For those who have worked with our firm in the past, they understand that hearing the word “no” from a lender is not uncommon, nor is it uncommon for our staff view that “no” as nothing more than a hurdle.
Most lenders and servicers have a hierarchy and we will keep moving upwards, until either we hear “yes”, or the most important person we can reach says “no” to us – whether it be a CEO, executive vice president, etc.
However, if even the top of the ladder says “no”, then what?
Recently, we had a file that took 6 months to close. Well beyond our usual time frame and longer than even the most extreme cases we come across. Without us, it might not have closed at all.
Our client, actively serving in the military, was transferred out of state. As those in the military know, roots aren’t often planted while on active duty and transfers are a common part of the job. Still, that hasn’t prevented those serving our country from buying homes, living there for a couple years, then selling. Unlike many, these purchases weren’t made with the hopes of a significant profit in mind, but for some stability for themselves and/or family, in a very unstable profession.
When the real estate market crashed, those who were accustomed to buying a new home with each move faced a harsh reality – they could no longer simply sell and either make a small profit or break even. Now, the only way out was paying down the balance, walking away or attempting a short sale.
Going into the short sale, our client had impeccable credit and was as fiscally responsible as anyone I’d ever come across. The day she received her transfer order, she listed the home and notified her lender immediately. Within 2 months, we received an offer – just slightly above fair market value – and submitted it.
We followed up for weeks, but saw no progress – we couldn’t even get it set up, let alone assigned to a negotiator. At around the 45 day mark, it was finally assigned to be set up, but that became a fruitless process of us submitting and re-submitting paperwork, only to have our auditor lose faxes, misplace docs, etc. We would submit something; follow up for a week between the auditor and the loss mitigation department, only to find out it needed to be re-submitted. Rinse and repeat. By the time all the requested documents were confirmed received, they were now outdated and needed to be refreshed. Ridiculous.
At the 75-day mark, we began working our way up their corporate ladder. We emailed their CEO, who had the VP of customer service call us and advise, they’re doing the best they can, and we’d just have to be patient and wait. Our client was paying the mortgage as well as rent on her new apartment in an attempt to limit the damage to her credit and the money she was bleeding-out was drying up... we’d been patient long enough.
Being that this was a VA loan, we felt a lender that is allowed to service a loan provided to active members of the military must be far more efficient in dealing with loss mitigation issues that are the result of a military transfer. With the benefit of being in the middle of an election cycle, we contacted the members of Congress currently serving on the Veteran Affairs Committee in both the state she was leaving, as well as the state she was moving too. They responded the same day we contacted them and enthusiastically offered their assistance.
After all, if a lender is going to be privileged to service VA loans, they have a responsibility to do so in an efficient manner. If they are unable, it should be suggested that they lose the right to service those loans.
Now, I don’t know what actually was said to the CEO of this lender when the offices of these congressmen/woman contacted them, but I do know this – we received an almost immediate response from the lender and all of a sudden, documents were being found and progress was being made. We received our approval about 30 days later and closed on the short sale last week.
So for those of you out there tired of hearing “no”, keep looking for new ways to hear “yes”. For those who don’t want to deal with this at all, call us…
Monday, December 20, 2010
Saturday, December 4, 2010
Inducing Distressed Homeowners Into Default
I touched on this topic briefly in my last blog, but once this article on Housingwire.com popped up, I figured no time like the present to expand.
Traditionally, it was impossible to qualify for a loan modification without being delinquent, however that wasn’t always the case with short sales. Increasingly, we’re seeing more and more lenders request that a borrower be delinquent before they’ll consider a short sale as well.
Considering the state of the economy and the housing market, it’s a truly ridiculous requirement.
Prior to the real estate collapse, you’d be hard pressed to find anyone who could argue that a homeowner need to be late on their payments, before a bank should consider adjusting their loan or agreeing to a short sale. The majority of people had equity in their homes so while they might not make as much as they’d like, they could still sell and at the very least break even. The few who couldn’t, likely had borrowed against it so many times that they had no one to blame for their hardship but themselves.
Times are very, very different now. Property values are down from 30% to 50% or greater across the country. Unemployment is around 10% nationwide, creeping up to 15% in several metropolitan areas. Most importantly, homes are being foreclosed on at a pace not seen since the great depression. Clearly, the need for assistance is real.
We regularly work with people who are on time and want nothing more than to honor all of their financial obligations, but the realities of today aren’t allowing for that. They’re underwater, out of work, can’t afford their payments anymore – at least, not long term – and can’t sell their home for more than what they owe.
