Foreclosure in Scottsdale>Question Details

Bob Dickinson, Real Estate Pro in Scottsdale, AZ

I just had a short sale denied at $417k. The bank foreclosed and listed the home for $409k. Are the banks receiving insurance money on foreclosures?

Asked by Bob Dickinson, Scottsdale, AZ Fri Jan 7, 2011

They must be receiving some sort of compensation to be able to reject higher short sale offers and move to foreclose on the property.

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Answers

51
Bruce Lang’s answer
Hi Bob...i have seen a few different issues which could result in this situation (1) TARP money (2) did the seller owe back condo fees? if so how much? they can wipe out condo fees in excess on 6 months in most states (3) the workout department got a BPO/appraisal which was higher than the department which then after foreclosure listed it for sale...I have seen all of these...it usually the BPO/appraisal issue...
2 votes Thank Flag Link Sat Mar 5, 2011
Hi Bob,
I have closed all of the short sales that I have listed. It could be because when I submit a full price market value offer that is denied (and I've had that happen several times), I send a nice letter letting my negociator (cc thier boss) that goes something like this:

"I hope this is not the case at your workplace, but there are some banks/bank programs that reject reasonable offers, then either foreclose on the owners and/or have them complete a deed in lieu and then sell (either by auction or REO agent) the property for amounts less than the offers received during the short sale process. I don't understand the logic behind this, but I do know that it is a categorized as a deceptive business practice under the law and subject to fines and penalties whether done intentionally or unintentionally.

As you know, I have been working on this file for (insert time) and I have complied with all of the additional information that you have requested from me. I need to inform you that if the property is deeded to the bank and either auctioned off or placed with an REO agent, if the property sells for anything less than (insert my highest offer) at any time, I will be bringing an action against (insert bank name) for "Intentional Interference of Economic Advantage" and "Deceptive Business Practices". I hope that it does not come to this, but I have had to do this in the past to insure that my work is not done in vain."

I haven't had to file a suit yet, but I am prepared to do so if needed because I put alot of effort into educating the buyers and sellers involved and I have LITERALLY worked on some short sales for years. I hope this helps.
2 votes Thank Flag Link Sat Dec 17, 2011
Hello Bob,

When it comes to the banks, the left hand never speaks to the right hand. It amazes me every time I do a short sale and speak with someone at the bank/banks. I honestly have called back several times in a day and received different answers everytime. The banks are a mess. And of course they are receiving all kinds of perks from our government. They have been for years. I'm not an expect but it doesn't take a rocket scientist to figure out our banking system is in termoil.

Penny O'Brien with Simply Vegas
702.321.9383
2 votes Thank Flag Link Mon Feb 28, 2011
Yes, they are being made whole and in many times they are profiting greatly. The reason why a short sale takes so long to approve or deny is so that the banks can have the transaction compensation lined up on the back end. The banks are being compensated through the FDIC and it is shameful but it is something that is made available to them as part of the system they work, so you can't blame them for what they do. Check out this link and it will spell it out for you.

http://www.thinkbigworksmall.com/mypage/archive/1/32274

Good Luck!!

Matt Puzz
Licensed Loan Originator
Amerifirst Financial, Inc.
602-410-9333
apply online: http://www.mattpuzz.com
Web Reference: http://www.mattpuzz.com
2 votes Thank Flag Link Fri Jan 7, 2011
Hi Bob,

Were there any liens that could be extinguished by the lender foreclosing, i.e. HOA liens, Home Equity line 2nd mtg, contractor liens, etc?

Also were you representing the seller or the buyer? It's possible the Sellers didn't have a true hardship and were required to sign a promissory note by the Private Mortgage Insurer (I see this often in Tampa Bay).

If you're representing the buyer, go and buy it at the lower price! If you were the listing agent then...darn..

