The May day Carol Stemsrud wrote the offer on what she figured would be her first home, she envisioned hosting her family for Thanksgiving for the first time.
Her would-be midtown house is plenty big enough, with four bedrooms, two baths and a large, bright dining room.
Now 11 weeks later, Stemsrud wonders if she’ll be housing her clan in her two-bedroom rental apartment on the southside.
Stemsrud fell in love with a short sale, or a home now worth less than the current owner owes on the mortgage. She expected a protracted process — seven weeks or so for the lender to review the situation plus another couple weeks to get to closing.
Considering she and the seller have yet to hear a peep from the mortgage holder, Wells Fargo, her excitement is quickly turning to anxiety.
“They have everything they need; we know that because something got lost and we had to resubmit everything,” Stemsrud said. “We’re just waiting.”
Stemsrud’s plight is all-too-familiar these days. The recession and housing collapse contributed to a drop in property values, and many homeowners found themselves owing more on their mortgage than the home was worth. Any job loss or other financial hardship put them in danger of default.
Most distressed homeowners react by putting their properties up for sale to avoid foreclosure. But because of the drop in value, buyers like Stemsrud offer less than what is owed on the mortgage. The would-be seller then must work with the lender on handling the difference.
Ostensibly, the seller can’t pay the difference, so the lender has to decide whether to eat the shortfall and approve the short sale or proceed with foreclosure.
Lenders, swamped with foreclosures and short sale offers, have been slow to respond. Banks typically take months to respond to short-sale offers, and getting the deals to close can take several more months, according to realtors. The situation requires the patience of Job.
Real estate professionals hoped this would be the summer of the short sale. Many of the large mortgage holders, like Bank of America, JPMorgan Chase and Wells Fargo, have ramped up their short-sale programs.
Plus, the Federal Housing Finance Agency, which oversees mortgage guarantors Fannie Mae and Freddie Mac, enacted new rules effective June 1 that imposed deadlines on lenders.
Mortgage holders now must review and respond to a short-sale offer within 30 days, give the would-be seller weekly status updates after the first month and make a final decision on the offer within 60 days.
The early returns have led to pessimism. Short sales as a percentage of total sales actually fell to a calendar year low in July in the Chatham, Bryan and Effingham counties. Even as the housing market as a whole surged in the month — July’s 444 sales marked the second best month, behind June, in Savannah since the housing bust — these distressed properties continue to stress buyers, seller and realtors.
“Look, there’s nothing short about a short sale,” Sandy McCloud, a realtor with Century 21 Fox Properties, tells her clients. “If you’re not patient, short sales aren’t for you. The whole thing is very frustrating.”
Front-end problems
The failing of the Federal Housing Finance Agency time-frame rules is they don’t address the up-front documentation issues, said Savannah Area Board of Realtors President Paul Gutting.
Lenders are understandably demanding when it comes to short-sale properties. The distressed borrower has to prove he can’t pay the mortgage or make up the difference between an offer and the amount owed before the bank will consider it.
The lender requires paystubs, tax filings, assets inventories and hardship letters along with the normal documentation provided by the would-be buyer. The typical short-sale submission, Gutting said, numbers more than 100 pages.
“And everything has to be up to the minute,” Gutting said. “You get all that stuff together and you send it in and they look at it and say ‘You need this.’ By the time you get that, the other documents you submitted are out of date.
“The new rules are good rules, but time will tell how much they actually expedite the process.”
The FHFA’s new guidelines aren’t the first to come up short on helping with short sales. The Obama administration started a program in 2010 called the Home Affordable Foreclosure Alternative that offered incentives to lenders, buyers and sellers to speed up the short sale process on Freddie Mac and Fannie Mae loans.
The program had a catch, though — to qualify, distressed borrowers had to have participated in the Home Affordable Modification Program.
“By the time they had jumped through all the hoops trying to get their loan modified, most were fed up,” Gutting said. “They didn’t want to have anything more to do with the lender beyond tossing them the keys at foreclosure.”
Wait time is relative
The short-sale process is becoming more manageable, at least.
Vickie Linscott with Keller Williams Coastal Area Partners has been working with short-sale buyers and sellers since the bust. She once had a short sale take two years to complete. Buyers are understandably reluctant to engage in short sales.
Her favorite short-sale story involves a property she listed in Richmond Hill. The house elicited five offers, but the bank took five months to process the request. By that time, all but one of the buyers had backed out. The woman who was left — and ultimately bought the house — has lived the previous two months in a truck camper with no shower.
“She really wanted that house,” Linscott said. “But she’s the exception to the rule, believe me.”
Banks are “getting a lot better about waiting to pull the foreclosure trigger,” Gutting said. The more patient the lender is, the more likely the distressed homeowner is to find a short sale buyer.
But again, the buyer must be a patient one. Stemsrud is, even as the calendar moves closer to the holidays.
“It isn’t a dire situation, but I’m a renter, and I went off my lease to go month to month, which costs more, figuring I’d be moved by now,” she said. “It’s very frustrating.”