As a long time short sale negotiator for investors, homeowners, and agents, I have seen many changes in the loss mitigation practices of the lenders. From downright incompetence to criminal wrongdoing, the banks have shown ME their true colors many times over. Let's just say that the lawyers will have their work cut out for them for at least a decade, once the banks have been called on the carpet for their actions.
At this time, let me talk specifically about 1 alarming trend - dealing with subordinate lien holders. It seems that subordinate liens have decided to make a stand, and hold out for payoffs which are out of sync with the standard short sale configuration, often times in conflict with another department of the SAME BANK!
Prior to spring of 2014, with rare exception, 2nd liens and other subordinate liens had acknowledged and accepted that they were in a weak position in a short sale settlement. They would take an industry standard settlement of 3 to 8% (of their unpaid balance) to allow a short sale to take place. Lately, however, these lenders have changed their position and are now holding out for settlements of 20 to 50% of their balance - or more.
The problem with this is twofold. First, the senior lien holders will not agree to these amounts. So the subordinate liens have taken to "suggesting" that they get paid in some roundabout way that in essence defrauds the senior lien. Sound ridiculous? Sound criminal? Remember we are dealing with collections departments here - the Wild West of the financial industry.
Second, and most important of all, this practice does irreparable harm to the principals in the sale. The seller is deprived of a fair and timely resolution to their distress, and often forced into an unnecessary foreclosure, while the the buyer is forced to wait far too long for settlement - if it comes at all!
All of this is because these financial institutions can not get their act together, or they think their culture of corporate greed is somehow good for the shareholder.
So bottom line, if you are hoping for a short sale settlement agreement from a subordinate lien, be prepared for lengthy delays and unreasonable demands.
