When mortgage servicers don’t play fair, everyone suffers


Architect Jaclyn Khoury bought her condo in 2006, but last year, like many in her profession, she was laid off from her job. Six months later, still unemployed and running out of savings, and with her beloved condo worth less than she had paid for it, she looked to her bank hoping to sell it in a short sale. 

A short sale is when a lender agrees to allow a homeowner like Khoury to sell a home for less money than is owed on the property. Lenders allow short sales because in the long run, it saves them money. According to figures from the Minneapolis Area Association of Realtors, lenders can lose up to 19 percent of what they are owed in a short sale compared to a foreclosure where, with court and legal fees and with an average of seven months on the market, they can lose an average of 40 percent.

Khoury put her home on the market as a short sale and in December a qualified buyer made a cash offer. Short sales are notoriously frustrating for buyers and sellers and often take months, but a new federal program, the Home Affordable Foreclosure Alternative (HAFA), gives financial incentives to lenders and loan servicers that improve timelines and make the short sale process more efficient. But, Khoury’s loan servicing company, PHH, is not participating in the program.

“PHH is so disorganized, they won’t even take calls,” said Erik Brown, Khoury’s real estate agent at ReMax and a short sale specialist. “Over the span of six months they’ve lost faxes, hung up on me, changed service representatives without letting anyone know, and made promises, then reneged on them. It’s like they’re saying, ‘Drop dead. We’re not going to work with you.’ “

“Many of the lenders are eager to work with borrowers,” said Brown. “It’s the pragmatic thing to do. A completed short sale is a win-win situation for lender, seller and buyer. But treating clients like this isn’t helping anyone.”

In this case, PHH is acting as the loan servicer; contracts with real estatecompanies such as Century 21 and Coldwell Banker and independent companies like Merrill Lynch and Charles Schwab keep them busy. “The original lender outsourced the loan to PHH, so they don’t really have any skin in the game,” said Brown. “If they lose money on this, it won’t even be their own money, it’s their investor’s money, so their motivation isn’t very strong.”

Patrick Schleeter, a real estate agent with Independent Brokers Realty had listed a home serviced by PHH as a short sale. The company had given him a bottom line figure they said they’d accept. There were 14 offers and he sent them the ones that qualified. “We even cut our commission,” he said. “They didn’t accept any of them. They didn’t say why, they just did it this way.”

The problem is more wide-ranging than just one firm. Niki Moelle, a real estate agent at ReMax says another bank that causes real estate headaches is Chase Wamu, a company created in 2009 when banking giant JPMorgan Chase took over Washington Mutual, which had failed because of the high number of risky mortgages they had issued.

“We have terrible problems with Chase,” she said. “Everyone does.” She faxed the company a purchase agreement on one of her short sale listings on Dec. 17 of last year. “We go through their process and it finally gets assigned on March 29th. They said they needed to get the second mortgage lien released, which is standard.”

She sent Chase the requested paperwork and got an e-mail in return that said, “This file was closed in January.”

“I contacted Chase again,” Moelle said. “All they had to do is reopen the file, but they want us to submit a new short sale package, which means we could be waiting another five months.”

The company also took the hold off the foreclosure and it sold at a sheriff’s sale at the end of April. Moelle is hoping she can still remedy the situation, but, she said, “The sellers are feeling beaten down. They’re trying to hang on, but right now they’re not even treading water. Meanwhile, the value of the house is going down.”

“It’s just plain mean, the way they’re operating. We’re talking here about people’s lives,” she said. “It’s downright mean.”

Some lenders, including Wells Fargo and Bank of America are taking advantage of the federal government’s new HAFA program and have stated that they plan to work with borrowers to help them sell their homes. Citibank, Wells Fargo and Bank of America have improved their response times and are working to expedite short sales in good faith. Bank of America has hired new people. So has Wells Fargo. “This problem could be fixed in a month if every company just hired enough people,” Moelle said.

Daniel Ryan, a Coldwell Banker Burnet agent said he refuses to take short sales despite pressure by his company and the real estate industry for agents to make the growing short sale segment a major part of their business. He is not alone. Although many agents are taking courses on how to deal with short sales, others find the process too disheartening.

“I’ve been in real estate for long enough and have enough clients that I don’t need to do short sales,” he said. He accuses the system of being broken and lays the fault for many failed short sales and foreclosures at the feet of the mortgage companies.

The banks, he said, are not operating honestly. “There’s no moral incentive for them to do their job.”

So far, the buyer for Khoury’s Minneapolis condo is staying with friends, waiting for PHH to make a decision on the short sale. But, if the property doesn’t close by the end of June, he will lose the government tax credit and Khoury is afraid that he’ll lose patience and withdraw the offer. “I could afford this place when I bought it, but I am afraid I’m going to end up a victim of this economy. All I want right now is a job and for PHH to act in good faith,” she said.

“I am trying to play by the rules,” she said. “It’s only fair.”

Stephanie Fox is a licensed real estate agent and works with short sales.