New Buyers Hurt by Servicing Transfer Policy for Short Sales and Foreclosure Properties in Loss Mitigation

By Pam Marron

Sept. 19, 2014

The practice of transferring servicing from one servicer to the next is often a surprise to unsuspecting homebuyers. The transfer can start the short sale process all over again with no regard for buyers already in the purchase process who are trying to close on a newly purchased property. Some are losing appraisal  fees, home inspection costs, and repair estimate fees when servicers opt for foreclosure rather than to extend the contract.

The practice of servicing loss mitigation properties is taking a toll on new buyers who have signed contracts to purchase these homes. Servicing contracts for loss mitigation properties appear to span four to five months. Buyers of these serviced properties are unaware of the contract timeframes and may sign a purchase contract within this term. When servicing is at the end of a cycle, buyers are given little notice of the servicing deadline. Buyers have often paid for appraisals, home inspections, and estimates for needed repairs to make the applied for mortgage approvable on “As Is” contracts.

Servicer transfer dates are not told to the buyers until shortly prior to the date, and in most cases, new buyers and their lenders are unprepared to close before that date. Then, buyers are further delayed as they wait for the new servicer to order a brand new BPO and go through the loss mitigation cycle again. Often, new BPO’s are ordered for a property that has a valid appraisal already done and paid for by the purchaser. And, if the servicer opts to foreclose, the purchaser of the home is out all of the funds they spent upfront, even if they are not notified of the deadline date until after the mortgage process has started.

Title companies, frustrated with contracts where this is happening on a regular basis, tell of this common problem. Realtors aware of this practice are reluctant to show short sales, where this happens the most, fearful they will never get the new buyer to the closing table. And unsuspecting buyers are left stranded, stunned that there is no protection for them through the daunting mortgage process.

Homeowners going through a short sale or foreclosure are notified that servicing is changing and who the new servicer is. However, homebuyers trying to purchase these homes are not given the same information nor the ability to access loss mitigation negotiators for an extension of a contract already in process.

The [1]”Protecting Tenants at Foreclosure Act of 2009″ was legislation that allowed renters who suddenly lost their lease due to a foreclosure to stay until the end of the lease or be entitled to a 90 day notice before having to move. The same protection for new homebuyers who are investing upfront in a property that can improve a community when closed, needs to be applied.

Why should this policy be changed?

Buyers who purchase these often distressed properties are clearing out problematic mortgages for servicers and are almost always paying for repairs needed on these homes. Coming up with a sound policy to insure protection for the process to finish for these buyers can only improve values – and encourages realtors to sell these properties. A better policy that encourages and better accommodates a short sale will provide a higher net than a foreclosure will to servicers and investors.

[1]

Protecting Tenants at Foreclosure Act of 2009  http://www.occ.gov/publications/publications-by-type/comptrollers-handbook/ptfa.pdf

 

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