Car.”)

5. House-sit. This was my college lifesaver. Somehow I got connected with a number of university professors, and had two separate (back-to-back) six-month terms of house-sitting while these teachers taught abroad. One whole year rent-free! Many websites connect sitters with those needing “sitting.” Craig’s list and sittercity.com are great places to start.

6. Liveaboard (a boat that is). A “liveaboard” is a boat large enough to sustain a person. You can typically buy a used boat large enough to live on for under $20k, and then it’s just moorage, utilities and maintenance. Your choice of home-port would greatly affect the financial benefit of this scenario, so proceed with caution. Another possibility is to see about renting a boat to live aboard if the owner isn’t using the boat currently. Keep an eye on message boards at marinas as well as sailing boards. Many boat owners are having tough times, and while they don’t want to sell the boat, they wouldn’t mind having someone else take over moorage for a year or two.

7. Live-abroad jobs. Many live-abroad jobs provide housing and pay a stipend. Get Rich Slowly had a great post about live-abroad financial successes.

8. Couch surf. Right up there with living with parents, this is a very short-term arrangement, or a long term one with a lot of moves, but it’s usually free. See www.couchsurfing.org/.

9. Live in your office. Debtkid made it work for two months while he was between places. Way to go DK-we love your scrappy style!

10. Squatting. It’s worked for some people, and in most cases, it’ll get you arrested, but sometimes, not so much. See Village Voice’s story on illegal lofts in NYC.

HAFA & HAMP and Your Short Sale Explained

A funny thing happened on the way to foreclosure.  I received a letter from the very folks – all of them wearing suits – who would soon be coming to take the keys away.

And guess what… they were actually offering to help me.

Not help get me the hell out of their house, but help ease the process by hooking me up with a new Federal program launched on April 5th – the Home Affordable Foreclosure Alternatives program, or HAFA.

Turns out half a helping hand is better than nothing.  Get it?  HAFA helping hand… never mind.  I know, foreclosure isn’t funny.

Believe me, I know.

You may have heard of it.

But before you did, you may have heard of a little federal program called HAMP – the Federal Home Affordable Modification Program.  That’s the one where the bank has you fill out and deliver a two-inch thick stack of paperwork that dates back to the Nixon years, and then pretends they didn’t received them in time, if at all.

That’s what happened to me.  Twice.  I sent back everything my bank’s website claimed was required, and twice they claimed the stuff never arrived.

I’m thinking it never arrived in their right hand via delivery from the left hand.  Because as anyone who has ever dealt with a bank lately knows, the right hand doesn’t know what the left hand is doing.

But I digress.

The reason, I was told by a wily lawyer who didn’t have to clear his explanation with a suit with an agenda to hide, was that at the time of my loan-mod app I wasn’t behind in my payments.

Heck, I hadn’t even made late on a payment at that time.

Of course they didn’t pay attention to my loan-mod.  Why modify what ain’t broken?

Such is the way of thinking that got us all into this mess in the first place.

Start the HAFA Ball Rolling

So that’s lesson number one in this whole HAFA-HAMP-short sale nightmare: stop paying if you want the bank to pay any attention to you.

In fact, in the HAMP fine print you aren’t even qualified to participate until you’re two months late.

Turns out, in my case at least, that the HAFA ball got rolling without me actually doing anything.  I was in arrears.  I was selling my house.  The price sunk below the mortgage due, and suddenly I was short selling.

My realtor made a call to the bank simply to notify them that this was the case.  Sort of a hail Mary to see what they’d say about a prospective short sale, and what provisions might be made before the fact.

What the bank said was this: send us the HAMP papers now, even though you don’t have an offer.  Even though we pretended we didn’t know you before.  (Note: there aren’t really any official “HAMP” application materials, it’s simply your bank’s specific procedure for requesting a loan modification.)

So we did.

The bank’s response was to send me a notice of required documents to qualify for the HAFA program – which, at the time, I didn’t know existed – and a very polite letter explaining that they were just trying to help.

