Raffi Tal has been successfully executing short sales since the early 90's and currently oversees all files as the company’s EVP. Under Tal’s leadership, I Short Sale, Inc. has become one of the nation’s leading firms in short sale volume. As an authority in the field of loss mitigation, Tal has been a guest speaker on the issue in various conferences, seminars and for a variety of media outlets.Raffi Tal, chief operating officer of one of the country's largest short sale advisory firms -- IShortsale.com -- doesn't hesitate to answer: Lenders who hold junior liens -- second and third trusts or mortgages -- on properties are gumming up the works and stalling closings.
"They can be incredibly irrational," Tal told Realty Times in an interview this week, "They want unrealistic (payoff) numbers," even when they face total losses if the holder of the first lien proceeds to foreclosure.
Tal's firm works with lenders, investors, realty agents, and borrowers nationwide to put together and close short sales. Currently it's handling roughly 1,800 pending transactions -- up from 1,000 at the start of the year.
In a short sale, the primary mortgage holder agrees to accept less than the full amount owed by the borrower. A new buyer, either an investor or an owner-occupant, offers to purchase the property at a discounted price. Often the sale proceeds leave little or nothing for second or third lien holders, such as banks that extended piggyback seconds.
But because junior lien holders have the legal right to approve the short sale, or disapprove and block it, they may demand payment of some small part of what was owed to them out of the short sale proceeds.
The problem, according to Tal, is that junior lien holders increasingly are holding transactions hostage - demanding fat payoffs as the price of their approval. Traditionally they'd agree to nominal amounts out of the deal -- say $1,500 to $2,000. But now some of the largest banks are holding out for $10,000 to $30,000.
Tal cited one recent example of a major lender that had already written off a second mortgage for accounting purposes on a house that had dropped dramatically in market value.
"The bank had nothing - they zeroed it out on their books," said Tal. But when his firm approached the bank about a short sale to avoid foreclosure, "suddenly they began asking" for $10,000 to $30,000 as the price of their participation.
The deal finally closed at the eleventh hour, but only because the home sellers came up with $10,000 out of their own pockets to satisfy the bank.
Bottom line here: If you are pursuing a short sale as an investor, make sure you have a strategy to deal with junior lien holders up front.
They can run the clock on your deal -- and even kill it if you don't cut them in.http://realtytimes.com/rtpages/20080516_investorreport.htm
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