Sunday, October 5, 2008

The Short Sale Black Box

A black box is a system for which you can see the inputs and the outputs, but cannot make out any of the inner workings; you can't tell what's going on inside the box, or how the things going in are turned into the things coming out.

Dealing with a short sale is like that systematic black box; we've got the inputs (our offer) and the outputs (eventual acceptance / rejection of said offer), but no way to tell what's going on inside. And that's incredibly frustrating.

Worse, because the inner workings are hidden, it's impossible to even tell what the effect changes in the inputs might have. Property values are falling--does that mean the bank will be more likely to accept our offer, knowing our FHA financing is only good if the property appraises for what we offered? Should we exercise our short sale contingency and issue 72 hour notice of withdrawl--will that have any effect?  What about factors well beyond our control, like the $700b Bush bailout package--will the asset managers who have to sign off on the deal wait and see what they can get from Uncle's teats, or will they move quickly to unload this property and deal with the devil they know?

It's impossible to know, and the opacity is only heightened by having to deal with a listing agent instead of directly with the bank.  We have to send our questions to our agent, who in turn calls up the listing agent, who has to poke and prod at his own black box of the bank's loss mitigation contact, and in turn funnel the answers back to us.  Each step obscures the process even more, cutting the signal to noise ratio exponentially and making it even more difficult to construct a picture of what's going on.  We have to rely on what the listing agent tells us, an added layer of abstraction from the already-opaque bank black box.

As I discussed in comments on a prior post, to any reasonable evaluation, our offer is quite sound and should be something the bank would be thrilled to accept (in so much as they'd be thrilled at taking any loss).  But despite my knowledge of the whole short sale process--something I've researched to the ends of the earth--it's impossible to tell where in the black box things actually are.  We at least found out several weeks ago that the mortgage insurer was reviewing the deal--something we'd not even thought part of the original equation--and now, the insurer seems to be in agreement... but we're still waiting.

We've asked whether the sellers are still current on their mortgage, something the listing agent has repeatedly refused to disclose (perhaps rightfully--though at some point, a default on their part will be a matter of public record).  Even if he were willing to speak on that point, though, it's really just another input to the black box, one for which we have no real notion as to the impact on the output.  On one hand, if the sellers are current, the bank will clearly be loathe to make a quick decision--so long as the cash is flowing in, they have less incentive to deal, after all.  But on the other hand, being current could be good in that their mortgage may be classed as less distressed than so many others, and thus less likely to be quickly sold (via bundled securities) to Uncle Sam, something that would likely be an effective death sentence for our chances of buying the home.

So it's back to the waiting game, and bank time.  The listing agent is touching base frequently with the bank; the bailout bill is now law, though its impacts and mechanisms are far from clear; and our agent will of course haggle the listing agent even as we continue to look at alternate properties as backup.  In the meantime, I'll try some more to stare into that black box and make out something of the shadowy gears that are turning (or not) toward some sort of output.

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