All the best,
Alma
1 vote Thank Flag Link Mon Jun 6, 2011
I recently had two short sale offers into the bank for approval and one was $110,000 more than the bank told me to ask, ( I was listing agent for owner), the bank took it back and I was told by the short sale dept. officer I was working with that he would refer me to the REO dept. to see if I could list the property and finish out the deal and both parties want the property badly. Now I am told another agent is listing it, and I know the same buyers will make offers as they have been calling me every other day. I believe I have procurring cause as the bank only knows of these buyers because I took the agreed upon sales contract to them from the Seller. Who agrees with me? I won procurring cause 17 years ago when my Realtor Board knew very little about the in's and out's of our rights as listing agents.
Flag Mon Aug 25, 2014
The banks(THE HIGHER UPS, not the BRANCHES) are a bunch of crooks. I think it is pathetic that we as realtors have rules and regulations that we follow to TAKE A LISTING, and COMPLETE a TRANSACTION and the bank totally disregard any ethic or rules that have been set by the NAR. The NAR does nothing about it, this whole thing is a uphill battle and the consumer loses. Man this is irratating
1 vote Thank Flag Link Fri Mar 11, 2011
Hi Bob
In my experience with working with lender's of short sales and foreclosures. There is nothing logical in any of their decisions!
Good luck
Paul
Web Reference: http://www.rimoves.com
1 vote Thank Flag Link Fri Mar 11, 2011
I had the similar situation in Sun City, Menifee area. They denied my offer at $200K. The BPO was done by an agent from San Diego, which was so such a STUPID thing for the bank to do. They wanted $230K. I am in Riverside County, the housing market is very depressed here. The homes for sale around there at the time were priced at $190 to 200K. They denied my offer and foreclosed and it was sold for $169K. Ridiculous, and that was in 2008-2009.
Web Reference: http://JieranaiMaier.com
1 vote Thank Flag Link Thu Feb 24, 2011
Hi Bob,

The bank would get the insurance money for the deficiency whether they short sale or foreclose. Typically, banks will get more money by selling a house short. So, there is no incentive for a bank to deny a short sale for the purpose of foreclosing to list the property as an REO.

Without having first hand knowledge of the details of your file, it appears that the negotiator handling your file just didn't handle the short sale very well. Properties should not go to auction if they are being sold short, especially if there is an offer pending. Clearly, short sales are a long process. In order to get a short sale closed, the file must be handled properly from the beginning of the listing. We offer step by step guidance to Realtors to get their short sales closed, starting with specific verbiage in the listing agreement. We would be happy to help you get your short sales closed.

We are a professional short sale negotiation company and are closing over 90% of our files. The few files that don't close are mostly due to lack of seller cooperation. Please call us directly to discuss your specific situation. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
561-361-1909
info@shortsaledept.com
http://www.shortsaledepartment.com
Serving all 50 states
1 vote Thank Flag Link Fri Jan 7, 2011
It would be great if they had to make the details public! I believe they must be making money as we had a short sale denied by the MI company after the bank approved it. They offer was a very good offer IMO. I can't wait to see what it sellls for as a REO.

(Matt the video tells a lot!)
1 vote Thank Flag Link Fri Jan 7, 2011
The bank is the "servicer" of the mortgage. The "investor" sitting behind the loan may have had insurance that paid them "more money" to foreclose vs. accepting a short sale offer.