For many others, the hardship is the real estate market itself – the most common scenario being a job transfer that requires an out-of-state move. They might be employed – or need to make the move in order to stay employed – but they can’t afford two house payments while they wait for the market to return in order to sell their home for more than what they owe on it, nor do they have the money lying around to cover the deficiency.
Instead of waiting for the roof to cave in on them, they’re proactively seeking out assistance from their lender, either in the form of a loan modification or a short sale. They can see that the window of time in which they’ll be able to continue to make payments is closing, so they want to work with their lender to make sure that the worst for all parties involved doesn’t happen – foreclosure.
Unfortunately, banks don’t tend to see these requests for assistance in that light. In general, banks just assume that everyone seeking assistance can in fact afford their payments, but simply don’t want to make them anymore.
We’ve even had various bank employees – from low level loss mitigation reps to high level vice presidents – state that they need the customer to “feel some pain” before they’d ever consider working with them. I guess the tens of thousand of dollars lost (not to mention losing your home) isn’t enough pain.
Requiring people to go delinquent in order to be considered for assistance essentially rewards bad behavior, while punishing those who are trying to do the right thing.
Let’s hope the class action suit being brought against Wells Fargo servicer ASC by New York law firm Harwood Feffer makes some noise. Lenders need to do a better job of differentiating between those who are trying to take advantage of the mess we’re all in, and those who are truly trying to make the best of a bad situation. A great first step is rewarding those who can keep making their payments until a mutually agreeable resolution is available, not forcing them into a position that carries the potential for much greater harm than good… for everyone involved.
Traditionally, it was impossible to qualify for a loan modification without being delinquent, however that wasn’t always the case with short sales. Increasingly, we’re seeing more and more lenders request that a borrower be delinquent before they’ll consider a short sale as well.
Considering the state of the economy and the housing market, it’s a truly ridiculous requirement.
Prior to the real estate collapse, you’d be hard pressed to find anyone who could argue that a homeowner need to be late on their payments, before a bank should consider adjusting their loan or agreeing to a short sale. The majority of people had equity in their homes so while they might not make as much as they’d like, they could still sell and at the very least break even. The few who couldn’t, likely had borrowed against it so many times that they had no one to blame for their hardship but themselves.
Times are very, very different now. Property values are down from 30% to 50% or greater across the country. Unemployment is around 10% nationwide, creeping up to 15% in several metropolitan areas. Most importantly, homes are being foreclosed on at a pace not seen since the great depression. Clearly, the need for assistance is real.
We regularly work with people who are on time and want nothing more than to honor all of their financial obligations, but the realities of today aren’t allowing for that. They’re underwater, out of work, can’t afford their payments anymore – at least, not long term – and can’t sell their home for more than what they owe.
For many others, the hardship is the real estate market itself – the most common scenario being a job transfer that requires an out-of-state move. They might be employed – or need to make the move in order to stay employed – but they can’t afford two house payments while they wait for the market to return in order to sell their home for more than what they owe on it, nor do they have the money lying around to cover the deficiency.
Instead of waiting for the roof to cave in on them, they’re proactively seeking out assistance from their lender, either in the form of a loan modification or a short sale. They can see that the window of time in which they’ll be able to continue to make payments is closing, so they want to work with their lender to make sure that the worst for all parties involved doesn’t happen – foreclosure.
Unfortunately, banks don’t tend to see these requests for assistance in that light. In general, banks just assume that everyone seeking assistance can in fact afford their payments, but simply don’t want to make them anymore.
We’ve even had various bank employees – from low level loss mitigation reps to high level vice presidents – state that they need the customer to “feel some pain” before they’d ever consider working with them. I guess the tens of thousand of dollars lost (not to mention losing your home) isn’t enough pain.
Requiring people to go delinquent in order to be considered for assistance essentially rewards bad behavior, while punishing those who are trying to do the right thing.
Let’s hope the class action suit being brought against Wells Fargo servicer ASC by New York law firm Harwood Feffer makes some noise. Lenders need to do a better job of differentiating between those who are trying to take advantage of the mess we’re all in, and those who are truly trying to make the best of a bad situation. A great first step is rewarding those who can keep making their payments until a mutually agreeable resolution is available, not forcing them into a position that carries the potential for much greater harm than good… for everyone involved.
Friday, November 19, 2010
Do I Qualify For A Short Sale?
This is a question I’m asked almost daily and while my answer is usually yes, it is becoming an increasingly difficult question to answer.
The general assumption has always been that in order for a lender to consider a short sale, the borrower need be experiencing a significant hardship – health issues, loss of employment, etc. However, there is a broad grey area that seems to be growing by the day and it’s sucking more and more people in that might not have been short sale candidates in the past.
