Short Sale Issues Popping Up Because of Mortgage Servicer Changes

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Short Sales are becoming more frustrating to complete because larger mortgage originators have been selling off the servicing of the loans and this is making it harder for real estate agents that are working on short sale deals on behalf of home sellers to get short sale packages approved and closed.

A growing number of short sellers are seeing their deals suddenly fall apart because the companies that accept and manage borrowers’ mortgage payments every month — like Citi, Chase and mainly Bank of America — are selling off the servicing rights to those loans to smaller companies. Servicing rights can either be retained or they can be sold to other companies for cash. In Bank of America’s case, they’ve been focused on selling, especially “delinquent loans needing extra attention, largely to smaller companies who specialize in that type of high-touch servicing,” said bank spokesman Richard Simon, who acknowledged that selling has increased since the start of the year. Service releases have made sense for Bank of America, which was dethroned by J.P. Morgan Chase as the nation’s biggest bank last year, for two key reasons. One, they want to offload “legacy mortgage issues” from the acquisition of loans from the now-defunct Countrywide, and two, the demand for buying servicing rights has become “robust,” Simon added.

The gains realized by companies like Bank of America with such sales have meant potential losses in time, effort and money for those involved in the short sale process. Some consumers who had just begun or were in the middle of short sales and had their servicers change are now having to start from scratch with the new company if they want to get the deal done, real estate pros say. How this typically unfolds: The short sale is in full swing, a borrower suddenly gets a letter stating the servicer is set to change in a couple of weeks, and all the borrower can do is wait until the change occurs. The change, which can tack on an extra four to six weeks to an already lengthy short sale, can jeopardize deals with prospective buyers because short sale agreements can expire and patience from buyers tend to wear. Such changes also have mucked up cash incentives promised to homeowners who agree to complete short sales. When the servicer changes, it’s more likely than not that the new servicer will not carry through with awarding the incentive, which can mean the loss of thousands to tens of thousands of dollars that could help struggling homeowners, Ruhl said. “The $15,000 to $20,000 pushes them over the fence” of doing a short sale, said Ruhl, who added that some potential short sellers still hold out hope for a loan modification. “They’re a month into it and then they find out it’s being service released … They don’t get it (cash incentive.)” How can a borrower protect themselves from a service release jeopardizing their short sale? Ask lenders if there are plans for a service release. They’re required to tell you, Ruhl said. Also, this way, you’ll know how much time you may have to close the deal.

If you are a home buyer looking for short sales in Southwest Florida you will need to take this into consideration when looking to buy a short sale versus buying a bank owned property. For more information on buying a short sale property in Lee or Collier Counties call 239-887-4942.

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