Short sales: understanding what goes on behind the scenes

A common question about short sales

“I just completed one short sale at Bank of America where the seller was current on his mortgage and never missed a payment. Then, I had another one at Bank of America, and they said that they could not process the short sale because the seller was current on his mortgage. Why is that?”

I get questions similar to this one several times a week. On the surface, it does not make sense. Why would one short sale go smoothly, and the next one at the same institution be such a pain the keister?

Believe it or not, the answer is fairly simple. It’s often not the servicer (where the mortgage is paid) that makes the decisions, but the investor instead.

Servicer or Investor

When working short sales, it’s important to understand what goes on behind the scenes. That is, it’s a good idea to have a clue about what the lenders are doing when evaluating your short sale transaction.

The most important thing to keep in mind when processing a short sale is that when you speak to the lender, you are often speaking to the servicer and not the owner of the note (the investor). Remember that Bank of America, Chase, and Wells Fargo (among others) service notes for hundreds of investors. And, it is the investor guidelines that are provided to the servicer which control the short sale process.

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are investors. In fact, mortgages sold on the secondary market are often sold to Fannie Mae and Freddie Mac. You can check the Fannie Mae and Freddie Mac websites to determine whether your client’s loan is owned by either of these investors. And, if it is, the good news for you is that a 6% real estate commission will be paid from the proceeds. Not only that, but Fannie Mae and Freddie Mac are changing their short sale guidelines come November 1, 2012. Not only will their processing time be improving, but they will also be offering relocation assistance up to $3000.

The next time you observe some inconsistency among short sales being processed by the same lender do a little bit of research. You can ask the bank processor for some background on the investor noteholder, or check the Fannie Mae and Freddie Mac websites. Often times, if the servicer owns the note, you may have a lot more wiggle room in your short sale negotiations.