And which, it turns out, was almost an identical roster of required documents that had been on their original loan-mod application spec sheet.  That left-hand-right-hand thing again.

When I asked both my realtor and my lawyer why, the answer was obvious.  It’s all about the cash.  Always was.

Turns out the government spiffs – pays an incentive – to mortgage investors who put their clients into the HAFA program.  They’re going to come up short anyhow, so HAFA at least covers their postage when the sky comes tumbling down.

And the best news… so do we.

Under HAFA, eligible homeowners receive $3000 for “relocation assistance” and another $1500 to cover administrative (read: legal) costs.  This is in addition to walking away without a default judgment, or incurring any closing costs (including unpaid property taxes).

And, under some conditions (see your tax professional on this one) under this plan through 2012, a free pass on what used to label forgiven loan amounts as taxable income.

So if you’re under water and if you’ve missed two or more house payments, it’s time to call your mortgage holder.  It’s scary – it’s like ratting yourself out, rather than hoping they won’t notice for a while… admit it, that crossed your mind – but don’t kid yourself, they are coming for you.

Might as well start the ball rolling with at least half a chance at some upside (sorry, couldn’t resist), through the Federal HAFA program.

For more about HAFA, click HERE.

My Short Sale Nightmare, and How It All Ended Up

A few of you may remember the recent unfolding tale of my short sale nightmare.  Through it all, in addition to some healthy venting at the behest of my shrink, I was simply trying to make two helpful points for my financially-stressed peers.

First… if you’re short selling your home, the most important strategic decision you can make is to use a broker who has experience and expertise in short sales, even if that means firing your broker brother-in-law who doesn’t.  

And secondly… to warn you that the short sale process will be nothing short of hell on earth. 

Because the banks are ridiculously inept.  They lose things.  They forget.  They lie to you.  They change their mind.   They resist.  They keep asking you for a ridiculous amount of the same information, over and over.

And most of all, the ten-dollars-an-hour guy assigned to your file, fresh off a stretch at Burger King, couldn’t care less.

Somehow we survived. 

My house had been on the market for four and a half years.  The original asking price was $1,375,000, which was realistic based on comps, one of them right next door.

I had plans for that massive chunk of equity (I owed about half that).  It included Hawaiian music and cruise ship buffets, and a mortgage-free little condo in Scottsdale between trips.

Want to hear God laugh?  Tell him your plans.

I turned down an offer of $1,000,000, reasoning through my outrage that it would cut my equity pie in half.

Now the angels were laughing, too.

About 18 quiet months later, after reducing the price three times to $850K, we turned down an offer of $800,000.  This was still long before we were in short sale territory, which illustrates the narrow mindset of the naïve seller with visions of equity dancing in his head, which I exemplified.

I also turned down an offer of $450, 000 at about the same time.  Which also illustrated the narrow mindset and greed of the occasional short sale buyer.  I counted that one at $849K.  Silence ensued. 

This whole process was already deep in suck territory.

A year or so later I had two offers at break even, about $700K, which I accepted in a fit of oppressing humility, but in both cases the buyer backed away.  In one case they were demanding a county permit for the installation of a new stove ten years earlier, which the county said was unnecessary and therefore impossible to issue.

A stalemate from the Twilight Zone.  The nightmare wasn’t letting up.

I ended up selling the place over a year later for $665,000, about an $95,000 short-fall for the bank after commission and property taxes, which the bank paid.

Perhaps the most interesting aspect of the experience, however, was seeing how the market reacted to a short sale price versus a regular sale.  Once we went short, a whole new crop of buyers showed up, all of them looking to rip the flesh off of the remains of my delusions of equity. 

For nearly a year we received no offers at the shorted price. 

We started at $695, which was $15K below what I owned.  Nothing.

After a few months we went to $675.  Zip.

Then to $650.  Zilch.

Showings three times a week, by the way.  But there wasn’t enough blood on the sidewalk to satisfy the greed of the short sale shopper.  They were sniffing around, waiting to see where the thing landed.

