General

Hi all, here is some useful insight into bank negotiations.

HOW TO NEGOTIATE WITH BANKS

First and foremost, it is important to remember that banks negotiate. Every item is negotiable when a bank is looking at an alternative to foreclosure. Banks do not wish to foreclose. I met with a Wells Fargo negotiator this week and according to her, the foreclosure process costs the bank an additional 10 – 15% more than a short sale.

The first rule of negotiation is, “know your enemy”. In order to understand how to negotiate with banks, it’s critical you know what is going on with them. Did you know that 1 in 7 homes in America are currently underwater? Underwater is another way of saying that the homeowner owes more than the house is worth. In California, the ratio is more like 1 in 4 homes that are underwater. There are millions of homes in California so you can imagine how many problems the banks have. Millions of problems! They are inundated with hundreds of thousands of applications for short sales, loan modifications and all the other options available (see below for details on options).

One major difficulty for banks is simply being able to respond to all of the people trying to get in touch with them. I just spoke with a bank negotiator at Bank of America who used to service 600 applications for short sales. She said that a sharp negotiator might be able to handle 100. 600 is impossible! Another problem is fraud. There are tens of thousands of cases where people are doing a short sale and secretly having their family member buy the property at a reduced price and then selling it back to the original owner. This is a sneaky way for the homeowner to get a principal reduction. And it’s illegal. Finally, to add to these problems, even a normal real estate transaction has multiple opportunities for a law suit. Distressed sales are even more litigious!

So banks have problems. Banks actually need US to hold their hands through the short sale process. In a sense, we have to make it very easy for them to approve our sale and free the homeowner of all future financial liability. Banks employ a very paper-intensive, time sensitive approach to negotiation. I have found that when I am extremely pleasant with my negotiator AND I make his or her job easy, I get what I want for my client.

For the next post in this series, be sure to check out this blog page next Wednesday, March 16th.