USAA Plays Hardball With Short Sales and Distressed Homes
USAA (NYSE: USISX) is one tough cookie when it comes to short sales. If they were liberal at all in the past their response to our current economic crisis has changed. Since USAA is a smaller bank compared to some of the big brand name players like Chase (NYSE:JPM) and Bank of America (NYSE:BAC), they are typically able to process short sale requests faster than some of the big bank players. However, as the processing becomes smoother with many of the larger bank corps the added advantage of fast processing times is diminishing for USAA.
Whatever advantage USAA may gain in processing times they may very well lose with their aggressive stance on short sales. The typical USAA lien demand will vary depending on if the loan is a first deed of trust, HELOC (Home Equity Line of Credit), or a junior lien. USAA’s policy has generally been to not release a lien’s hold over a property (on junior liens) unless around 15-25% of the loan balance is repaid.
This is a very aggressive stance to take with junior lien short sales because many of the larger banks are settling for far less than what USAA is requiring. For example, Chase (JPM) typically settles second lien short sale accounts for roughly 7-12% of the property’s FMV (Fair Market Value). Unfortunately, for distressed home owners USAA must be playing the deficiency judgment game. The only reason why they wouldn’t settle second lien accounts for 7-12% of the FMV in California is because they believe they can get more by bringing the lien to collections or suit.
California is a bit different than some of the other States in that the State is considered a single action non-recourse State. This means that if USAA took any sort of action (i.e. initiating a foreclosure proceedings, accepting a short sale settlement, etc…) they would have a very hard, if not impossible, time going after home owners for the remaining balance.
So then, any trained real estate agent would next ask a USAA rep who refused to settle, ‘how about releasing your lien on the property so the short sale can be successful?’ If USAA (as a second lien holder) would at least release their claim to a property than the superior lien holder could short sale the property. One recently interviewed real estate agent said that USAA wouldn’t release a second lien hold even when the homeowner was willing to pay 25%+ of the current loan.
According to the real estate agent, “So, now we are in a situation where many homes that are secured by USAA junior liens will be facing foreclosure unless creative solutions are utilized.”
If USAA does take this stance against your junior lien, you have several short sale options that will essentially remove USAA from the short sale decision process. For example, one option that seems to be successful in this situation is to allow the USAA junior lien to be sent to ‘charged off status’ and sent to a collections department. Charge off times vary, but are generally around 180 days. This means that if USAA doesn’t budge with your junior lien, your only option may be to stop paying your mortgage for 180 days, let the property go into collections, and attempt a short sale with the new department.
This can be a tricky strategy especially when dealing with a 1st lien that is looking towards foreclosing because the junior USAA lien holders are being stubborn. It’s a strange double standard because USAA generally won’t payout 25% of a loan’s balance if they are the 1st lien. But, do they somehow expect other banks to be more accommodating?
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Hi I was reading your article regarding USAA and I have a HELOC with USAA. My first loan is with HSBC and we are in the process of trying to see if we can do a short sale. I have been with USAA for a long time now and I know how strict they are ,we also bank with them and I don’t want to mutter a word about a short sale until I move all my money elsewhere. Do you have any other additional advice about how they are with a HELOC and short sale?
Thanks.
Hi Courtney,
somethings to consider about USAA’s policy. Of course double check with your lawyer about stateside specifics….
1. Generally they cannot touch retirement funds if you let your home foreclose upon. If you were looking for a shelter against any sort of deficiency judgment that topic would be good to explore. Depending on your specifics the HELOC maybe up for a deficiency judgement even if the home is foreclosed upon.
You may want to research your state’s deficiency laws. For example, in California if a lender settles a loan (i.e. short sale) the loan is essentially paid in full (unless they make you sign otherwise).
the legal theory is called ‘single action none recourse’ which is the legal principle applied by California (except in certain HELOC instances).
2. From my experience USAA likes to bargain a lot. Don’t be afraid to make the short sale negotiator goto management several times if your initial transaction gets denied by management.
3. If you have difficulty with one negotiator you can always re-initiate the short sale process OR….let the loan payment default for 180+ days and it will generally be sent to a “charged off” dept. that will reprocess your short sale request with a different set of approval standards (usually easier to deal with).
4. Of course worst case scenario you can always file for bankruptcy and take care of the whole thing there (however, i’m personally partial to the short sale because of the benefits to your credit score and length of time before a new loan can be obtained).
If you are actually attempting the short sale yourself you should let a pro negotiator or realtor do it for you. Things just look better this way to the bank and there is less room for potential fraud.
oh btw, if you need a number for a good negotiator just let me know and I will post/get some good contacts over your way.
My wife and I are trying to purchase a short sale home whose mortgage is held by USAA and another lender (unknown). The real estate agent representing the seller has done a comparison of homes in the neighborhood and (as far as as I know) put together a comprehensive (though early) assessment to make the mortgage holders BPO go smoothly. The house is reasonably priced compared to homes in the area. Can I expect this short sale to proceed at a decent (60-90 days to close) pace or should we expect that this will take a while (up to 6 months +)?
Thanks,
William
William, why is the other lender ‘unknown’ to you? You might want to try and lookup the property on MERS:
https://www.mers-servicerid.org/sis/
or run it through a title co. database. Are you represented by a buyers agent? If so, have you requested that your buyer’s agent take over the short sale negotiations or move it to a 3rd party negotiator?
If this is acceptable than you are put into the drivers seat for negotiations and can play a more aggressive part in determining the length of time the transaction will run. Lot’s of times the transactions that take 6 months+ are because the file is not being actively followed up on.