They wanted the body to start stinking up the neighborhood before they were serious.

Meanwhile we’d fired our landscaper, and the lawn looked like Lyle Lovett’s hair.

Finally we caved in to logic

We were already short, meaning we wouldn’t take a penny away at closing.   We knew this truth in our hearts, but the ego resists.  The only variable here, price-wise, was how low the bank would be willing to go before they opted for foreclosue.

We also had two foreclosure notices in hand, one for each mortgage.  The clock was ticking.

Realizing it didn’t matter to us in the least, we also decided not to care.  Ego is the first, yet resistant, casualty of short selling.

We buried our heads and lowered to $599. 

And then the strangest thing happened.

We got four offers in the next thirty days.  All of them above the new asking price.

Interestingly, the best offer was $650.  Our former asking price a month earlier.  It was a bidding war, and the only thing the short sale buyer likes more than raping the corpse is to beat someone else out of the deal.

The bank countered at $665. 

Then the buyer changed their mind.  In a temporary state of amnesia, they forgot that a short sale is an “as-is” transaction, and the inspection had identified about $5K worth of repairs.  So the buyer – many of whom are as naïve about short sales as are sellers – decided to counter… back at their original $650. 

The bank rejected the counter in an email that read like this: “As-is.  Price is 665.”

The grumbling buyer relented.  Perhaps somebody reminded them that they were virtually stealing this thing for hundreds of thousands of dollars less than market value, and over half a million dollars less than what it was worth a few years ago, and would be worth again within a few years.

And, that foreclosure was on the horizon, in which case the bank would be asking about $750,000.

But the nightmare wasn’t over.  Not by a long shot.

The buyer’s mortgage broker messed up, big time right at the finish line.  The buyer was self-employed, and the investor behind the mortgage was asking for IRS-approved tax forms, which would take six to eight weeks to obtain.

This happened on the very day we were supposed to close. 

Our bank gave us three days to work it out or the deal was off.  Because that foreclosure date was, not coincidentally, on the very same third day. 

The gun was at everybody’s head.  And we had already moved out.

Thankfully, my broker saved the day by cornering the owner of the clueless mortgage firm, which should have seen this coming.  She had sent them a lot of business over the years and assured the guy she would make sure every real estate firm in town, plus the local trade press,  knew about their cluelessness, thus prompting him to pony up the money – in the form of a personal bridge loan to our buyer – to facilitate closing within that three day window.

Somehow it happened. 

We had left town five days earlier, having signed our part of the closing papers early.  All of these updates were received via mobile phone while sitting the cab of a monster rented Ryder truck somewhere between Medford and Barstow.

It was hell.  It was ridiculous.  But it was over.

Except for the happy ending: my check for $3,000 in HAFA funds arrived in the mail a week later.  Short sellers are eligible for this federal assistance if they’re willing to jump through a few more hoops, but it’s worth the effort.

It ain’t equity, but at least it covered the cost of the truck.

Nolan is in Scottsdale by the pool planning his next post for Debtkid.  That sound you hear is the angels laughing… with him, not at him this time.  Survival is a blessing.

My Short Sale: The Best Advice I Never Took

There’s a lot of advice about short sales floating around out there.  And much of it is valid.

Because the phenomena of the short sale is relatively new, which means it hasn’t bottomed out, there are no established standards or even consistent expectations.

The only sure thing is that it won’t be easy, and that logic, common sense and common courtesy don’t apply.

This war, and it’s gonna get ugly.

Each bank does it differently.

But some things – all bad – remain consistent.

Your calls and emails will go unresponded to.  Your paperwork and financial data will get lost.  They will change assigned loan representatives on you monthly, meaning you have to start over.  They will lose your file.  They will seem to be starting over on multiple occasions.

Because they are starting over, and they’ll do so on multiple occasions.

