When they made their offer to buy a Southwest Portland home last March, Catriona McCracken and Paul Thiers had every reason to think the deal would rapidly close.
PORTLAND — When they made their offer to buy a Southwest Portland home last March, Catriona McCracken and Paul Thiers had every reason to think the deal would rapidly close.
The seller was delinquent on the mortgage and was motivated to sell. They had agreed upon a price.
But Earline Penson, McCracken's real estate agent, responded with prophetic words: "Until the bank responds, we are in limbo," the veteran Hasson Realty agent warned. "That's why I don't like short sales. We are at their mercy."
Indeed. Ten months have gone by and the two giant banks involved have shown no mercy.
McCracken and Thiers still have not closed on the house. After months of false starts, blown closing dates and repeated requests for the same information from an endlessly rotating cast of bank officials, McCracken's offer remains stuck somewhere in the bowels of the Bank of America and JP Morgan Chase bureaucracies.
"It's so frustrating, it seems like there are no rules out there," McCracken said. "Is it incompetence or is it something more than that? At this point, I just don't know."
Bank of America was unable to explain how the process has failed, though bank spokeswoman Jumana Bauwens said the buyers and sellers did not always file necessary paperwork in a timely fashion.
The saga of the home on Midea Lane in Southwest Portland illustrates the sad state of the residential real estate market and the struggles of the nation's lenders to deal with the mess they helped create.
Banks are sitting on billions of dollars worth of homes, which they've repossessed or now control because the owners fell behind on their mortgage payments. When one of these homes is sold for less than what is owed, it's called a short sale. Yet critics from real estate agents to Congress have complained that efficiently disposing of these properties has proven beyond the industry's ability.
The problem has ramifications for anyone in the real estate market. When an estimated 20 to 30 percent of the houses on the market are in the hands of the banks, the huge inventory will continue to push prices down, not to mention make life miserable for would-be participants in these sorts of deals.
"The banks are overwhelmed," said Mike Curtis, a short-sale specialist with Exit Realty in Portland. "I talk to some of these bank employees, they say they've got 500 files on their desk. How do you gear up to talk to that many people?"
For McCracken and Thiers, the story began last March. The lawyer and the university professor took an immediate liking to the house. With two young sons and aging parents, they needed the room.
The current owners of the home had moved to Southern California. Those owners, who requested they not be named, had taken out a $258,000 first mortgage from Countrywide, which was later purchased by Bank of America, and a second mortgage from JP Morgan Chase for more than $180,000.
They remodeled the home and put it on the market for about $580,000, just in time for the economy to tank and the housing market to crash. They lowered the price repeatedly in a mad scramble to avoid foreclosure.
By the time McCracken and Thiers came along, the price was down to $340,000. When McCracken and Thiers offered $330,000, the owners quickly accepted.
But it was no longer a simple matter of buyer and seller reaching an accord.
The price fell low enough that it was now impossible for both banks to get repaid in full. That meant the banks had to sign off on the transaction — in other words, a short sale.
McCracken had no idea she was stepping into an administrative twilight zone, marked by secrecy, confusion and, apparently, a battle of will between the two banks over how to divvy up the proceeds.
The confusion is partly understandable. Big banks such as BofA and Chase have built vast backshops on the fly to dispose of a huge volume of repossessed properties as well as oversee short sales and modify loans of struggling borrowers.
With bank-controlled properties now exceeding one million and foreclosures still running near record rates in much of the country, these banks are like the proverbial snake with a large rat stuck in its gullet.
McCracken's deal was particularly problematic because there are two banks involved. Getting two banks to agree can be difficult, but more so when one of the banks, Chase in this instance, is being asked to settle for next to nothing.
"Having two lenders greatly reduces the chances of success," said Curtis, the short-sale specialist. "That's just the worst. You've got a first (lender) that's in the driver's seat and doesn't care about the second, and you've got a second that has got to make lemonade out of lemons."
McCracken and her husband initially hoped to close their purchase by last summer, before they went to Europe to visit family. The 5-inch pile of e-mails and other documents she has scrupulously kept illustrate the typical cycle of a homebuyer's optimism and despair as the summertime closing date came and went.
By August, the owners' Realtor threw up her hands in frustration and gave up. The owners hired Keller Williams Realtor Rick Sadle, a veteran of short sales, to take over.
Months went by. "They kept asking for documents, for the same documents, repeatedly," McCracken said. "I'd send documents and they wouldn't get them. One guy finally told me their fax machine wouldn't accept more than 10 pages at a time."
Finally, by fall, an agreement again seemed close. On Nov. 16, they were informed that the banks had signed off on the deal. The closing was scheduled for Dec. 15.
McCracken and Thiers' young sons got excited about celebrating Christmas in their new house. They agreed to not put up a tree until they finally moved.
But again the deal fell apart. The banks told McCracken's Realtor they needed to agree to pay out another $27,000 and the agent needed to lower her fees.
"It was like extortion," McCracken said.
The disappointed family broke into their moving boxes stacked in their rental house to find the holiday decorations. The crestfallen kids were informed it was Christmas in the old house, after all.
Little has happened since. McCracken's offer to buy officially expired Friday. She said she intends to renew the offer, something she's already done three times before.
The process it hugely frustrating to McCracken, but its crushing the finances of the current owners. Bank of America continues to add late fees and penalties onto the owners' loan.
When the short sale process began, the homeowners owed Bank of America about $250,000. Now, the bank claims, late fees and penalties have raised the homeowners' outstanding debt to $308,000, Sadle said.
That position, of course, infuriates both the sellers and the would-be buyers, who argue that the bank's own incompetence caused the delays that prompted the late fees and penalties.
Bank of America's rigid stance also makes completing the sale harder. The bank insists it is entitled to every dollar of the $330,000 offered by McCracken, leaving zilch for Chase.
Bank of America's Bauwens said her company is trying to improve its procedures to make short sales more efficient. It is opening a dedicated short-sale call center, for example, to improve the bank's ability to communicate with buyers' and sellers' agents.
"I completely understand that these buyers and sellers are frustrated with the process," Bauwens said. "BofA is taking steps to try and enhance the short-sale process with new technology and processes that will speed it up."
Chase officials did not respond to requests for comment.
McCracken is not sympathetic. She's filed a complaint with the Oregon attorney general's office against both banks.
"People have to know what they're getting into," McCracken said. "It's fine if you're a big real estate investor. But if you're a family and you have a life, a short sale may not be for you."