For many homeowners, the hardship has become the market itself. They may have borrowed responsibly, paid on time and done everything that a lender might request of a borrower, but property values have dropped so far below what anyone could have possibly anticipated, that when it comes time to sell - unless they can cover the deficiency out of pocket - they’re stuck.
Generally speaking, lenders will approve 85% of the short sales we submit – not because they feel bad or have empathy, but because it’s a wise business decision. The foreclosure process can cost a lender tens of thousands of dollars, if not more. Aside from legal costs and costs to maintain the home, they also have to try and re-list/sell it in a still depreciating market. If the borrower is close to insolvency, they run the risk of not being able to recover those costs, since it’s difficult to take from someone what isn’t there.
With a short sale, they can bypass all of those issues.
Naturally, if someone has a high income/significant assets and is looking to short sale their home – for no reason other than they’re tired of throwing good money against bad – but wants to walk away without any liability, well, that would be a person who likely doesn’t qualify. And that person is overwhelmingly in the minority.
Still, there are instances where banks are either rejecting short sales or making re-payment requests that we find puzzling. Of the 15% or so that are rejected (either by the lender, or if our client doesn’t like the lenders terms), here are a couple examples where health and job loss aren’t issues:
A client of ours was relocated for her job, from Michigan to California. Her property value has been sliced from around $115k when she purchased, to the most recent offer we’d received for $30k. She makes a decent living, but doesn’t have enough to cover the $85k deficiency, so her options were as follows: keep paying, mail in the keys or attempt a short sale. Unable to find a renter, she decided on a short sale. Unfortunately, her lender would only approve it if she agreed to pay back almost the entire balance– which really, means it’s no longer a “short sale”.
By essentially rejecting the short sale – they saw her financial information and are aware she can not afford the $700+ monthly payment they requested – the lender will pay a lot of money in legal/maintenance costs, but likely won’t get anywhere near the offer we brought them (keep in mind, we’re in Michigan which means they’ll have to wait out a 6 month redemption period before they can ever consider listing it for sale). Additionally, they will have an extremely difficult time pursuing our client due to jurisdictional issues, since she now lives out of state.
On the other extreme, we recently had a client who requested a short sale simply because they feel they can’t afford their home anymore. Their family has grown, but like many people, their income hasn’t followed suit and it’s placed a significant strain on their marriage. The home is currently worth well below what it was when they purchased.
To digress for a moment, it’s long been the belief of people who borrow responsibly that if something were to go wrong, they could always sell – if not for a profit, at least to break even – and I think the majority of homeowners would agree with that sentiment. Enter the current housing crisis and I ask you, now what? Is it a realistic expectation that people are going to stay in their homes for 30 years and never have a bump or two in the road that might affect their ability to pay?
Regardless, the lender looked at their information (hardship letter, income, bank statements, etc) and determined they weren’t candidates, because the hardship wasn’t “significant”, they made too much money and they weren’t delinquent on their payments.
Now, the whole idea of not working with someone on a short sale because they are paying on time is insane to me. Someone is scraping by, continuing to honor their obligation to their lender and for that reason the lender doesn’t want to work with them? Crazy, but that’s a blog for another time.
In the case of this couple, the lender does make a point about their income. However, our client understood that and was willing to pay back a portion of the loan via a cash contribution or a promissory note. They didn’t have the money to pay it all down, but that was the only option the lender would accept, so we walked. Since this is Arizona, the lender cannot pursue our client for the deficiency, so essentially they’re gambling that they’ll be able to get a better offer on their own, than the one that we’d already submitted – an offer that was slightly above fair market value.
I’m confident that our clients will do the right thing when they walk away from the home and leave it in excellent condition. Most would not though, leaving the lender to either pour money back in to the home to make it marketable, or sell it for less due to the damages. All of this could have been avoided.
In both examples, our clients had decided they could no longer keep their homes, but their respective lenders felt otherwise. By declining to work with their customers, the lenders have unnecessarily cost themselves considerably more money. It’s our hope that one day soon, they’ll begin reversing this trend on a more consistent level.
In the meantime, if you’re considering a short sale move forward with it. The odds are in your favor that you do qualify and that your lender will work with you – especially once they’re received an offer…
The general assumption has always been that in order for a lender to consider a short sale, the borrower need be experiencing a significant hardship – health issues, loss of employment, etc. However, there is a broad grey area that seems to be growing by the day and it’s sucking more and more people in that might not have been short sale candidates in the past.
For many homeowners, the hardship has become the market itself. They may have borrowed responsibly, paid on time and done everything that a lender might request of a borrower, but property values have dropped so far below what anyone could have possibly anticipated, that when it comes time to sell - unless they can cover the deficiency out of pocket - they’re stuck.