I know of a short sale – with a valid offer in place – that remains unresolved after a full year.  And I also know of one that closed in two weeks after an offer was on the table.  Same bank, too, and the quick-close had a larger loan deficit.

I know of a short sale that simply disappeared from the bank’s records altogether when the attending loan negotiator left the employ of the bank.  Getting fired for ineptitude from a bank’s short sale department is like getting fired from the DMV for being without a personality, but it happens.  Rest assured, though, there is another minimum wage high school grad who just got let go from McDonalds eager to take over your file – which begin anew – when it does.

But I digress.  Easy to do when your short sale is in its seventh month of complete and utter cluelessness.

The Best Advice I Never Took

The first thing you need to do in order to get your bank’s attention is to stop paying them.  No more mortgage payments.

This will feel odd and then utterly terrible.  You aren’t used to being irresponsible, and as you’re grinding your teeth that other sound you hear is the gang at the credit bureau using your file as a piñata.

And so, because it feels terrible, after seeing a lawyer and a broker and drowning your anxiety with a friend you has been there, you completely disregard their collective advice and decide to make one more payment.  Maybe a couple more.  Maybe, because you are person of high integrity, maintain your through the end of the year before you bail.

You do this with the rationalization that you are buying time.  That maybe your house will sell for a price that isn’t short.  That your income will somehow increase, that suddenly folks like you who are over 55 will suddenly be a hot commodity in the job market.

In a very human way, this all makes you feel better.  So you write the check.  You think the bank will appreciate you for this, that they’ll be kinder when things get ugly.

I know one couple that made every-other-month payments for a few months before they ran out of money.

I made two payments totaling $6000 after my lawyer said to stop.  Because I didn’t want to be that guy.

I’d still have that six grand today if I’d have listened.  Because it didn’t change a thing.

See, it makes you crazy, and very quickly.  And no, they won’t appreciate you and certainly won’t care or remember those extra payments when things get ugly.

Late is late.  Foreclosure is foreclosure.  Nobody cares.  It’s business.  Which means  — because it’s business for you, too — you need to get out of your breaking heart and into your clearer head.

Here’s the bottom line on all this: when you know you’re going short, stop paying them.  Right away.

Because every dime you send the bank is, a) wasted, b) doesn’t increase your equity – which is completely gone, by the way – a cent, and c) won’t gain you a single moment of empathy.

In fact, nobody at the bank will even notice.

You’re just another listing in an exploding, bloated database.  No matter now long you’ve delayed the process by sending them money you can’t afford to part with.

The short sale process doesn’t begin until the payments stop and you get an offer on your house that doesn’t cover your mortgage debt.  Both things need to be in place.  Until the latter happens, don’t put a dime in the mail.

And at some point after that, a foreclosure notice will appear on your doorknob.

Doesn’t change a thing.  In fact, the short sale folks from your bank may not even know that’s happened.  Yeah, they’re that clueless.

The second best advice you’ll get is to not answer the phone – this is why God invented caller I.D. – when the bank calls to find why you’re that guy.  Trust me, the person on the other end of that phone doesn’t give a rip about your story.

The third best advice is to use a real estate broker who has experience with –  indeed, to is a bonafide expert in – short sales.  Fire your old broker and change listings if necessary.

This, too, will feel lousy, as your old broker won’t like it and will lay a guilt trip on you because of all the hard work they’ve done to date.  They didn’t sell your house for what it’s worth, and the game has changed.  Keeping your inexperienced broker at this point is like allowing your family doctor to perform a heart transplant.

After those three pieces of conventional wisdom, the rest is up for grabs.  Buckle up… this is gonna suck for sure.

Random Thoughts About My Short Sale

It’s not easy writing about the short sale of my house.  Or the short sale of your house.  And for several reasons.

First, the whole thing is like a root canal.  The only reason to talk about it is to offer something that might be of use, or of comfort.  And when you do (talk about it, that is), you have to spit out all that blood first.  Metaphorically speaking.