The info you gave is a little vague. does the the assessment include? a comprehensive property repair list? There are a ton of techniques you can use to make the whole thing go more smoothly.
for example, submitting 2 different Pre-lim Hud-1′s with differing payoff amounts to each lender.
unfortunately, since USAA likes to bargain and counter your payoff suggestion a zillion times it’s essential to take this into consideration while negotiating your overall offer. Tell them you will give them something really low like $2,000 (if they are the first lender) and just know your contribution limits to make the deal fly if necessary.
In the mean time put on their HUD-1 a high contribution to the second lender. Next, submit another prelim hud-1 to the second lender with a really low 1st lender contribution.
You can do this because they are just preliminary estimates and in reality the lenders are most likely going to counter whatever you put anyhow (especially considering it’s USAA).
anyhow, there are a ton of negotiation techniques like this that you can use to speed the process up if your in the drivers seat. Otherwise if the listing agent doesn’t want to give up control I would just check up with them often to make sure the file is moving along at a nice pace.
Hi-
My fiance has a condo that he is upside down on. After speaking with a Bankruptcy Atty we ruled the foreclosure and bankruptcy options out due to the fact that he’s got steady income, great credit and sufficient assets he doesnt want to lose.
Our next step is to consider a short sale on the condo, which is financed through USAA. It looks as though they are very tough. Do you recommend working with a trusted realtor to begin the short sale negotiation process? Or, start with a RE atty? It would be ideal to move the property since I too have a condo that we are using.
Thanks in advance for any advice on how to start…..
Yes, a trusted Realtor will most likely be your best option…
where is the property located at? If it’s in Massachusetts my team could handle the transaction for you. Just shoot me an e-mail at: info@masshomedeals.com
if it’s not in Mass we should still talk and I can make sure you are referred to an agent that’s not going to put a really horrible contract together for you.
Hello,
My husband and I just put in an offer on a potential short sale home that was submitted for third party approval to USAA. According to the selling agent, USAA is the only bank they need to get approval from and that there are no other lenders or banks to deal with. I am writing, really, just for your initial thoughts on the situation and whether or not you think USAA will approve this offer or not.
For some background…the house is in MD and the sellers purchased the home in 2007 for $415,000. It has been on the market since Jan-Feb. and went down in listing price from $380k-$325k, with no offers before ours. We have offered $301,500 w/ $9250 back for closing. Per the comps for the area, homes of similar age, size and attributes have been selling for around $280k-$310k, although many (but not all) of these homes appear to be other short sales and foreclosures. The sellers countered at $320k w/ $9250 for closing, but we rejected for fear that it would not appraise at that value, but also because we do not want to overpay for the home.
I was wondering if USAA is similarly difficult or stringent in situations where they are the sole bank involved. Does this situation, considering what you know, flash any initial red flags that they may decline the offer? We love this house but, as much as we sympathize with the sellers and their situation, we do not want to overpay (even if it is slightly). There have been a few homes in the area to sell over $300k, but they all are either newer or in a part of the town that is closer to more “stuff.”
Thanks for any insight you can provide!
Real Estate dude.. would love to know of a recommended negotiator in my area, Melbourne FL 32940. We are trying to do a short sale and are floored at the fact USAA is wanting us to pay the deficiency… they are requesting a letter of our intent to repay the deficiency and we are not interested in paying it back. Active duty military with orders… and no we do not qualify for the HAP; bought 6 months after the cut off. Thank you!
My wife and I are considering short sales. We were married in Oct 2008 and she moved in with me. We rented her home for 2 years, during which time the market crashed and we now can only get rent amounts 400 less than her mortgage. Her mortgage is a 1st only with USAA (USBANK). It’s around 160K and the home is valued at 72K (Arizona property). My wife is the only signer on her Mortgage and I am the only signer on my Mortgage. My wife has been unemployed since Jan 09 and we expect her to stay that way. We have initiated the Short Sale process on her home. What is the likelihood of the short sale being approved? Also, what are their options for coming after her for the unpaid balance?
As for my home, it is in a worse situation. 1st with BofA (originally through Countrywide) and a 2nd with a FCU. 1st is 488K and 2nd is 60K. Home value now worth 250K. Thinking about short selling this home also and renting until the market (and our credit) improves and then buying when the market bottoms out.
Based on this, what are the issues we need to look for and what should we expect in recourse since although we are married, both homes are under our own names. I am employed and make a ~125K a year.
Thanks in advance for your thoughts on this.
john
John,
We recently closed on two AZ properties, both Short Sales. Our primary residence has a loan amt. of 250K with an appraisal that came in at 115K thru BofA (formerly Countrywide) in April. The biggest problem with BofA was that they approved everything but then their letter was a little “tricky” as to if it was going to fully release us from the debt. They said that was the only letter, but thanks to my husbands research and persistance…..we found out there actually is another letter worded better that they just pretend they don’t have. Anyway, with much back and forth we got agreed to pay them $3000 (apparently the amount in lender incentive we got when buying the home) and they would issue the release letter. Funny thing though….in the end they forgot to put that in the letter so we never had to pay! ha!
The other property was a rental, loan of 160K with final sale of 75K through USAA/GMAC, that one went smooth overall. We did have a home equity of 15K that the 1st lien holder would only pay 3% too…so we negotiated a payment play to repay that so they would release the lien….its actually a better deal because they gave us a 2% fixed interest rate on that balance and for us it was worth paying that off. We closed on this property in June.
Hope this info helps, 2 months later both properties have recorded as settled and even with missed payments on both properties my score on all three agencies is already over 740. Your wife being out of work is a good hardship reason as well as inability to get adequet rent with current market conditions, the properties work in each others favors because by listing both monthly payments your monthly debt is huge!
Good Luck!
Also, if you need a good AZ realtor I have an excellent one that is persistant and knowledgeable(most important quality with short sales), she goes all over the Phoenix area mostly.