Generally speaking, lenders will approve 85% of the short sales we submit – not because they feel bad or have empathy, but because it’s a wise business decision. The foreclosure process can cost a lender tens of thousands of dollars, if not more. Aside from legal costs and costs to maintain the home, they also have to try and re-list/sell it in a still depreciating market. If the borrower is close to insolvency, they run the risk of not being able to recover those costs, since it’s difficult to take from someone what isn’t there.
With a short sale, they can bypass all of those issues.
Naturally, if someone has a high income/significant assets and is looking to short sale their home – for no reason other than they’re tired of throwing good money against bad – but wants to walk away without any liability, well, that would be a person who likely doesn’t qualify. And that person is overwhelmingly in the minority.
Still, there are instances where banks are either rejecting short sales or making re-payment requests that we find puzzling. Of the 15% or so that are rejected (either by the lender, or if our client doesn’t like the lenders terms), here are a couple examples where health and job loss aren’t issues:
A client of ours was relocated for her job, from Michigan to California. Her property value has been sliced from around $115k when she purchased, to the most recent offer we’d received for $30k. She makes a decent living, but doesn’t have enough to cover the $85k deficiency, so her options were as follows: keep paying, mail in the keys or attempt a short sale. Unable to find a renter, she decided on a short sale. Unfortunately, her lender would only approve it if she agreed to pay back almost the entire balance– which really, means it’s no longer a “short sale”.
By essentially rejecting the short sale – they saw her financial information and are aware she can not afford the $700+ monthly payment they requested – the lender will pay a lot of money in legal/maintenance costs, but likely won’t get anywhere near the offer we brought them (keep in mind, we’re in Michigan which means they’ll have to wait out a 6 month redemption period before they can ever consider listing it for sale). Additionally, they will have an extremely difficult time pursuing our client due to jurisdictional issues, since she now lives out of state.
On the other extreme, we recently had a client who requested a short sale simply because they feel they can’t afford their home anymore. Their family has grown, but like many people, their income hasn’t followed suit and it’s placed a significant strain on their marriage. The home is currently worth well below what it was when they purchased.
To digress for a moment, it’s long been the belief of people who borrow responsibly that if something were to go wrong, they could always sell – if not for a profit, at least to break even – and I think the majority of homeowners would agree with that sentiment. Enter the current housing crisis and I ask you, now what? Is it a realistic expectation that people are going to stay in their homes for 30 years and never have a bump or two in the road that might affect their ability to pay?
Regardless, the lender looked at their information (hardship letter, income, bank statements, etc) and determined they weren’t candidates, because the hardship wasn’t “significant”, they made too much money and they weren’t delinquent on their payments.
Now, the whole idea of not working with someone on a short sale because they are paying on time is insane to me. Someone is scraping by, continuing to honor their obligation to their lender and for that reason the lender doesn’t want to work with them? Crazy, but that’s a blog for another time.
In the case of this couple, the lender does make a point about their income. However, our client understood that and was willing to pay back a portion of the loan via a cash contribution or a promissory note. They didn’t have the money to pay it all down, but that was the only option the lender would accept, so we walked. Since this is Arizona, the lender cannot pursue our client for the deficiency, so essentially they’re gambling that they’ll be able to get a better offer on their own, than the one that we’d already submitted – an offer that was slightly above fair market value.
I’m confident that our clients will do the right thing when they walk away from the home and leave it in excellent condition. Most would not though, leaving the lender to either pour money back in to the home to make it marketable, or sell it for less due to the damages. All of this could have been avoided.
In both examples, our clients had decided they could no longer keep their homes, but their respective lenders felt otherwise. By declining to work with their customers, the lenders have unnecessarily cost themselves considerably more money. It’s our hope that one day soon, they’ll begin reversing this trend on a more consistent level.
In the meantime, if you’re considering a short sale move forward with it. The odds are in your favor that you do qualify and that your lender will work with you – especially once they’re received an offer…
Saturday, October 30, 2010
Short Sales Resisted as Foreclosures Are Revived?
I came across and interesting article in the New York Times this past Sunday and I thought it might be worth addressing a couple points – especially for those of you out there contemplating a short sale and are not sure if it’s worth the effort.
Regardless of what you might hear from the person who’s done a short sale, the agent who’s handled a couple short sales or the guy who knows a guy who knows a guy who attempted a short sale, banks are accepting them – and from our experience, at a very high rate.
Generally speaking, over 85% of short sale offers that we submit to the lenders are accepted. Overwhelmingly, we lose more deals to buyers walking, than we do to lenders denying them.