It’s also hard because – short of a few universal truths, including the one that says it sucks – there doesn’t seem to be any specific guidelines or rules.  Just when you read that the banks have it down, your own bank does just the opposite.

I got an email this week from the bank negotiator.

At a glance, it appeared he wanted to re-negotiate everything we’d already agreed to.   Which, by the way, were all his terms.   And which, based on history, wouldn’t be an unexpected turn.

This was my realtor’s take on it, also.

So I fired off a nasty when-pigs-fly rebuttal.  But before I sent it, I asked my good friend – who happens to be a realtor who specializes in short sales – to read it.  He had another perspective, one that wasn’t nearly as gloomy.  Or ignorant.

The negotiator simply wanted an updated HUD statement, and because he has the email writing skills of a chimpanzee, what he said he needed turned out (through the eyes of a trained, sane professional) to be a few very specific HUD line items that hadn’t been there before.

He wasn’t re-negotiating at all.  In fact, he was moving forward.

The moral of this story: work with a realtor who really knows short sales.  Who specializes, and can prove it.  You’ll have to cut loose your pre-short-price realtor, who will kick and scream and cry foul because of all the work they’ve put in (newsflash: they never did sell you house), but do it anyway.

You wouldn’t sue an insurance company without the right lawyer.  Short selling your house is even harder, so don’t compromise on your wingman.

HAFA is Worth the Effort

Nobody had told me about the HAFA program, which is part of the government’s Making Homes Affordable Program.  It puts three grand in your pocket if you qualify, and it sends a spiff to the bank, as well.

My bank didn’t know this, my realtor didn’t know this, my escrow agent didn’t know about this.  I wouldn’t have either, unless I’d read about it online.  Perhaps like you are reading now.

Then I Googled it.  As should you.  Now, there’s three grand waiting for me on that HUD statement that wouldn’t have been there otherwise.  And the bank can’t touch it.

Trouble is, you have to work through them to get it.  Which is like trying to use a store coupon printed in an ancient lost tongue.

You’ll have to apply.  Then you’ll have to apply again with a different set of paperwork.  If you’re short selling you’re already used to re-doing things, sometimes (often) because the bank lost your stuff (claiming each time they never got it), sometimes because that’s just the way it works.

Speaking of lost paperwork…

You’re Not In This Alone

This morning’s paper had a long article about someone suing their bank for being, basically, lame.  A huge bank, too, one you’ve heard of.

My heart sang for a moment there.  Maybe it isn’t just me.

The salient point of the article was that in the course of the lawsuit, the lawyer for the class action plaintiffs did some research.  Stealth stuff.  60 Minutes kind of research.  He interviewed a few bank employees who would speak only under the condition of anonymity.

They confessed that they – the banks – lie to customers regularly during the short sale and loan modification process, and intentionally.  When they claim they don’t have your paperwork, or that it never arrived, they are deliberately trying to delay the process.  To wear you down.

Happened to me, twice.  Both times the stuff was overnighted.  Get a return receipt certificate.  Not that it will make a difference – odds are you’ll be told, if you have to ask, that they’ve never heard of the person who signed for it – but who knows.  Worth the buck-fifty.

If you are still making your mortgage payments and have applied for a loan mod, this all makes a sort of sick sense.  They don’t want to talk to you until you are a few months in arrears.  Why would they, the cash (yours) just keeps on coming.

But why they’d want to delay things when you obviously aren’t going to pay them defies logic.  As if you’ll change your mind and suddenly ship off your entire 401K balance to make up the payments.  Or that you’ll liquidate your wedding ring to finance the next six months of your life.

There’s only one corner of this horror story that could possibly make sense.

At least from their point of view.

That’s when the bank fears you are one of those rare people who actually can afford to continue your payments but are electing to simply walk away because you are underwater.  This walk away rationale is getting a lot of press lately, and apparently the geniuses at the banks – they must be geniuses, because smack in the middle of a recession that they played a huge role in creating they are raking in record profits – think that’s the norm.

So they lie to pretty much everybody.

