Short sales are complicated, but can help homeowners who owe more than property is worth

Unfortunately, like many buyers then, they purchased near the height of the market. Joseph Damiani’s job transfer to Atlanta three years ago prompted the couple’s need to sell. By the end of 2011, the home was listed for $289,000.

When traditional marketing efforts failed, the Damianis said they thought the short-sale process would help head off looming financial difficulties so they could avoid falling behind on their mortgage payments. “We were trying to do the right thing,” he said.

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Short sales in the Washington area.

They qualified for a job-transfer hardship with their first trust lender. But the second trust lender would not talk to them until their payments were in arrears for at least two months, a path that would potentially ruin their stellar credit rating.

“Most lenders require you to be delinquent before they will start the short-sale process,” said Sara Rodriguez, a Fairfax lawyer who negotiates short-sale transactions between lenders and sellers.

Brian Gormley, the founder of Cornerstone Properties, said: “It’s difficult for banks to know who is being sincere” with their hardship statements. “Honest people are hurt by those gaming the system.”

That means that those being responsible, by flagging a potential problem a few months before a projected default, get lumped in with the “strategic default” crowd — those who can afford to make payments but walk away because their homes are underwater.

When the Damianis received an offer of $285,000 from Depew in October 2011, they didn’t know their short-sale journey was just beginning.

Various outcomes

Once upon a time, you originated a mortgage with your local bank. That bank provided the money for your loan as the investor. It also was the servicer — collecting your payments and paying your insurance and taxes out of escrow.

It rarely works that way anymore. The originator, investor and servicer are often different entities. Mortgages are bundled and sold multiple times. Servicers (where you send your payments) may have hundreds of investors.

“People don’t realize that while you can be dealing with Bank of America or Wells Fargo to negotiate the short sale, they might only be the servicer and not the owner of the loan,” Rodriguez said. “The owner of the loan — the investor — is the one that makes the ultimate decision.”

That explains why various short sales with one bank can have different outcomes. She noted that most lenders don’t provide their guidelines in writing, which is why it’s so frustrating. “There is no common sense in the short-sale process,” she said.

“Mortgage insurance, homeowner associations or a second lien make the process more difficult,” Gormley said, because each has additional approval rights.

The Damianis’ loans have been sold several times to investors the couple has not chosen. Their first trust is held by an investor rated “F” by the Better Business Bureau. The second trust has no BBB accreditation. Each has its own requirements and timelines. The lack of communication and coordination between the two has led to major delays and the need to resubmit paperwork.