For mortgage servicers and investors, helping distressed homeowners work out payment challenges through loss mitigation, ranging from loan modification to short sale to deed-in-lieu of foreclosure, is a strategy to also mitigate their losses.
“We’re not seeing many properties going into default, because the average homeowner has so much equity right now,” says Amy Borsi Daniel, SVP, Title & Close, ServiceLink. “When those who are moving toward default can’t make payments and need a way out, servicers need to consider a lot of factors: the current value of the home, the amount still owed, outstanding liens, market activity, etc.”
If the property value is higher than the amount the borrower owes, the servicer reaches out to that customer to explain their options. It’s important to be aware of any issues related to the title before having that conversation.
Taking a look at the title before agreeing to a short sale is a smart strategy. Servicers and borrowers can save a lot of time and money that might have been wasted on listing and marketing a property that can’t be sold unless its title is cleared,” says Jody Walshe, Assistant VP, Deed-in Lieu-Title, ServiceLink.
With this in mind, ServiceLink offers the Short Sale Property Report, a tool designed to provide servicers with critical information about a property’s title before committing to a short sale. The concise nature of the report ensures that any negative issues jump out immediately.
“The Short Sale Property Report reveals whether a title is clear of junior liens, judgments, IRS and state tax liens, code violations, and other issues,” Walshe said. “It gives immediate insight into the property and tells them up-front which route—loan modification, short sale, or deed-in-lieu—is likely to be the best path forward.”
The more information a servicer has up-front, and the more they enlighten the borrower, the better the outcome is likely to be.
“A short sale enables the homeowner to sell their property for less than what they owe so they can get out from underneath the loan completely,” Walshe said. “Short sales also represent savings for the investor, because they aren’t paying holding costs to keep the property up.”
Shorter closing timelines are a notable advantage, as low inventory levels persist across the country. Many homes are under contract within 30 days of hitting the market, Walshe says, making short sales more appealing to both servicers and borrowers who may be eager to sell to avoid impending financial consequences.
“Short sales can be a good option for not just borrowers but also those who will be unable to make the balloon payment coming for many who deferred payments during the pandemic,” Walshe explained. “If they’ve already taken out the equity in their home, a short sale may be their best option for avoiding foreclosure.”
Daniel believes that short sale volumes may pick up in the coming months. “Interest rates are making it difficult for borrowers with adjustable-rate mortgages to afford monthly payments and for homebuyers to qualify for new mortgages. As we start seeing home values decrease, we could see more homeowners going upside down on their mortgages. Short sales could help,” she said.
Alternatively, borrowers may be able to deed the property back to the bank through a deed-in-lieu (DIL) of foreclosure. Like a short sale, a DIL offers the borrower an exit strategy while protecting their credit from the damage a foreclosure could inflict.
Servicers considering DIL need more complete information, and a more comprehensive report, than they do for a short sale.
Daniel explains, “If a servicer orders a Short Sale Property Report and the information comes back indicating short sale is not an option, the servicer can upgrade that report to include everything they need for the DIL report. Instead of starting over, our team leverages and builds on the information we’ve already collected to save the servicer money.”
That information would go back 40 years and typically includes two owners, versus the short, one-owner Sale Property Report. “When we do a search for DIL, we’re including more in-depth detail, so the servicer has a complete understanding of the property they’re bringing back into their inventory,” Walshe said.
Daniel added that ServiceLink cansupport both short sales and DIL transactions.
“We have an entire team of experts with experience in processing DIL and short sales; they are always available to answer questions. Our goal is to manage these processes smoothly to benefit borrowers and servicers alike.”