I hope this helps.
1 vote Thank Flag Link Fri Jan 7, 2011
Crazy as this sounds. I have been trying to sell my house via a short sale for over a year. There have been two appraisals and two BPO's in the last year. The value is up $100K from last year (I am in a Jumbo price range), but still almost $200K upside down. No second. I had an offer for $600K. Negotiator finally said he needs $630K. Buyer walked. House is scheduled to go to auction on Tuesday. Opening bid is $787K. Home value is $650K. Go figure???? Obviously nobody will bid at the auction for a home only worth $650K. I am not sure what to think. Any ideas???
0 votes Thank Flag Link Sat Apr 7, 2012
I had a short under contract at 475. The short bank did not approve sale. That was in 2010. The home came back on the market at around 600. Its now still active and avail @ 500. Almost 2 years further in arrears. Makes no sense! Bank should have embraced your buyer (in my opinion). The market speaks. Unless you had higher offer's that was the market value of your home, Good luck.
Flag Sun Apr 8, 2012
If you are a listing agent for a short sale, good idea to use the MARS disclosure and most brokerage short sale listing addendums do not enforce collection of a commission. Just because an agent specializes in short sales or does alot of them, doesnt make them an expert! Use the MARS disclosure, if you dont know what that is ask your broker. The short sale is basically a 3rd party approval contingency! Surprising how many agents here don't express that knowledge. Just like a mortgage contingency or appraisal contingency. Banks are doing the seller a favor by doing two things. Release and satisfaction waiver. The release is easy, that just says they go along with the premise of a short sale. The hard part is getting the bank to agree to short sale because of lack of hardship, seller hiding money, 2nd lien queering the deal. Is your state a recourse state? Does your state a protect homestead rights?
I have a frank comversation with every buyer to exhaust the bank owned REO and relo REO inventory before twasting time on short sales. Stop blaming the banks! Its the seller attorneys stalling to get a zero defficiency and sellers lacking real hardships hiding money that holds up most short sale offers from closing.
0 votes Thank Flag Link Sun Dec 18, 2011
Often in a short sale there is more then one lender. Some times there is more then one loan with the same lender. Plain and simple the banks while making claims for years about streamlining the short sales process are still a huge mess. Worst of all is the first time buyers who hear from the media but dont have a clue how treachoris these deals are.
0 votes Thank Flag Link Sun Dec 18, 2011
Yes, Jason. You are definately entitled to commission because you have a listing agreement. If the bank interferes with your ability to earn a commission, they can be held financially responsible. Usually just the threat of a lawsuit creates results, but if you must go to court over it, you would win if you lawyer is worth his retainer.
0 votes Thank Flag Link Sat Dec 17, 2011
I know many of you might disagree, but the banks are SCUM. There is so much corruption it is sicking and the worst part of it all is that they follow a whole different set of rules then we are required to follow.

Is is unethical that the LAW FIRMS the represent many of these banks also OWN the title companies?
Is it unethical that some of the member of the law firms and BANKS have these investment LLC and some really good buys go to those companies and many times before they even go to the public.
Why is it that some banks can get a short sale approval within a couple of weeks and then some take months? Is the system really that messed up?
How about this, if you list the short sale for 417K, submit a offer then the bank forecloses, then puts it back on the market for 409K and your old clients put a offer in and get it, shouldn't you be entitled to a commission or even Procuring cause.

We pay a ton of money to NAR to help with these conflict and they have done nothing but get behind the banks. In 4-5 years this won't matter and even now we have all just said this is the way things are done. Honestly, we as realtors should have not ever let this happen and DEMANDED that banks work within the guidelines that we conduct our business by.

One final note, at what point does a negotiator that is PROBABLY UNDER EDUCATED and making about 6 dollars per hour qualified to do anything in this housing market? That does not even make sense.
0 votes Thank Flag Link Sat Dec 17, 2011
The banks can be very very frustrating!
0 votes Thank Flag Link Mon Jun 6, 2011
This is so frustrating! Many of these negotiators have so many files on their desks that they just don't care about getting them closed and making the most money for the bank. They go by the current BPO for too long and if the agent that did the BPO is off on the price then they won't let it go for less than that price. Then the property goes to foreclosure, a new BPO is issured and shows the property is worth less than they thought.
You need to have an agressive agent who is willing to go above that negotiators head and make something happen.
Web Reference: http://www.thinkjj.com
0 votes Thank Flag Link Thu Apr 14, 2011
Every short sale is a complete and different animal. There are so many mitigating circumstances as to why a short sale wouldn't have been accepted. Our team sells REO-Bank Foreclosures as well as short sales and I can tell you that MANY of our REO listings had previously been listed as short sales and had contracts on them. In our case though depending on how old the short sale was we tend to fetch a higher price on the REO than the short sale.

If the short sale was strategic in nature that could explain why it wasn't accepted or yes the back end MI, specially if it was Radian could have squashed it. The short sales we are having success with are the pre-approved ones and ones with some type of hardship like a divorce.
0 votes Thank Flag Link Sat Apr 9, 2011
Something here tells me the Banks are about one step(maybe a half) above corrupt!
0 votes Thank Flag Link Sat Apr 9, 2011
I see this happen all the time. Just makes me shake my head. Nothing about short sales are logical. Just another reason foreclosures are often a much better deal than short sales.
0 votes Thank Flag Link Fri Apr 8, 2011
The "banks" are merely a middleman "servicer" collecting fees from the actual investors that own the mortgages. They have a vested interest in dragging out the process because the longer it takes, the more fees they can collect from the entity that actually owns the mortgage.