Don’t try to make sense of it.  Of anything associated with your short sale.  Just accept the situation and take it one day at a time.  As if you have a terminal disease.

You do.  You’re short selling.  And it’s gonna make you crazy.

Just make sure your doctor has done this before.  At least that’ll ease the pain.

Short Selling? Got Two Mortgages? Welcome to Hell.

After a while it starts to get funny.  But until it does, it’ll boggle your mind and up your dose of Xanax.

Which you weren’t on, by the way, before this circus pulled into your driveway.

Having two mortgages in play as you embark on your short sale will enroll as many as six different key players:

-         There’s you…

-         … there’s the negotiator for the first mortgage…

-         … there’s the negotiator for the second mortgage…

-         … there’s the attorney or loan collection trustee from the first mortgage…

-         … there’s the attorney or loan collection trustee from the second mortgage…

-         … and finally there’s your broker, to whom at least half of these people may prefer to talk instead of to you.

Throw in your buyer and your buyer’s broker, and you have a party of eight.  Enough to fill a table at a wedding reception.  From hell.

You’ll need a program and a therapist to keep it all straight.

Including that therapist, the headcount is now up to nine.

Like a family reunion, each of them wants the floor.

And few, if any of, will play nice with the others.

All of these debt collecting clock punchers will be sending you stuff in the mail, some of it certified and very official looking.  Some will send you emails that need to go to your broker, and some will send your broker emails that need to go to you.

And lest you already think you’re confused – you are – this collective congregation doesn’t include the people from each mortgage bank – remember, there’s two of them – who will call to harass you weekly before the short sale fiesta begins, and who will be replaced by even more aggressive callers each month in an attempt to wear you down.

Now you’d need to rent a room at the Elks Lodge to get everyone sitting at the same table.  In what universe that could happen is anybody’s guess.

And then, long after the process is well underway with each of the mortgage holders’ assigned short sale negotiators, you’ll still get calls from a debt collector who has absolutely no idea the process has even been launched.

Somebody didn’t get the memo.  Or more accurately, nobody’s sending any memos to the rest of the team.

That’s right, before long you’ll end up bringing the folks from the bank up to date with each call.  I’ve actually had them thank me for filling them in.

To say the right hand doesn’t know what the left hand is doing is to not represent the bizarre truth of this state of affairs.

It’s more like each of the eight hands of a pin-stripe wearing octopus having absolutely no clue what any of the other hands – all of which have little suction cups attached – are up to.

I am inspired to once again spew this venomous rant because today I received a foreclosure notice in the mail.  But to appreciate this in its full ridiculous glory, consider this:

I’d already received one, from the first mortgage holder.  It was sent in May, but the foreclose process had been put on hold pending the completion of the short sale we have miraculously survived (thus far).

Today’s notice was from the second mortgage holder, who had no idea about any of this.

Oh, it gets better.

Here’s the punch line: both my first and second mortgages are from the same bank.  Different departments in different states, who hire different collection agents from still different states.

In the only move the bank has made that makes any sense at all, they’d assigned a single negotiator to represent both mortgages.  It’s just that nobody told the folks back in the office — either office – about it.

One time I called his place of work and was told nobody by that name worked there.  Swear to God.  That’s the day I went on Zanax.

Somebody needs a conference call.  But it ain’t happening.

There are consequences to this eight-handed monster with no clue.

For instance, last week when we were in the final stages with the negotiator, a HUD statement was drafted.  In order to complete it, the escrow officer had to contact the bank – one might legitimately ask which bank? at this point – for the loan payoff amounts.

The bank – I shit you not – didn’t know.  The negotiator knew, but nobody asked him.  The loan department referred us to their attorney, the one in charge of the debt collection.

You know, the one that didn’t get the memo.

Big surprise: that attorney didn’t know, either.

But he thought he did.  The numbers he provided for that HUD – the payoff of both loans – were $39,000 off.

