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What’s In It for Agents To Do a Sacramento Short Sale?
There are days I ask myself why as a busy agent would I ever do another short sale, and then before I answer that question, I take it on. It’s not just me, the short sales in Sacramento, the few that still exist, are becoming more convoluted and complicated, if that’s possible after all these years. Nothing is a straight story anymore. There is no such thing as a simple hardship letter and automatic short sale approval. Nope, all of the short sales seem to involve years of delinquent dues, past due utility liens, judgments, court settlements, bankruptcies, horrific medical setbacks, in addition to having two or more mortgages to short sale, layered with mortgage insurance on top of Fannie Mae.
Not to mention, some of the buyers for these are no walk in the park, either. They’re probably VA buyers or obtaining CalHFA loans, and the properties probably require repairs, which could involve 203K loans and / or energy efficient mortgages. These additional complexities are more than most agents can handle or want to handle.
There are not very many Sacramento short sale agents in town who a) know how to handle these and b) are willing to handle these types of transactions. Why would any agent in her right mind do a short sale today when she can sell a regular sale and be done with it in 30 to 45 days? I’m sure that’s a question that some agents ask themselves. It’s a question I brought up to sellers last week as well, and I just put it out there on the table.
Now, I made them wonder. What was in it for me, the agent? Why would I agree to do their short sale when it’s so much more work and extremely time consuming? It’s not like I get paid more to do it because I don’t. I charge the same commission to do a short sale as a regular sale. I get paid the same. And I do tons more paperwork, all of which is contingent until the bank approves the sale. There is no transaction unless the bank approves it.
So what’s the deal? See, now I have you wondering, too.
The answer is somebody has to do it because otherwise sellers would have to pay a lawyer. And most sellers can’t afford to hire a lawyer. So, I handle the short sale for them at no out-of-pocket expense for them. All of my fees are paid from the proceeds of sale. It’s basically a free service for the seller. I know how to close these tricky little suckers, so what the hey. It’s a little bit like combining a public service with a business enterprise. A little pro bono work.
Then, yesterday, I received approval on 3 short sales that each had their own particular set of circumstances that would cause a normal agent to drink Draino. Because a normal agent would not have received approval on those short sales. I have a talent for it. What can I say?
How Mortgage Insurance Sneaks Into a Short Sale
Think you don’t have mortgage insurance? Think again. Mortgage insurance is one of the biggest problems plaguing short sales in Sacramento and across the country these days. If your home is underwater, you can have mortgage insurance and not know it. At any time, your mortgage lender can plop private mortgage insurance on your home without your knowledge nor your permission. How do they get away with it? Your lender can pay for this coverage out of its own pocket. That’s why the lender doesn’t need your permission. Because you’re not paying for mortgage insurance. Not out of pocket, anyway. You pay for it in other ways.
Doesn’t it strike you a bit odd that there is a marketplace for this kind of insurance? You might scratch your head and wonder: how are they making money? Well, part of the way they make money is for the mortgage lender to buy an interest in the private mortgage insurance company. I know it kinda sounds like they are in bed with the mortgage insurance company, and you know what? They are. And it’s perfectly legal. Isn’t this like the coolest investment idea ever? Not! But it’s going on, and it’s happening right under your nose, and probably it’s happening to your own house. As a Sacramento short sale agent, I see this more often than not.
Say you’ve got House A in Sacramento that is worth $100,000, but it has a mortgage that is serviced and owned by Big Fat Bank. That mortgage balance is, say, $300,000. Big Fat Bank doesn’t want to tell its investors that much of the assets listed on Big Fat Bank’s asset sheet are worth 30 to 50 cents on the dollar. Because that would make Big Fat Bank’s stock worth less. If Bank Fat Bank isn’t worth what Big Fat Bank says it is, then investors might take their dollars out of Big Fat Bank and Big Fat Bank might collapse.
So, Big Fat Bank buys an interest in, say, Itsy Bitsy Mortgage Insurance. It asks Itsy Bitsy Mortgage Insurance to write an insurance policy on House A, insuring a portion of that $300,000 in the event of loss. Big Fat Bank writes off the insurance premiums it pays to Itsby Bitsy Mortgage Insurance, and part of those insurance premiums are rebated to Big Fat Bank. Not only that, but when House A goes belly up, Itsby Bitsy makes money even though it must pay out to Big Fat Bank. And Big Fat Bank makes money.
Everybody is happy.
Unless the seller of House A is trying to do a short sale. Then, not only must Big Fat Bank approve the short sale, but so must Itsy Bitsy Mortgage Insurance. Suddenly, there is another player in the short sale, another layer to the process, and Itsy Bitsy Mortgage Insurance might not approve the short sale. Or, Itsby Bitsy might demand a payoff from the seller of House A or from another party to the short sale. Aren’t you glad you chose Itsy Bitsy? Oh, wait. You didn’t.
But even if Itsby Bitsy Mortgage Insurance has to pay Big Fat Bank, due to a loss suffered by Big Fat Bank in a short sale, Itsby Bitsy still makes money and so does Big Fat Bank. Hey, this is America.
