by EVE SAMPLES - Palm Beach Post Staff Writer - Sunday, July 06, 2008

Reggie Capiro had reached his breaking point.

Gas prices were climbing ever higher, and his 200-mile round-trip commute from Palm City to Miami had become too costly and too grating.
"Every day, it just wore on me a little further," the 49-year-old motorcycle salesman said.

So in October, he and his wife, Noelvis, 46, stopped trying to avoid the inevitable. Unable to find decent-paying jobs closer to home, they decided to move south and put their three-bedroom, three-bath Palm City dream house on the market.

They hoped to find a buyer willing to pay at least as much as the balance on their mortgage. The Capiros paid $406,000 in 2003 but owed about $440,000 after refinancing to pay down credit card debt. They got into a bigger hole than expected when Reggie's commissions as a Martin County boat salesman dried up after the 2004 hurricanes.

The Capiros were pleased when a buyer emerged - but the deal fell through because of a title dispute. Meanwhile, the market continued to sour.  "We realized we'd be lucky to get out," Reggie said.

So he and his wife petitioned their lender for a short sale - when a bank consents to selling a home for less than the outstanding mortgage balance.

About six months later, Wells Fargo Home Mortgage and its servicing company have yet to accept an offer. Instead, the Capiros' home is on the brink of foreclosure and scheduled to be auctioned on the courthouse steps July 15.

"It's just asinine," said Dave Derrenbacker, the Capiros' real estate agent and owner of Water Pointe Realty Group in Stuart. "We've got a ready, willing and able buyer sitting by, patiently, to get qualified." The bank has rejected several offers and asked him to submit the same paperwork again and again, Derrenbacker said.

If the foreclosure is finalized, the bank stands to lose more money than it would if it allowed the short sale for $400,000. The Capiros' credit is likely to take a far bigger hit than it would with a short sale. And yet another foreclosed-on home will sit available in the region's oversupplied housing market.

"The problem is there's no standard of practice," Derrenbacker said of short sales. "If the government wanted to help out, it would set timetables and standards for these things."

Most agents cite snags in process

Of the 4.99 million existing-home sales expected to close between May 2008 and May 2009, about 400,000 of them will be short sales, according to the National Association of Realtors.

The term short sale wasn't part of most buyers' and sellers' vocabularies a few years ago. Now, 54 percent of Realtors have participated in at least one short sale, according to an informal survey of 3,265 agents the association conducted this spring.

Short sales can sound like a dream way to walk away from a mortgage nightmare: The seller escapes foreclosure. The buyer gets a bargain price. The bank holding the home loan eats the difference.

But as the Capiros' plight shows, the deals can be incredibly cumbersome to negotiate.

Of the agents polled who had participated in a short sale, 94 percent said they faced obstacles. The issues included disagreements about market value, uncertainty about documents needed, the lack of response by a lender or servicer and other problems.

"Some of the Realtors suggested that the short-sale process could be improved with clearer contact information for lenders and servicers, standardization of the documents and faster decisions," said Jed Smith, the National Association of Realtors' managing director for quantitative research.

In the Capiros' case, "they showed hardship, they showed all they were supposed to show," said Derrenbacker, who serves as president of the Realtor Association of Martin County. But the bank still wouldn't make the sale happen. Des Moines, Iowa-based Wells Fargo Home Mortgage declined to comment specifically on the Capiros' case, citing customer confidentiality.

When it receives an offer to take a short payoff on a loan, the company has to clear the amount with several parties, such as mortgage insurers and second-lien holders, the bank said in a statement.

"If one or more of these stakeholders says the offer price is below fair market value - or the minimum amount they are willing to accept in a short sale - Wells Fargo has no choice but to communicate the offer is denied," the bank said in an e-mailed statement.

Because lenders want so many documents to justify a short sale, it can take 25 to 40 hours to assemble a single short-sale file, said Michelle Jones, a foreclosure counselor at West Palm Beach's new Foreclosure Assistance Center. Phone calls to the lender can be another ordeal. "We'll be on hold 20, 25, 30 minutes just to get through to the lender," she said.

Of the center's 300 or so clients, about 32 were pursuing a short sale this summer. Only 17 of those got the go-ahead from their lender to even give it a try.

"When you are conducting a short sale, somebody is giving up a significant amount of money, so you would expect there to be problems," Smith said.

Flawed system 'getting better'

Still, there are some signs that short sales will get easier to navigate.

Hope Now, an alliance of mortgage industry players offering support for troubled homeowners, last month announced its first set of uniform guidelines for dealing with short sales. Among other things, the guidelines say Hope Now members - mostly loan servicers and banks, including Wells Fargo - "may suspend foreclosure action for a reasonable period of time" to allow time for review of a short sale.

Most real estate agents don't have the time to invest in short sales, said Greg Addeo, a Stuart-based real estate broker and executive vice president of East Coast operations for Yorba Linda, Calif.-based Shortsaleplan.com. Addeo's company works with banks and real estate agents to help make short sales a reality. For a $600 upfront fee, it will create a short-sale file with a lender, get the third-party price estimate (a broker price opinion) and handle other administrative work. The short-sale system isn't perfect, Addeo said, "but it's getting better."

With an estimated 9 million Americans upside down on their mortgages, short sales also are more alluring than they used to be.

"I certainly talk to more people that are upside down in their homes than right-side up," said Jessica Cecere, president of Consumer Credit Counseling Service's Palm Beach County and Treasure Coast operations. "And they either have to ride that out or do something about it." In the last six months, she's seen far more strapped homeowners considering short sales as an option.

Another enticement: Last year's Mortgage Forgiveness Debt Relief Act excludes debt forgiven in the short sale of a primary residence from being subject to federal income tax. Short sales tend to be less damaging to people's credit scores than foreclosures, but it depends on how lenders categorize and report the unpaid debt, Cecere said.

Reggie Capiro worries about the blemish a foreclosure will leave on his record. The lease on his car is almost up, and he fears he won't be able to qualify for a new vehicle.
"This is devastating," said the father of two daughters, ages 20 and 11. He and his wife are now renting a home in Miami for $1,600 a month. Capiro still has keys to their empty house in Palm City, but he and his family never make the drive back.
It's too painful. "I tried my damnedest to keep my house up there," he said, "because I loved it."
 

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