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 generous at all in the past their attitude has totally changed with respect to our current economy. 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 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. However, USAA has a ‘property lien death grip’ that says, ‘if we can’t get paid on the account than nobody is going to benefit!!’ Currently, their policy is to not release a lien to allow a short sale to be a success, even if the homeowners cannot afford to repay 25%+ of the existing loan.

This is really disappointing considering that USAA prides themselves on service. They have marketed themselves as an institution for the men and women who serve the country, but where is the help in times of dire distress? How can they claim ‘AT USAA, every day is Veterans Day’, when they are treating distressed veterans so poorly with respect to short sales? One agent that was interviewed said that a USAA short sale negotiator actually told him that, “we don’t care if we lose customers that we had a previous relationship with, in our current situation we have to only think about how to mitigate our losses”.

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, they somehow expect other banks to be more accommodating?

USAA needs to get a grip and realize that taking a hard stance like this is going to reflect negatively on their image. How many foreclosures will happen before USAA will realize that seeking a deficiency judgement is actually going to cost them more money in the long run? (especially if new legislation favors distressed homeowners or the homeowner files bankruptcy)

For more help with short sales and information on local area homes for sale check out or real estate page quincy homes for sale.