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Erika Kauzlarich-Bird: Successful short sales require diligence, hardships

Real Estate Talk

Posted: May 10, 2012 1:55 a.m.
Updated: May 10, 2012 1:55 a.m.
 

A bank will do whatever it takes to recoup as much as it can, but a short sale is relatively straightforward when negotiations involve just a buyer, a seller and a lender.

However, a short sale — in which the lender agrees to the sale of a home for less than what is owed — can get woefully complicated when an investor owns the loan, speakers representing three major banks said at a recent Realtors forum.

When an investor is involved, the buyer and seller may think they’re dealing with a bank, yet more often than not, the bank, just like the buyer and seller, must wait for a decision from the investor.

And, for investors, the price of a single property, which typically is merely one among hundreds or thousands of loans, may not be what decides if a specific short sale succeeds or fails. It’s how the entire portfolio performs.

Few banks hold all home loans they write in their own portfolios, while many banks sell upwards of 80 percent of loans to investors. For example, Wells Fargo services more than 10 portfolios involving hundreds of properties. Bank of America services hundreds of investors, each having different requirements.

If a loan is held by the bank, getting an answer about the possibility of a short sale can be relatively swift. If the loan is merely serviced by a bank, however, the rules change dramatically.

“Our job as a servicer is to help investors mitigate their loss,” said Elena Celestine, assistant vice president external engagement, short sales, for Bank of America. “Hardship and net proceeds, that’s what short sales are about.”

Celestine and other speakers at a lenders panel organized for real estate professionals by the Southland Regional Association of Realtors stressed the need to understand an investor’s requirements.

Abel Fregoso, national short sale manager for Wells Fargo, said a short sale could be initiated even without an offer. That way, using information provided by the Realtor, the investor can detail their requirements while an acceptable price range can be established.

“We require four comps,” Fregoso said. “Two distressed sales, two traditional sales. That allows us to determine the variance in price between traditional and distressed.”

From there, Wells pushes the data through a decision tool — actually, Fregoso called it a “meat grinder” — that comes up with a range from 80 percent to 110 percent of appraised value.

“We’re very careful not to have all properties at 80 percent value,” he said, “because it will impact the local market.”

The speakers also urged real estate pros to document and deal as quickly as possible with any damage issues or mitigating factors that may support a price variance.

“We need actual, material evidence,” Celestine said.

Most importantly, owners must demonstrate a legitimate hardship for a short sale to be approved. For examples, unemployment, underemployment, death and relocation all qualify.

“We have to explain to an investor why you cannot make a payment,” said Deanna Murphy, vice president, short sales at Chase.

The speakers urged sellers to make full disclosure about their financial status. Hiding anything typically means one thing — the end of any hope of a short sale.

Erika Kauzlarich-Bird is president of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.

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