A little too late for me, Treasury to help streamline real estate short sales
This year it's with no small sense of embarrassment that I had to unload a commercial property as a "short sale." I hasten to underscore that I'm by no means a big-time real estate investor, despite how the first line reads.
To make a long story short, for 10 years, I had been renting studio space for my small production company, but was convinced to buy a place when my previous lease had expired. Instead of tossing away thousands of dollars a year on rent, the new place would be an investment. In theory.
Of course I had no idea the economy would collapse as severely as it did, so due to a wide variety of problems including an increasingly expensive renovation process, I had no choice but to unload the property during some of the worst economic conditions imaginable. In the end, I resorted to a short sale (selling the property for less than the mortgage balance due).
But the process of getting the short sale approved was excruciating. It took eight months for the mortgage company to approve the short sale.
What made this more frustrating was that the mortgage company was going to be receiving the entire principal balance due. The only thing missing at settlement would've been what's called a "pre-pay consideration" -- a penalty for selling the property within a "lock out period." In other words, I couldn't sell the property for a certain number of years without paying a penalty to the lender. That's the only dollar amount that I needed to wiggle out of.
Nevertheless, it took eight months for the lender to approve the thing, during which time any number of things could've happened. Our buyer could've backed out. I could've stopped paying the mortgage. Ultimately, the lender had a choice between approving the short sale for the principal balance or face a much more severe loss in foreclosure. And yet they stalled.
Apparently, according to this article from Reuters, I'm not the only one facing stubborn lenders in a short sale situation. Fortunately, it looks like the Treasury Department is going to be stepping in and smoothing the process a little, offering incentives to lenders and approval time limits.
This is good news, especially for people in far worse shape than I ever was (my short sale was for a vacant commercial property and I otherwise have a home with a mortgage I can afford).
But I agree with Atrios who wondered why there isn't anyone pushing for a simple reduction in the principal balance and a subsequent reduction in the monthly mortgage payment, allowing borrowers to stay in their homes. A short sale without the sale. After all, not everyone can close a short sale scenario in time before a foreclosure proceeding begins.
Anyway, I'm glad to see the Treasury making life easier for Main Street for a change. I only wish this had happened before I pissed away thousands of dollars in mortgage payments on a losing investment waiting for my lender to come around.