Yes, you read that right.  According to this guy, the first loan would be overpaid by 39 grand and the second underpaid by the same amount.  Which just might have put the short sale approval, which was at hand, at risk.

When I told my broker about this, I was told to back off and let the professionals do their job.

I didn’t.  Back off, that is.

And neither should you… ever.  Every circus needs a ringmaster, and as the person in common with all these players – which in this case is synonymous with having a target on your back – that’s you.

Then came the blessed approval letters, one from each mortgage holder (even though they’re the same bank, separate letters ensue), giving the actual payoff numbers.

Turns out I was right after all.  Broker apology still forthcoming.

The short sale now looks like a done deal.

Which renders today’s receipt of a foreclosure notice from the second mortgage guys slightly hilarious.

Now if I could just find a way to put my anxiety medications and the counseling tab into the closing costs, life would be perfect.

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  • Bill

    Bravo, I a currently going through this process with an offer. Your blog is the most enjoyable and informative on the short sale subject I have found. Beside the fact that it makes me laugh out loud reading it.

  • Cynthia in California

    Yea, you did a great job explaining your experiece! I was living vicariously thru your experience laughing hard! I am at the – HAFA way out of there house! With a offer approved by Bof. oh yes… Got the foreclosure notice this week. Hope all ends well with $3000 moving expense.

  • Dolores Seames

    Thanks for sharing your experience. The offer my husband and I put in for a short sale home was just excepted by the seller, and the bank said they are OK with it, however there are two mortgages. The bank looked at all offers first, then the seller chose what the bank was OK with. We don’t know if the bank said OK to only our offer, or if there were others for the seller to choose form. There were 4 total. We have no idea how the second bank is going to respond yet. This blog has given me more empathy for the seller. We are willing to wait it out, as we are in no hurry. This home will be our retirement home in about 7 years. We are praying that this sale goes as smoothly and as quickly as possible for both parties. We have only started this process 4 days ago, and have signed a contract.

  • Jay Mills

    I can’t thank you enough for sharing your experience…It has enabled me to stop stressing and to take each day one day at a time…..This has been one of the most stressful times in my life as it relates to my finances….I wasn’t sure if I should continue to make my mortgage payments but, after reading this blog I know it make absolutly no sence to keep throwing money in to a deep black hole…..I pray that my doctor can sucessfully perform the surgery. I trust him only because he has done a major heart transplant on one of my co-workers….It took about four months for their short sale to close but they survived……… I have read over 1,000 blogs about short sales this one has been by far the absolute best

    God bless you for sharing your experience!

  • http://www.raooty.com Riley Allegood

    With havin so much content do you ever run into any issues of plagorism or copyright violation? My blog has a lot of exclusive content I’ve either authored myself or outsourced but it seems a lot of it is popping it up all over the web without my permission. Do you know any solutions to help stop content from being ripped off? I’d certainly appreciate it.

  • cynthia

    thanks for the humor as I embark on this myself, after I don’t make the NEXT payment; oh s___, why did I write that check 2 days ago???

  • Vianna roman

    My request for shotsale wad denied and I was
    told that chase
    will never approve a shortsale request because its not an arms
    length transaction but they are wrong and I don know what to do
    I am not related to none of the parties involved.

  • Erin

    Scott, This blog is by far THE BEST one online…..and regardless of anyone’s position in a short sale transaction, they can take something from what you wrote. It is sad to see the process fumbled every step of the way. Clearly, the right hand doesn’t know what the left is doing. I am dealing with 2 banks and I don’t think Zanax will get me through. Thank you for shaing your experience with those of us stuck in the process wondering what happens next. Don’t ever lose your sense of humor!

  • david

    going throught the shortsale process right now with 2 different lenders. first one approved HAFA, second one is being difficult and we are approaching our trustees sale date. I was told i hvae to pay 2,000 and start the bankruptcy process to halt everything.

    is this true? am I getting scammed? ARGH.

