I’ve been trying to finish up two short sales with a conventional lender. I listed them in late October and executed contracts the first week of December.
Each property had about $85k remaining on the mortgage. Property values have plummeted in this particular part of town and the vacant homes in the area are vandalized, further driving down values. The BPOs came in at $29k on each of them and we had cash contracts at $28,800.
With the holidays, we got the files into the lender in January. By the middle of February, we find out that both files were declined when the lender could not contact the seller. I checked and both the email address and phone number were correct.
The second pass through was somewhat better and at least we got the files processed. The bank does their BPOs and all looks well. Last week we finally get a response on the first file. While the lender is good to go, the PMI company wants the seller to hold a $20,000 note for 6 years. In 75-plus short sales I’ve never seen anyone ask for more than $5,000 from a seller and only had to get a seller to carry a note once. The seller really did not want a foreclosure and offered them $5,000. It took less than four hours for it to be declined.
By allowing the property to go into foreclosure they cost themselves about $20k which is not recoverable. The lender will take back the property and evict the tenants. Once vacant, the properties will be vandalized within days. What’s worth $29k today will be worth $19k so the lender will lose another $10k.
If they had moved forward with the short sale, the PMI company would have recovered $5k from the seller, the lender would have come out $10k better, and the neighborhood would be that much closer to stabilizing.
The original note was $87,500 and the PMI was likely 25% or $21,875. The seller has been paying the premium for 5 years. It appears the PMI company wants come out even or ahead on this sale.
Are PMI companies the new short sale train wreck?
