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Short Sales And Lenders - Do You Know Who Your Lender Really Is?

Short Sale LendersIf you were asked who your lender is—who actually owns your mortgage, what would your answer be?  Your mortgage statement may come from Wells Fargo, Aurora Loan Services, Select Portfolio Servicing, or some other lender, so they must own the loan, right?  It’s easy to assume that the company listed on your mortgage statement is the owner of your loan, but it’s usually not.

The Loan Servicer / Investor Relationship

  • The company listed on your mortgage statement is the loan servicer.  The loan servicer doesn’t own the loan.  They are paid to collect, monitor, and report the loan payments, handle property tax and insurance payments, collect late fees, and foreclose on defaulted loans.
  • The entity that actually owns the loan is the investor.  The investor pays the loan servicer a fee to service the loan for them.

Why Is This Important In Short Sale Situations?

On a short sale, the investor takes a loss, not the loan servicer.  However, a short sale must be “negotiated” with the loan servicer, and the person or entity handling the short sale for the seller is typically not allowed to communicate directly with the investor.  Also, loan servicers are typically paid more to foreclose than to facilitate a short sale.  So, if this is the case, you’re probably wondering why a loan servicer would ever consider a short sale over foreclosure.

The contract between a loan servicer and the investor requires the loan servicer to act in the best interest of the investor.  Since a short sale will usually net the investor more money (a smaller loss) than foreclosing and selling the property as a bank-owned property, the loan servicer will usually entertain a short sale as part of their contractual requirement with the investor.  However, because loan servicers typically get paid more to foreclose, they will often make the short sale process difficult, sometimes even trying to find small technicalities to kill the short sale deal.

First and Second Mortgages With the Same Bank

If you have a first and second mortgage with the same bank, they are probably owned by different investors.  This generally means that each loan is negotiated separately (with different short sale negotiators at the bank), and there may be different short sale requirements and timelines for each loan.   Even the information contained in the short sale package that is sent to the bank could be different on a first and second mortgage serviced by the same bank.

If a short sale is necessary to sell your home, it’s important to make sure you’re working with someone who has short sale experience.  Someone who has experience dealing with difficult lenders will typically have more success and be able to prevent unnecessary delays better than someone who doesn’t specialize in short sales.
Published Saturday, February 6, 2010 6:35 PM by David Monroe
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