Finally, our idiotic elected leaders and paid officials have started to clamp down on servicer abuses. Many mortgages are owned by Fannie Mae and Freddie Mac and it's amazing they've let these greedy banks get away with these schenanigans for years. The HAFA short sale program puts strict guidelines on time frames and approvals so that is helping somewhat.

What is amazing is that the investment pool trustees that manage many mortgages are not bringing lawsuits against these "servicers" i.e. BofA, Chase, Wells Fargo, etc. Fannie Mae and Freddie Mac should be intiating lawsuits but it will probably never happen.
0 votes Thank Flag Link Sat Mar 12, 2011
Every transaction is handled according to the the circumstance and as the bank see fit. There really isn't a definite answer to that question.
0 votes Thank Flag Link Fri Mar 11, 2011
Yes they are at times. Just found out yesterday from a law group that you may not have been paying PMI because you put down 30% when you purchased the home and the bank insured the loan without your knowledge making it next to impossible for you to short sale the property. Just another one of those situations where the bank is laughing all the way to the vault!

Sandy Farmer
Realtor, GRI, CSSN
John Hall & Associates
homesales411.com
Web Reference: http://homesales411.com
0 votes Thank Flag Link Fri Mar 11, 2011
On occassions I have seen short sale offers that were higher than that of the REO listing/sale price. I believe PMI may be used to make a bank whole after the foreclosure process. EX: Short sale offer of 200K is rejected. Then goes to REO and is listed for 190K and sells for 190K. Most would think the bank would have wanted to go with the short sale due to the higher offer. Now lets take into consideration that if a bank could collect on PMI (possibly equating to the diff between the short sale price and REO sales price). Then offer it as a REO at a lower price (usually below market) to stimulate the sale. Then the transaction would be considered equally profitable. This situation might actually result in more of a profit for the bank. Then as I have heard others say bank might even double dip and pursue a deficiency judgement against the previous owner. Hope this helps
0 votes Thank Flag Link Fri Mar 11, 2011
I have read of similar instances . I believe it has to do with mortgage insurance in some cases and in some cases it is just because they have so many departments that the process is not streamlined.
Web Reference: http://www.gitabantwal.com
0 votes Thank Flag Link Fri Mar 11, 2011
So that may be the answer to your question..the house was a bargain at $417k and BPO was probably well above $417k.

Did the "servicer" give you a counteroffer price above $417k and did they require the seller to sign a promissory note? Did you represent the seller or the buyer? Hopefully you weren't representing both because lenders do question sales where there is only one agent involved. That could be another issue why the $417k offer was refused.

Also was there PMI? PMI companies often require a promissory note or in some cases they may have to actually foreclose to collect on an insurance claim if they have "reinsured" their coverage by another insurance company.
0 votes Thank Flag Link Sun Mar 6, 2011
Alma - the one that this happened to me did go into a bidding war. It didn't end up where we had our offer as a short sale though. But it did go for a lot higher than asking.
0 votes Thank Flag Link Sun Mar 6, 2011
So, Bob, did your client then buy it for $409K once it became an REO?

Or did the low asking price result in a bidding war and the final sale price was above 417k?

Just curious, because in Tampa, bank owned listings are often listed below market and result in a bidding war and the ultimate sale price is above asking and oftentimes to an ALL CASH buyer.
0 votes Thank Flag Link Sun Mar 6, 2011
Hi Bob,

How you been? Sorry this happened to you. That sucks. Unfortunately, that happens a lot here in Las Vegas. I think the Banks are still overwhelmed and the short sale departments typically are not cooperating correctly with the foreclosure departments within the same bank. The banks are being made whole in most cases through PMI and even double dipping by going after defaulted borrowers for deficiencies. Give me a call dude.
Web Reference: http://www.buyvegasnow.com
0 votes Thank Flag Link Thu Mar 3, 2011
Well said Penny. I have tried to visualize what some of these negotiators desks look like with stacks of files and trying to keep all of them straight. I have dealt with some very organized people who are on top of their game and others who haven't a clue. It will certainly take some time for the flood to get cleaned up at the pace they are going!!!
0 votes Thank Flag Link Thu Mar 3, 2011
The "servicers" make more money the longer they drag out the short sale approval process--unless it is going under HAFA. On owner-occupied short sales, HAFA will put deadlines on the servicer to accomplish their tasks. Only if a seller cannot qualify on a HAFA should it go any other way. You may have to FIGHT to get it under HAFA if it was not originally purchased as a primary residence, though. Certified letters from borrower to servicer "requesting" a HAFA Short Sale may help sellers who truly have a hardship.

