RealTown's RealTalk

I have spent the last 10 months diligently working daily to help my son get an approval for a short sale on his property in Queen Creek, AZ. When he bought the home in 2005, it was valued at $385,000 and he had two mortgages totaling 300K. I have had 8 firm contracts on his home that have been presented to the lenders, but 7 dropped out before we got an approval.

The first trust is Countrywide and though they are slow, they were understanding and fair. The second trust was Compass Bank. Somewhere in the process, Compass Bank sold the 2nd trust to Old Republic. This is the SAME Old Republic Home Warranty Insurance Co., that many of us use for our Home Warranties.

The final offer we received, $125,000 was approved by Countrywide with a 3% closing cost contribution and $3000 offered to Old Republic. Please note that the loans on this property were for $233,000 1st, and $64,000 for the 2nd. This property has gone down 58% (175K, which is more than it's worth today!) from when my son purchased it and put down a $60,000 down payment(and has lost!)

When Compass Bank FINALLY let me know that Old Republic was who I should be negotiating with, they demanded ALL of the same short sale packet information that the first trust did. They kept it for months, putting us off repeatedly. FINALLY, I got a negotiator. After weeks of going back and forth (and the 1st trust lender approval for a short sale was completed), ALL we needed was Old Republic's approval of the $3000 offer from Countrywide to close escrow.

This is what I was told by Old Republic, "We are not bound by the same rules as banks are to negotiate with homeowners on terms for a short sale. We are owed $64,000. Our ONLY offer to you is for us to receive the $3000 from Countrywide, ANOTHER $4000 cash from the borrower, and the borrower must sign a promissory note for the balance". After I pulled myself off of the ceiling, I asked this negotiator if he would accept the $3000 as total cash and then a promissory note for the balance? He said, "Absolutely not, this is our policy and we are not under any obligation to work with homeowners whatsoever. If the borrower can't come to the table with $4000, then there is nothing we can do and foreclosure is the borrower's only option." Foreclosure is scheduled for 3/19/2009.

The negotiator at Countrywide had NEVER heard of a second trust holder acting this way, but said that 'insurance companies' are notorious for not giving an inch, even in an economy that we have today.

There are a couple of reasons that I am sharing this with you. 1) If someone gets a 2nd trust from a BANK with bank terms, how can the bank sell the loan to an INSURANCE CO, who seems not to be bound by the same terms? It is imperative that we, as listing agents for short sales, know IN ADVANCE whether we are negotiating with a BANK or an INSURANCE Co. Lots of time, money, blood, sweat and tears could have been avoided it we knew this in advance. 2) If an insurance company IS involved, should we not be able to get, IN WRITING, IN ADVANCE, their 'short sale policy', BEFORE putting buyers, agents and sellers through MONTHS of worthless negotiation?

Countrywide stepped up to the plate and suggested that since Old Republic was a 'brick wall', that I should encourage the seller to ask Countrywide for a 'deed in lieu of foreclosure'. Do you know that yesterday was the LAST day I could have applied for a deed-in-lieu of? If you are within 14 days of the foreclosure, you cannot ask for it. We managed to get the paperwork in just in time. Now, Countrywide will open a NEW file, do a completely new financial package, appraisal and BPO, which will extend the foreclosure for at least another month. This allows my son reasonable time to vacate.

Obviously, sometimes asking for a deed-in-lieu- of is the best option for the seller from the beginning. I, for one, am going to explore WHO I am negotiating with and their track record before moving forward on placing a short sale on the market. If insurance companies behave like AIG, they should not be allowed to participate in the short sale process.

Countrywide stepped up to the plate and suggested that since Old Republic was a 'brick wall', that I should encourage the seller to ask Countrywide for a 'deed in lieu of foreclosure'. Do you know that yesterday was the LAST day I could have applied for a deed-in-lieu of? If you are within 14 days of the foreclosure, you cannot ask for it. We managed to get the paperwork in just in time. Now, Countrywide will open a NEW file, do a completely new financial package, appraisal and BPO, which will extend the foreclosure for at least another month. This allows my son reasonable time to vacate.

Obviously, sometimes asking for a deed-in-lieu- of is the best option for the seller from the beginning. I, for one, am going to explore WHO I am negotiating with and their track record before moving forward on placing a short sale on the market. If insurance companies behave like AIG, they should not be allowed to participate in the short sale process.

Steele Propp asks,

"Question. How can one do a deed in lieu with two parties involved? We have been told that if there is a secondary lien against the property a first would be stupid to accept it as they would now owe the money. Am I missing something?"

The Countrywide negotiator is the one who SUGGESTED that we do this. Obviously, he knew there was a 2nd lien. I admit that I certainly don't know everything, but it is my understanding that in Arizona, the 2nd trust is lost with the 1st trust's foreclosure, whether actual or in-lieu-of. The 2nd trust can chase the borrower for the balance, but if they are completely broke, it's not worth their time.