A common question for buyers, sellers, and real estate professionals is why short sales take so long. After my last couple of trips to hell and back on the short sale train I swore I was going to document the range of problems that slow down the process for posterity. I've spent the better part of my corporate career doing business process re-engineering and I find this stuff revolting. It's pretty eye opening. I'm actually going to do this in two parts. Part I will be a compilation of real life examples, while Part II will be an analogy. Here goes Part I.
I was on the buy side on one transaction listed by a "short sale expert" promising on the listing "CLOSE IN 45 - 60 DAYS". Yeah, guess how that turned out - 3 1/2 months. Since I was on the buy side I couldn't see all the sausage being made. However, I represented sellers on another transaction where I got to witness the whole messy process up close and personal. That deal, despite my best efforts, took 5 months to close.
One more thing. Both of these deals involved Bank of America, which is notorious for being incompetent. When you work with them you can see how they managed to screw up all these foreclosures we've been reading about. Oh...and I have my business checking and escrow accounts with them and they screw that up too.
There are several structural issues that underlie short sale processing. You could not have designed a more abominable process if you tried:
- Banks are basically incompetent. They are set up in a highly fragmented fashion, with multiple departments, each with absolutely no visibility to any other part of the process. There is customer service, loss mitigation, short sales, HELOC, the payoff department, home retention, the modification team, and separate departments that order appraisals and determine property values. These departments will not talk to each other. They expect you to pass information between them.
- God help you if there are two loans on the property because you will need to navigate two different banks simultaneously. However, even when the two loans are with the same bank it's a real horror film. The two loans will be with two different parts of the bank that don't talk. One part of the bank will ask you to get something from another part instead of getting it themself. Then they will argue with each other by proxy - and you're the proxy.
- To make matters worse the banks have outsourced key components of the process - again, to multiple players, each of which has no visibility to any other part of the process. The negotiator works for a third party and there are several of these third party negotiators employed by the bank and the bank can't keep them straight. There is another outside firm that orders appraisals - so in order to get an appraisal done the negotiator tells someone at the bank to order the appraisal. That bank person contacts the third party who orders an appraisal from an appraisal company who then sends out the appraiser. When the appraisal is finally done it has to work it's way back up the food chain. If a problem is discovered then it has to work it's way back down the chain and back up when it's fixed. This is why it can take a minimum of 3 weeks to get an appraisal done and I've heard stories of it taking 60 days. I am not making this stuff up.
- Sometimes in the middle of the deal the bank will switch third parties. I heard of one deal where it went into limbo indefinitely because the old company was no longer working for the bank and couldn't process the deal, while the new company was told that the old company was finishing up the deals they started so the new company wouldn't touch it. So the deal just sat in limbo.
- There are other third parties involved in the process. The bank may need certain approvals from the mortgage investor or the mortgage insurer.
- Because there are so many different parties involved there will be times when everyone involved thinks that someone else has the ball and you can not resolve it.
- Even customer service is blind to how the process works. At certain points they can not tell you where the deal is or what is holding it up. They don't even realize that there are third parties involved in the process. They think everyone works for the bank. All they see is a bunch of phone numbers for transferring people. On several occasions they directed me to an internal negotiator, who had no involvement in my deal.
- Whenever a deal transitions from one process step to the next it gets queued up for that next step. Because the banks are so totally overwhelmed these queues can be exceptionally long. Depending upon how far behind a department is the deal will sit there for a minimum of 1 day and up to 2 or even more weeks. Do the math. Because there are so many handoffs (10 might be a pretty good estimate) those queues add up. In manufacturing this is called non-value-added time.
- Whenever an individual completes their portion of the process they blindly hand it off to the next department and then they wash their hands of it until it comes back to them. There is no follow up on that next step so if there is a hangup it just sits and no one cares. In fact, it was clear at times that it was impossible for anyone to contact that next department.