Also I believe there are certain rules with PMI that may require a foreclosure sale for the investor to collect.

And of course BankOne's ridiculous deal with FDIC may give an "incentive" to just go ahead and foreclose.

It's surprising that some of the investors are not going after the "servicers" for their negligence in handling short sales.
0 votes Thank Flag Link Thu Mar 3, 2011
The banks are absolutely receiving coverage on losses. It is hard to tell, but based on most bank owned properties, they are getting money from the Federal government insuring them against loss. It is hard to justify to your clients and frustrating I am sure. What I recommend to my Realtors, and I can refer you out as well to a Real Estate investor that can buy at auction and work out a deal to sell it at the agreed upon short sale price. There has to be a spread between the two but in most cases it is a win win for the buyer, agents etc. Let me know and I can get you the info.
0 votes Thank Flag Link Wed Mar 2, 2011
Well, the only one that we had listed that was being professionally negotiated (they paid for this prior to coming to us to list) was the longest one we have had so far (9mos). Wasn't handled well and was foreclosed on anyway. The offer we had was far above (165K and the REO came on at $112) the amount the home came on as an REO. So, if someone uses a negotiator OR Realtor, make sure they know what they are doing. But sometimes the banks are just difficult at best.
0 votes Thank Flag Link Mon Feb 28, 2011
I think part of the problem is that the short sale division and the foreclosure division are totally separate and seem to have no communication between them. So while you think you are working a short sale the foreclosure is actually going forward. I highly recommend a professional short sale company to help if you are ever in this situation, why reinvent the wheel?
0 votes Thank Flag Link Sun Feb 27, 2011
We had an offer on a short sale property and the bank just lagged, never denied or accepted our offer, but kept us waiting for months. Eventually, they sold the home for almost 40k less than our offer at a foreclosure auction. We learned that the FDIC is reimbursing banks up to 80% on foreclosured properties that they purchased from failed banks. We ended up with the impression the bank had no intention of ever selling the home as they gain more by foreclosing. I was able to contact the CEO of the bank and discussed the situation with him and he told me they had to do what was in their best interest......
0 votes Thank Flag Link Sun Feb 27, 2011
As an agent, I have had this happen to some of my listings as well. I think that Eli Givoni's answer below is the best answer here. Banks will still get insurance money for the home whether it short sales or forecloses. The bank will carefully consider where it will make the most money before proceeding with either option. There is a truth out there that has not been metioned. A bank must also maintain a good forecloure rate in order to be attractive to investors. Since foreclosure is much more common place now, bank foreclosure rates are higher than they have been in the past. But, the bank knows that they can't foreclose on everything because their foreclosure rate will skyrocket.
0 votes Thank Flag Link Sun Feb 27, 2011
@Brenda. Thank you.

If you do not take 5 minutes to watch the video I posted at the bottom of this post you are cheating yourself. In some cases the banks and others involved in the holding and servicing of the mortgage are being compensated for the losses they incur. While each case is different which is why it takes so long for the decision making process to happen during a short sale, this video allows for some understanding to the madness. Please watch it and forward it to your friends in the industry so that they will better understand. Good Luck to all of you out there selling!!

Matt Puzz
Amerifirst Financial, Inc.
602-410-9333
0 votes Thank Flag Link Fri Feb 25, 2011
We had a similar situation with our listing in Philadelphia. The offer for $220,000.00 3 months ago was declined by Bank of America. Yesterday this house was listed as REO for $180,000.00.
I am going to loose my listing because banks are not returning our phone calls and emails. It is absolutely clear that it is done on purpose.
0 votes Thank Flag Link Thu Feb 24, 2011
They make more money foreclosing. I posted a link for you to enjoy.
0 votes Thank Flag Link Thu Feb 24, 2011
Bob how did you miss the loss share fiasco that has been going on the last 2 years. Certain loans are covered to the bank at 80/95% of the original loan amount if they forclose on enough properties. Here is a link about loss share and yes the FDIC has about 177 billion on the line that "we the people" may need to cover.

