Timelines Drive Foreclosure Liquidation Decisions
Distressed asset liquidation timelines will continue to coerce the decision making process for both lender-servicers and homeowners.
A key advantage for all parties considering distressed asset disposition is that it boils down to choosing between a short sale and a deed-in-lieu. Yet, exceptionally long foreclosure timelines are holding hostage lenders, servicers and borrowers of distressed mortgage loans.
“Specific to timelines” are one of the main drives in selecting a deed-in-lieu versus a short sale, says Leo Esposito, a loss mitigation and asset disposition expert with ServiceLink. It all depends on a borrower’s individual case as much as on “how much time servicers can save in getting the asset from pre-foreclosure, through the foreclosure process and into the REO status before they can liquidate it.”
In cases when borrowers hand in the keys to a property that is still standing, the servicer or investor has the option to take over the house, process a deed-in-lieu and move on to final disposition faster.
Again, the question is: How much time can be saved? Does it make sense to get the title reversed?
Most servicers pursue traditional deed-in-lieu processing. “However, a few things have changed,” he says.
The first major change is that servicers are more aggressively seeking a deed-in-lieu “offering it much earlier in the workout process” compared to only a few years ago when it was seen as the last tool in the workout or liquidation process. “The reason is because servicers see it as a very viable option.”
The incentives servicers offer today also are much more aggressive, the compensation is higher than it has been in years past.
Especially in foreclosure states where foreclosure timelines are getting longer and it may take up to 36 months, the amount offered to borrowers has increased drastically from one to two thousand dollars to, in some cases $10,000 and more, he says. “Unfortunately it is about math, what it adds up to.” If in a judicial state, where it could last for years, the foreclosure process has not been commenced, or has been commenced very recently, it becomes an issue for the servicer “whose hands are tied because the borrower is not going to move out of the house unless there is an incentive to do so,” he added.
“Borrowers are holding the home, and the foreclosure, over the servicer’s head, they are holding servicers hostage. The power is in the hands of the borrowers.”
Ultimately it depends on how much the servicer is willing to pay given the specific metrics of the property. The servicer has to compare the amount of management and other holding costs with the amount of the compensation and even at $10,000 it is significantly lower than management costs.
The third major change in the disposition marketplace however is in the model itself. How processing and servicing operations are managed, the software and technology is used to proceed with a deed-in-lieu makes a major difference, he says.
It is a decisive factor not only because it determines the scale of operations but also the overall efficiency of dispositions where all the power is in the hands of the servicer.
“Traditionally the deed-in-lieu process was a much more fragmented process. Servicers had to deal with multiple attorneys in multiple states,” he explained. The new modules available have allowed servicers to centralize their processes.
Many servicers are switching from fragmented operations to centralized systems that no longer handle deed-in-lieu transactions through operational processes that involve a number of different offices, points of contact or vendors, according to Esposito.
The ServiceLink module is one such example that can be used in all states because it provides the property title data chain and are licensed to contact borrowers and communicate with them directly.