In April 2010 I began working with a client who could no longer afford their mortgage. A recent traffic accident, medical leave, and a newborn baby all contributed to the financial hardship this family was going through.
They did everything right. They had heard about the ability to get a loan modification through a government program and successfully got a loan modification from their interest only loan into a new loan serviced by Flagstar Bank on behalf of Freddie Mac. The problem with the new loan, however, was that their monthly payment increased by over $400. They were already struggling, had hoped for a workable solution with the loan modification, only to realized it would be impossible to carry on.
We enlisted the help of a trusted Short Sale negotiator here in Orange County and started to work on a short sale.
On April 7, we listed the home for $349,000 and within days received three full price offers. By April 15th we submitted our first offer to the bank for $350,000. We followed up and waited.
The first-time buyer credit ended in June and we still had not heard anything from the bank.
Finally, our negotiator got word from the bank that they are processing short sales based upon the foreclosure date. In other words, if the sellers weren’t behind on their payments and didn’t have a foreclosure date scheduled, their offer would never be reviewed.
My sellers are good people, both with jobs, struggling to survive, but trying to do the right thing. They were pulling money out of savings every month to make the mortgage payment and they were making it until June of 2011 when the bank said they would not review the file unless a foreclosure date was set.
Missed payment number one, number two, number three. They continued to miss payments and the process continued to drag on without any notice of default being filed. That meant no foreclosure date.
Three months dragged on into six months and then a year with no answer from Flagstar. Our follow up calls were responded to with “we’re working on it” and “it’s under review” for over a year.
As you can imagine, the buyer lost patience and pulled out. So did the second buyer, and then the third, and fourth as we waited.
Every time a buyer backed out we had to re-list the home and search for a new offer. By this time, because the first-time buyer credit expired, demand for condos like this one dropped dramatically. Every time a buyer backed out, we had to lower the price. We found that buyers didn’t want to offer more than $280,000 for the property. So after a year and two months, in June 2011 we submitted the the highest offer we had received ($280,000) the bank.
And we waited.
After six weeks, in July of 2011, Flagstar issued a counter offer in the amount of $315,000 to the buyer and gave the buyer three days to respond. The buyer increased her offer to $290,000 and we submitted the offer to the bank. We hoped for a quick response, but our hope was in vain.
Four months later, in October, they rejected the price of $290,000 and we immediately challenged them on the price by submitting new sales comparables.
On December 27, 2011 they finally agreed to a sales price of $290,000 and we were told that we were to close escrow no later than January 31, 2012. After much negotiations and a personal letter to the President of Flagstar bank from the seller, we finally got what we had been waiting for! Unfortunately, the buyer lost patience and was no longer interested. Back to the drawing board to look for a new buyer!
By the first week in January we found a new buyer who matched the exact terms of the approved offer and was paying all cash. We certainly could close by the January 31st deadline and submitted the new offer to Flagstar for a new approval letter with the new buyers name on it. Like most banks, the buyer must be approved by the bank.
Again we wait.
On February 9, 2012 we get a revised approval letter with the new buyer’s name on it and we successfully close escrow on February 14th, 2012.
Twenty two months. That’s was it took to get this short sale approved through Flagstar Bank after a successful loan modification.
Because of the delays by Flagstar Bank, Freddie Mac lost an additional $100,000 that they otherwise would have received had the short sale been approved in the first 90 days like many banks do. They lost $60,000 from a reduced sales price and over $40,000 in missed mortgage payments because they refused to process the sale while the seller was current on their mortgage.
This transaction reveals what is wrong with our real estate loan modification and short sale system and shows how, in the end, everyone loses.
Thankfully, the sellers found a rental home from an owner who was willing to take them even though their credit had been destroyed. They are now planning on expanding their family and moving on with life, thankful that they can finally put this behind them.
Do you have a similar story? Let us know.