http://nasonsearch.com/blog/?p=346
0 votes Thank Flag Link Sat Jan 8, 2011
In short, yes.....Fannie/Freddie to the rescue! Tax payers get the shaft. Plus the morons usually assigned by the banks to transact short sales don't help matters. Think of it this way: If banks really wanted to avoid foreclosures and modify loans or short sell, then they would streamline the process and encourage delinquent borrowers to utilize these options.Yet, 4+ years into the downturn and the average time to close a short sale is still approx. 3 months.
0 votes Thank Flag Link Fri Jan 7, 2011
This type of situation just emphasizes how complex Short Sales really are. Some may go smoothly because the circumstances dictate an easy settlement. As others have pointed out many factors play in to it. The best you can do is make a reasonable offer and hope that it gets accepted.
0 votes Thank Flag Link Fri Jan 7, 2011
Though I agree the banks have other motives is being paid by Private Mortgage Companies or the FDIC sometimes it is plain poor management. The short sale department and foreclosure are vertical business that do not communicate with each other. Sometimes it is poor judgment (because of poor training) that the short sale department does not factor in the cost of foreclosure. The Broker Price Opinion may be different in the 2 departments given different people doing these opinions. Not everyone is being compensated as we would like to think, the banks don't necessarily have this expertise. Lots of tactical thinkers not strategic ones. Also the banks like rigid rules to follow and new employees follow the guidelines strictly and don't understand the big picture (because they don't want thinkers just doers). It is easier to reject than get an exception.
0 votes Thank Flag Link Fri Jan 7, 2011
There are several scenarios how this could happen. For example if the Seller took out cash on the home with a second mortgage, the lender has the option to go after the Seller for this money even after a foreclosure.
Also, Private Mortgage Insurance may demand from the lender to reduce the loss for the insurance and demand a cash contribution from the Seller to close the short sale deal. I recently had that happen for a Sale with 80-20 purchase money loans. The PMI did not think the financial situation of the Seller was a real hardship. It is my understanding that the lender needs to respect the demands of the PMI or will not be paid the claim. It's also possible that the lender received a lower appraisal when the property was finally offered as a bank owned home.
Web Reference: http://www.azbestrealty.com
0 votes Thank Flag Link Fri Jan 7, 2011
Matt, that was a GREAT link.. Thanks for sharing!
0 votes Thank Flag Link Fri Jan 7, 2011
Bob, I had several of those same similar situations. Buyer offered $260K, lender rejected, foreclosed, then listed for $260K. I'm assuming they got more $ if they let if foreclose. Thing is, the foreclosure impacts the property owner more than the short sale so the bank is affecting the property owners credit in a more disparaging way. :)
0 votes Thank Flag Link Fri Jan 7, 2011
Depends on the bank.

One of the largest banks in America gets100% of their losses made up through TARP.

Why do you think they are so difficult in trying to do short sales with?

Since the big banks own Washington and since the Federal Reserve is a PRIVATE CORPORATION who works for the banks, you will see more and more of these under the table deals.

Terry S. Smith
Scottsdale Specialist
44 Year AZ Resident
DPR Realty LLC
8341 E. Gelding Drive
Scottsdale, AZ 85260
Contact me Direct (602) 763-1858
Office (480) 994-0800
ScottsdaleForeclosures@Gmail.com
http://www.ScottsdaleLenderForeclosure.com
0 votes Thank Flag Link Fri Jan 7, 2011
The banks are nuts. This month I have had 2 full price offers get turned down the bank takes them back and sells them for less. I have no idea why the NAR does not make banks follow the same guidelines as a traditional sale. You can bet someone is making money.
0 votes Thank Flag Link Fri Jan 7, 2011
The could be it depends but this happens. I don't know what terms were in the purchase contract and what the bank bottom line was but if they had a second lien that was stubborn or any number of factors could have caused them to make the decision. I have an offer in at $400+ and it will foreclose next week and go to auction for lower than my offer due to second lien being wiped. Deals are specific and the answers will be broad without any knowing for sure due to limited information.
0 votes Thank Flag Link Fri Jan 7, 2011
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