  • Tracy

    This made me laugh. And it made me sick. We started the SS process in March 2012. Got an offer 12 hours after we listed it. We knew about HAFA. Didn’t qualify. We did regularly make our payments. Reason why? To keep our FICO score. I’m not letting go of my 825 for this! I anticipate it will go to at the most 760 and I’m fine with that. I digress… we qualify to get another house IF we finance FHA. Sucks. But ok. So, we found a house, after trying with 5 others houses that would not accept out offer because we were short selling. After we finally got a contract on our new house, buyer dropped out for now good reason. Had to market it again. Got another contract 2 weeks later. Been on pins and needles. Bank of BOA. The final approval letter was not arriving. I called for 3 weeks straight. Our negotiator was changed 4 times. I kept detailed records of all my phone calls. I finally found a name at BOA – Victoria Torbet. Don’t know who she is, but I called her and my approval letter arrived the next day. We are scheduled to close on Friday. I really hope it works. We are getting “relocation expenses” of a pretty decent amount. I hope that comes through – I’m counting on it. Yes, it was hell, but I see the end of the tunnel coming soon!

  • Shortseller

    I just closed on the shortsale of my house (not my home–which is wherever my family and I are!) and the process was protracted and very difficult. In the end, howver, it all came together–in part because I voluntarily did things to improve the house even though I was under no obligation to do so. In turn, the grateful buyers did some great things to move the process toward a happy ending. Now, I am not on the hook for a mountain of upside down debt and, if that’s not enough good news, another personal debt that prompted a lien was disposed of as well. The process was agonizing, took about 10 full months, and threatened to fall through a few times. All I can say to others is hang in there, be willing to do do what you can to get ‘er done and, most of all, pray alot! Good luck.

  • Shortseller

    I should point out that the shortsale had a happy ending DESPITE the ignoramuses at the involved banks. It was ultimately laughable, in a pathetic sort of way. My bank’s personal representative changed every 2 to 3 weeks over 10 months and notice came by mail with every change. The last one I received (I hope) came the day before we closed! And the collection office of the banks was oblivious to the then-pending shortsale so the calls were ceaseless. The buyers’ lender was a royal screw-up as well and I was confident right up to the day of closing that the sale would not occur, based solely on the months of myriad foul-ups and errors. But, as I said, it did actually happen. So, no matter how bad it gets, no matter how impossible it seems, no matter how frustrating it is, HANG TOUGH and keep plugging. Control what you can. After all, that’s all that you can do.

  • Laura

    Thank you for sharing these stories…..So once upon a time oh about 2 years ago I was in the boat of BoA buys note, second morgage frommprivate LLC and BAM….House is worth less yadda yadda yadda….Months and months later Second puts a lean on the house and I am in foreclosure….I leave the palce and try for the short sale at the last second, holding on for dear life I was. Months and months later of brutal humbling, no mortifying anguish, I have agreement with BoA and second….Second notorizes agreement through escrow, presents the courts with the satisfaction in full for lean done right?!?Nope, second morgage finds Texan lawyer, where I moved to, and presents ONLY the original lean papers, you know the one that was satisfied in full and closed.I call, explain this all, provide the papers and they leave me alone satisfied. Fast forward 1.5 years, 2nd morgage AGAIN finds a CA lawyer and AGAIN I get the original lean papers, yep you guessed it the same that is “SATISFIED IN FULL” and closed. So at this point I am angry, 2nd is mad I get that but so am I, like walking away from my home and the whole process was fun right!!! I believe at this point I will seek legal advise to stop this person once and for all. 1. He agreed to settled in full and with the bank that he would get no more. 2. He closed the lean case stating settled in full. 3. I would like to put that all behind me AT LAST. 4. He is presenting half the lean case, not the fact that it is settled in full FRAUD…Perhaps this will end soon!!


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    This really is considered one of my treasured go-to looks when I am having a terrible hair day, or maybe will not provide the energy to complete anything at all extra included.

  • Manna Capital

    Thanks for giving such useful guidance to us about short sale process.

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