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Why Short Sales and Modifications Take So Long — and What to Do About It

Real Estate Matters by Ilyce R. Glink

Q: I went under contract to buy a house six months ago. This is a short sale, and I understand that multiple lenders are involved. But I have been more than patient. What can I do?

I can’t seem to get anyone to listen to me. Don’t the banks want this to work out?

A: I’m sure that someone besides you wants this sale to work out — the seller! The problem is that each lender has to agree to the short sale, and lenders are drowning in non-performing home loans these days.

For a short sale to proceed, a lender will require quite a bit of documentation from the seller to determine whether the short sale is legitimate and whether the seller has the ability to make up any deficiency. A lender will also want to determine whether it would get more money if the seller simply defaulted on the purchase and the lender foreclosed on the property and sold it off.

These are some of things banks consider before allowing a short sale. The problem is that they just don’t have the staff to handle the load of short sales and other requests from distressed borrowers. Each request must be evaluated to determine how big a hit the investors will take on the loan in a short sale. The lender also tries to figure out who else is losing money on the deal, such as other lenders.

For people looking to buy distressed property, it is a lot faster and easier to buy a foreclosure than a short sale because the bank has already taken back the property and wiped out the liens. In a foreclosure, the lender sues the owner for the amount owed on the loan and then can proceed to take title to the home to satisfy the debt.

Once the lender has ownership of the home, it doesn’t need to make any determination about the borrower or the borrower’s finances; its only interest is to get the most money possible from the sale. Lenders are typically extremely motivated to sell foreclosed property. The faster the bank sells the home, the less they will lose on the sale.

Unfortunately, short sales can quite commonly take six months or longer to work out. If I were you, I’d think about canceling the contract and looking for a foreclosure to buy instead.

Q: I have lived in my home more than 32 years. I signed a contract to build a new home on my lot for $400,000. It will be ready next September. I’ll move out into a rental during construction.

Do I qualify for the new $6,500 home buyer tax credit? Please let me know. I expect to close on the construction loan by December 5, 2009.

A: If you’re tearing down your existing home and building a new home on your own lot, you will not qualify for the first-time home buyer tax credit.

If you’ve purchased a lot and are building a home on that lot that won’t be completed until September 2010, you are still out of luck. You must close and move into your newly constructed home by June 30, 2010 to qualify for the trade-up tax credit.

Purchasing a lot and closing on a construction loan aren’t enough to qualify you for the tax credit. Your home won’t be habitable until after the tax credit has expired. You’d not only have to move into the home by that time but you might also have to have an occupancy permit issued by the appropriate local authorities as evidence that the home was complete on a certain date.

For more details or go to the IRS Web site,, and search for “first-time home buyer tax credit update.”

Q: I am really angry about what’s going on with my loan modification — or I should say, my loan non-modification. I have been going back and forth with my big box lender, and first they say I can get a loan modification — and then that I can’t.

I know you’ve been encouraging people to tell their loan modification hell stories. Mine is too long to go into in an e-mail. But I want to do something to get my lender to pay attention to me. What do you recommend?

A: I’m sorry to hear that you’ve had so much trouble getting a loan modification from your lender. Perhaps it will help to know that there are hundreds of thousands of folks having the same confusing and frustrating experience as you are.

I consulted with some sources at the Treasury Department, and one of them recommended that borrowers stuck in loan modification hell should write a concise letter that clearly details what has happened to you.

Organize your thoughts into a timeline of events. And be sure to include any information you have that identifies which employee you spoke with (the employee’s identification number, office or location would be helpful), the date of the contact and even the time of the call. If you’ve received a letter or e-mails, include a copy of them with your letter.

You’ll want to address your letter to the president or chief executive officer of the bank. If you don’t know who that is, go to the finance page. Under the “investing” tag, use the search box to type in the name of your lender. A bunch of company names will pop up. Choose the company you’re interested it. On the company page, choose the “profile” tab on the left navigation bar. That will take you to a page with the company headquarters and the names (and salaries) of key employees, including the CEO.

Once you have the CEOs name and address, write a letter that roughly follows this format:

Dear (name of bank president or CEO):

I am writing to tell you how confused and unhappy I am because (fill in reason why). Here is what happened:

On (fill in date), (fill in what happened, with whom you spoke with, contact information for that person and any other information.)

(Repeat until you have finished the time line.)

My question is: (fill in the questions you want to ask).

What I want you to do: (if you want the company to look into your situation, approve your loan modification, or do something else, write it here.)

I’ve attached supporting documentation, including:

I’ve copied the Treasury Department, the OCC and the FDIC on this letter.

I look forward to hearing from you or your team quickly.


(Your Name)

You should then overnight the letter, or send it return receipt requested so you know that your letter was received by the company. Be sure to send a copy to the Treasury, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC) so there is a record of your complaint.

According to the latest figures, some 650,000 loans have been put into temporary loan modifications under the Making Home Affordable program. Big banks say they are putting thousands of others into their own loan modifications.

Some people will slip through the cracks, or wind up on the phone with someone who isn’t trained well or isn’t knowledgeable enough to help you.

I hope that by elevating your concerns to the executive suite, your loan modification will get the attention it deserves.