- It is virtually impossible to get the negotiator on the phone until your deal is near completion (one week to close). They NEVER answer the phone and don't return phone calls. Even if you can manage to get their email address they won't respond to normal emails until your deal is near the end. The only way you can communicate with the negotiator is through this system, called Equator, that has been created to manage the short sales process. What a joke. The negotiator can easily ignore any emails sent through this system as well.
- Documents can only be submitted via Equator. You can not email them. Also, if you upload them to Equator but not as part of a scheduled task they have to be uploaded again when that task is created. On several occasions I was asked to upload the same document both before and after a specific task was created.
- Oh...and Equator does not work as advertised. At one point we were twiddling our thumbs for a week while the bank was waiting for my clients to enter some information in the system except that no one had told us we needed to do anything.
- The list of requirements are extensive and only the most basic ones are written down anywhere. Consequently, appraisals and short sale packages get bounced for not following the unwritten rules. For example, the bank will not pay a $60 wire transfer fee.
- The short sale is processed serially, not in parallel. In other words, while step 3 is taking place the person at step 4 is not doing anything, not even checking to see if they have everything they need. When the deal gets to step 4 you will be informed of tasks you could have been completing while waiting for step 3.
Isn't the government great? They implemented this new HAFA program in the middle of my deal and my sellers qualified. The only problem was that by the time the bank figured out the new regulation a month or so had passed and we had to start all over. Then, the government, in their infinite wisdom, mandated that the final approval (an ARASS letter that needs to be signed by the sellers) be mailed, not faxed or emailed to the sellers. I repeat: faxing or emailing was not an option! But because the bank was so backed up it took them about 3 weeks to mail it.
People Will Be People
- At a critical juncture, with just a few days left until the expiration of the tax credit, we were dependent upon the negotiator submitting the package for final approval. She promised to do it the next morning. The next day she was out of the office and when she came back she was behind so this cost us another 1 1/2 days.
- Many of the bank people believe that their function is to get you off the phone. At times you will be transferred before you even complete a sentence. You have to choose your words really carefully because if you say the wrong thing...click...and now you're talking to the wrong person. I am not kidding.
- Either their system is screwed up or the people don't know how to read their screens because I was repeatedly given phone numbers for 2 different third party short sale processing firms, neither one of whom had responsibility for my deal - my deal was actually with a 3rd company. I finally made a list of the wrong numbers so that I could tell where they were trying to send me since I knew I didn't need to be talking to a third party anyway. However, usually they hung up before I could protest.
- In my particular case the negotiator would only identify one or two problems with the package at any given time instead of finding all the problems at once. So she sits on the file for a couple of days and then informs me of one or two problems. It then takes the attorney a day to fix the problem, which I immediately upload into Equator, and two days later the negotiator informs me of another one or two problems. Lather, rinse, repeat - 4 or 5 times - no joke.
- They speak and write in jargon and acronyms, which opens the door for all sorts of misunderstandings - we had a few of those too.
- They can't follow directions. At one point I made it abundantly clear to them that my clients were no longer at their former address and to mail the ARASS letter to a different address. Of course, they agreed to my request and then totally ignored it and sent this time critical document to the old address. This cost us about a week.
- Even though customer service is blind, they may randomly tell you that they are going to "expedite the file", though I have no evidence that someone who can't tell me what is going on has the ability to expedite anything except their next coffee break. A variation on this theme is when they tell you that a process step is complete when in fact it's not. So you go away for a week, believing that something is finally moving along when in reality the short sale is stuck in the mud.
Delays Cause Delays
Certain documents needed in the short sale process have a limited shelf life. The appraisal is only good for like 90 days or so and the same for the buyer's mortgage pre-approval letter. Similarly, the attorney prepares a closing statement with a specific closing date. If the deal gets delayed long enough these documents have to be regenerated and, as pointed out above, having to get a new appraisal is a killer. Oh, and the negotiator won't keep an eye on the aging of these documents so no one will know that they have expired until they are needed. So suddenly another 3 week delay has been introduced.
At the end of this experience you are not left wondering why short sales take so long but rather how any of them ever get completed. The process is so screwed up that only an agent who is very process oriented and relentless in their follow up can get it done in a less than outrageous time frame.