This is a true story. After going back and forth with respect to the consequences, legal and otherwise, I have decided not to name the Lender. What has happened, nevertheless, is true and it underscores a power within the financial institutions in our country which is unbridled, and, in my mind, abusive.

A client came to me with a problem with his mortgage. He is an unemployed father of three children, and saddled with two mortgages on his residence in suburban Boston, which he cannot pay. In fact, he had not made a payment on his mortgages, or his property taxes, in some time. He told me that he had the property on the market for the last nine months, with six different realtors, and he had not elicited one offer which was even worthy of consideration.

I suggested he work with one of my trusted realtor contacts, and that perhaps the reason he was not getting any offers was the fact that his asking price was far above the value of the residence. He met with my suggested realtor, she did her homework on value, and they agreed on a new listing at a reasonable price, which the realtor was reasonably certain she could get.

In fact, the realtor received multiple offers at the lower price, one of which was with a cash Buyer (with proven funds to close) and a forty-five day closing. We assembled all of the required information, including two (2) brokers opinions of value, a proposed HUD-1, and a purchase and sale agreement with a five(5%) deposit which my firm is(was) holding.

The Lender was initially unresponsive. They were “swamped” with requests for short-sales, and did not have an analyst available to determine if the short-sale would be approved. After several follow up inquiries, we found that an analyst had been assigned to the matter, and we would be hearing from the Lender “soon”. By the way, the time that the analyst was assigned was considerably beyond the 45 day closing window, but our Buyer was willing to extend, and various extensions had been executed.

The final correspondence with the Lender indicated that the analyst had reviewed our proposal and would be willing to submit out short sale for approval, but only upon the following conditions:

     1. The Lender would “charge-off”, probably means, “sell for pennies” the line of credit second mortgage. This is a short hand statement which means that at some point in time a “bottom fisher” who purchaed the debt would be coming after my client.

     2. My client would be required to sign a promissory note for any balance remaining on the first mortgage after the short sale. It was possible that the Lender would consider issuing a Form 1099 for the difference rather than require the promissory note.

     3. If my client does not agree, in writing, with these terms, the request for the short sale is automatically rejected.

My client will not go forward with these terms. This means that at some point in time, the two mortages will be foreclosed upon. The Lender will be required to absorb the expenses of foreclosure, no less than $30,000 in Massahusetts and then pay an REO realtor a commission to sell the property after foreclosure. In the meantime, my client continues to live in the residence, without the Lender receiving any payment from my client. The process, including an eviction after the foreclosure, can easily take nine months. Why does this make any economic sense for the Lender, given the fact that the suggested short sale price is the true current market value of the residence?

The saddest part of this scenario, however, does not concern the Lender or my client. What about my realtor friend who worked so hard to find a Buyer and then finally sold the home? Why should she get nothing for her efforts? What about the Buyer who offered a fair price and expected, at some point, to purchase this home of his dreams? Why should these people be punished because the Lender has some view of making the person who is down on his luck “pay the price”

These are difficult times for many people. Very rarely does the Lender sue the Owner for mortgage deficiencies. Why shouldn’t this, and other, properties be put back on the market so we can move forward to establish a rational residential real eatate market? I find this all perplexing as much as anything else because we, as a professional, are powerless to make Lenders, who we have bailed out with public funds, act responsibly and with a view to the general well-being of our citizens.