Yes, it is human nature to want decisions that impact you, to MAKE SENSE! When it comes to working with banks, investors or mortgage insurance companies we want the decisions they make to have some rationale. We want it to be explained. We want it to make sense. It happens sometimes that no matter what we do, how we submit a full package, how we prove hardship and how we jump through every hoop – that a short sale is still denied. It is aggravating, frustrating and VERY disappointing.
Many feel a bank “should” help them when they decide a short sale is the decision they’ve made for themselves. And, for the most part, many banks do cooperate. Especially in California when after a foreclosure there is no recourse. Banks know that very often they will net more money doing a short sale now vs. a foreclosure months down the road. However, sometimes we deal with investors and mortgage insurers that don’t have that same kind of care. They have their own guidelines and they aren’t always aligned with our reality.
It is rare that short sales fail, yes really. Most do go through (assuming you have a bonafide hardship and can submit a complete package). But, it’s those few that can eat at you, drive you crazy and make you question the sense of it all. One thing I’ve learned, is that the decisions don’t always make sense TO US, but make perfect sense to the reps sitting at their desks making these decisions day in and day out. For mortgage insurers especially, I believe they are PAID to find reasons to deny your file. They are an insurance carrier, they don’t want to pay claims – is that a surprise?
I had a file a while back that was being denied at the mortgage insurer level. They just don’t feel the seller has a hardship, period. That’s it. Even though the financials show a clear upside position in monthly income vs. debt, it’s not enough. Even though the home is worth less than 50% of the loan balance, it’s not a hardship. On the surface it seems clear right?
Here are some things THEY say:
- Why should they be the only debtor being asked to take a bath on this debt?
- Nothing has materially changed; there’s been no termination of job, no involuntary transfer, no death in family.
- The mortgage payment going up 3x in the last 6 months is not a hardship, as he knew what kind of loan he had from the beginning.
- Maybe he should default on his other debts first.
- Maybe he could get another job.
- Perhaps the HOA could help and reduce the HOA fees for him (yah right!)
- Maybe he could rent it out (oh sure for a 1,000 a month loss?)
- Maybe he shouldn’t have gotten married if it would result in increased household expenses (nice!)
- Being underwater by 200k is not a hardship.
So you see, they have their “reasons” but they don’t always make sense to us. And not only do they not make sense to us, they can feel hurtful and vindictive. I’m willing to bet too, that of the files they deny, there is a certain percentage of those that DO end of staying current, and again, that is something we don’t know -but could prove a big incentive for them to deny files.
The big thing that sellers in a short sale position have to understand is that there are never any guarantees of success in a short sale. Decisions are made at the corporate level that DO NOT have your best interests at heart. We have competing interests in fact. Over 95% of my short sales close, but that is because I don’t take them all. I assess them early and not all situations are cut out for a successful short sale. Of the ones which do fail, and get denied, it is VERY often (and almost exclusively) secondary denials i.e. mortgage insurers, second lien holders that want large lump sum contributions, etc. There are reasons, they just aren’t reasons favorable to you.
No one wants more foreclosures in the market. No one wants to feel they did everything right and submitted a perfectly good market offer, and still be denied. No one wants to feel a foreclosure is their only option – yet it happens. It is also especially hard to take when one didn’t even know they had mortgage insurance and it is a lender placed policy – you had an obligation to your bank, your bank is willing to do the short sale, but THEIR insurer says no? It can be maddening (to say the least).
So, I guess there is no moral to the story here except to realize that sometimes a decision made is not in your best interests, but theirs. Sometimes it doesn’t make sense. Sometimes it is against everything that seems clear to you. Sometimes you do have to make other decisions not in your favor (i.e. whether to continue to pay, or to foreclose) and those are decisions only you can make. I wrote about Strategic Defaults in Contra Costa and one of the reasons I cited is a denial by a banking or insurance entity. Some are left feeling they have no choice.
A few of other blog posts I wrote that may be helpful:
From Contra Costa short sales:
Catherine Myers, BROKER Assoc
Windermere Bay Area Properties
Walnut Creek, CA
Pleasant Hill, CA