REQUIRED READING: Two years ago, borrowers had to present a serious and compelling financial reason and proof of extreme hardship in order to get a loss mitigation department to consider a short sale. Today, however, it's a completely different ball game: Servicers and lenders encourage short sales because the foreclosure process is lengthy and costly, and financial institutions do not want to be in the business of managing real estate owned transactions.
However, completing short sales in today's fast-moving default servicing landscape is arduous for nearly all servicers and lenders. According to a recent study performed by RealtyTrac, the length of time it took to finalize a short sale in the first quarter of this year averaged 306 days. This is hardly surprising, considering that the short sale process involves a multitude of moving parts and entities that must constantly communicate and collaborate to ensure deadlines, tasks and documents are not missed or lost.Â
Incredibly, there are still many servicers that still use a manual process to accomplish a short sale. This is a recipe for disaster and failure – without automation, servicers risk running a disjointed operation that lacks focus and wastes huge amounts of time and money.
To give you an idea as to how difficult and painful a manual short sale can be, I'm going to share the case of a neighbor of mine that recently went through one. It took 18 months to complete the process, and they were certainly not 18 fun-filled months.
My neighbor's story began with the assembly of a standard short sale package that accompanies the financials, and a hardship letter, which the servicer must organize and review. Once the package was assembled, my neighbor's Realtor simply emailed it to the servicer, who then uploaded it to their imaging system. And that's where it sat.Â
The Realtor, agitated that something could go wrong, then began proactively calling and emailing the servicer on a daily basis to ensure that nothing fell through the cracks. Incredibly, it took the servicer nearly three months to figure out that it had collected and filed the necessary information to begin looking at the possibility of a short sale. The servicer then took another two months to work with an investor to further evaluate the short sale.Â
At this point, five months had passed. Had it not been for the Realtor's constant follow-up inquiries, my neighbor's file could have been lost somewhere, and the risk of foreclosure would have increased.
Eventually, the servicer told the Realtor that the short sale package looked good and that they were willing to move forward. At this point, the servicer assigned the file to a negotiator, with whom the Realtor needed to interact with directly. At this point, there were five parties involved: servicer, investor, Realtor, buyer and seller. However, as the process turned into a waiting game, the first buyer ended up falling out, and the Realtor had to quickly locate another suitable buyer who had loan approval and who was willing to wait it out.
See you in court?
During that time frame, the notice of default was filed, which officially introduced a new party into the equation: foreclosure attorneys. Their presence meant that an auction date would have to be set. Meanwhile, the servicer was regularly requesting additional information throughout this lengthy process – all of which was sent via email from the Realtor and then uploaded into the servicer's imaging system. The negotiator connected to the servicer's shop then began working with one of the investor's negotiators. Constant additional requests for information only slowed the process due to the manner and time frames in which the information was requested, sent and captured – all via hard-to-manage emails.
By and large, the entire communication process involved countless numbers of emails and phone calls sent back and forth from every party involved. And the process quickly became a shambles thanks to lost emails, voicemails that were not picked up and documentation that was misplaced.
Ten months into the process, precious little had been accomplished that even vaguely resembled a short sale. At this point, the homeowner received a notice from the foreclosure attorneys that an auction date had been officially set, and that's when the panic clock started ticking. The buyer, seller and Realtor all had their ducks in a row, but they were waiting for the servicer to work more diligently with the investor to approve the deal and finally move it into escrow. The file was passed around to a number of different people at the servicer's and investor's respective offices, but their attention to detail and documentation was poor, at best.
Seventy-two hours before the house was to be auctioned, the Realtor was able to obtain a 60-day postponement. But, although the servicer told the foreclosure attorneys that they had granted the 60-day postponement, the precise date was not provided to the law firm. As a result, the by-the-book attorneys pushed ahead with their plan to foreclose.Â
Three hours before the auction was set to start, the Realtor – in an act of pure desperation and panic – pleaded with the servicer and foreclosure attorney to speak directly with one another. As a result, the auction was halted at the eleventh hour. With a 60-day postponement granted, there was more time to get a deal done.
But a few weeks later, the second buyer grew tired of waiting and withdrew from the transaction. The Realtor then scrambled to locate yet another buyer for the investor, qualify the buyer and submit the new offer to the servicer. The new, looming auction date rapidly approached, and another extension was secured by the Realtor.Â
Sixteen months into the process, there was still no investor approval on the deal – and communication was worse than ever. Then, things began to look up. Amazingly, the last buyer was patient and decided to stay with the transaction. The deal was finally agreed upon and the transaction was consummated.Â
And guess what? The borrower actually made money on the deal. After having sat in the house for free that long, the borrower got the original down payment back and then some – at the investor's expense, because of this disorganized mess of an operation.
Ultimately, this endeavor could have been handled much more efficiently by using the right technology – and, no, sending emails back and forth does not qualify as cutting-edge automation.
Hello, 21st century!
Too many servicers are still using antiquated back-office technologies that are ill-equipped to handle today's heavy volumes. But with rising levels of short sale transactions, old technology is just as bad as no technology.
There are short sale mortgage technology solutions that can bring much-needed ease of communication, collaboration, transparency and data exchange to the process. Lenders and servicers can enjoy the benefits that various default management mortgage technology providers offer, including business rule-driven workflows, data collection and imaging, document management, priority queues, system-to-system integrations, real-time visibility, automated approvals and more.Â
Short sale technology generally involves a centralized Web portal that is designed to bring together all the required parties needed to close a short sale: servicers, lenders, real estate agents, sellers, buyers and various third parties. These parties are all provided with secure logins to the portal so they can manage their tasks, timelines, upload documents and view the status of the transaction in a standardized format.
Servicers can easily receive and complete short sale packages directly from the borrower or its listing agent, which includes complete financials, property valuation data, lien verification and all supporting qualification documentation. Multiple offers can be received and negotiated electronically for final approval. Essentially, the portal serves as a silver bullet collaboration platform that creates much-needed process transparency.
The number of short sale transactions will be increasing substantially over the next 12 to 18 months. However, short sales should not take a year plus to complete. If the right technology is implemented, deal time frames will be reduced to 30 to 60 days, as opposed to 18 months. After all, if the left hand does not know what the right hand is doing, the proverbial ball will always be dropped.
Scott Stoddard is CEO of Quandis Inc., headquartered in Foothill Ranch, Calif. He can be reached at sstoddard@quandis.com.