Naturally, there will always be instances when offers – good offers at that – are inexplicably denied. However, “no” isn’t always the final answer. More often than not (as Ms. Sweetland found out in the article), it’s only the first response. If you’re working with someone who knows what they’re doing, the odds of “no” being the final answer are greatly reduced.
If anything, now more than ever short sales should be even more attractive to buyers. While the brief halt to foreclosures has since seen most lenders return to business as usual, it’s left a lasting impression on potential buyers. Many tend to believe that lenders simply saying that their foreclosure practices are “sound” won’t be enough to convince potential buyers. Given the choice between a short sale and a foreclosure, the short sale is now the significantly safer bet. After all, purchasing a short sale doesn’t run the risk of being told a year from now that the home you purchased was foreclosed on illegally and you have to move out.
While the article is accurate in its description of the hesitation lenders and investors – especially Fannie Mae – seem to have when considering a short sale, it’s important to remember that a short sale is always going to cost them less than a foreclosure. Sometimes, they just need a reminder - a detailed BPO (Broker Price Opinion) or a well-written hardship letter certainly can help them get past their “hesitation”. More than that, the lender needs to know that you’re serious about walking away. Many lenders seem to be under the impression that if they deny your short sale request, you’ll simply resume making payments. Slowly, they’re learning that is not the case. When we let them know that it’s between accepting our offer or us mailing in the keys, the former tends to be the lenders choice.
Of course, we’ve completed many short sales where no significant, or at least traditional, hardship was present, but that’s where a contribution might be necessary from the borrower. For as much as I hate defending banks, they do have a contract with you and you do have an obligation to them. If you have significant assets or high income (or both), it isn’t realistic to think they’ll let you walk without paying anything. But if you’re willing to pay something – typically 20-25% of the deficiency – odds are, it’ll be worth their while to accept the short sale. At that rate, they’re likely making more than they would if they pursued you, when factoring in their legal fees, costs of carrying the house and chances of recovering the full amount owed.
The bottom line is, a short sale is really only resisted when not properly presented and pursued. If you have the right people working with you, you can still walk away from your home knowing you made the best of a bad situation and saved yourself and your lender(s) tens of thousands of dollars. Whether they want to believe it or not…
Regardless of what you might hear from the person who’s done a short sale, the agent who’s handled a couple short sales or the guy who knows a guy who knows a guy who attempted a short sale, banks are accepting them – and from our experience, at a very high rate.
Generally speaking, over 85% of short sale offers that we submit to the lenders are accepted. Overwhelmingly, we lose more deals to buyers walking, than we do to lenders denying them.
Naturally, there will always be instances when offers – good offers at that – are inexplicably denied. However, “no” isn’t always the final answer. More often than not (as Ms. Sweetland found out in the article), it’s only the first response. If you’re working with someone who knows what they’re doing, the odds of “no” being the final answer are greatly reduced.
If anything, now more than ever short sales should be even more attractive to buyers. While the brief halt to foreclosures has since seen most lenders return to business as usual, it’s left a lasting impression on potential buyers. Many tend to believe that lenders simply saying that their foreclosure practices are “sound” won’t be enough to convince potential buyers. Given the choice between a short sale and a foreclosure, the short sale is now the significantly safer bet. After all, purchasing a short sale doesn’t run the risk of being told a year from now that the home you purchased was foreclosed on illegally and you have to move out.
While the article is accurate in its description of the hesitation lenders and investors – especially Fannie Mae – seem to have when considering a short sale, it’s important to remember that a short sale is always going to cost them less than a foreclosure. Sometimes, they just need a reminder - a detailed BPO (Broker Price Opinion) or a well-written hardship letter certainly can help them get past their “hesitation”. More than that, the lender needs to know that you’re serious about walking away. Many lenders seem to be under the impression that if they deny your short sale request, you’ll simply resume making payments. Slowly, they’re learning that is not the case. When we let them know that it’s between accepting our offer or us mailing in the keys, the former tends to be the lenders choice.
Of course, we’ve completed many short sales where no significant, or at least traditional, hardship was present, but that’s where a contribution might be necessary from the borrower. For as much as I hate defending banks, they do have a contract with you and you do have an obligation to them. If you have significant assets or high income (or both), it isn’t realistic to think they’ll let you walk without paying anything. But if you’re willing to pay something – typically 20-25% of the deficiency – odds are, it’ll be worth their while to accept the short sale. At that rate, they’re likely making more than they would if they pursued you, when factoring in their legal fees, costs of carrying the house and chances of recovering the full amount owed.
The bottom line is, a short sale is really only resisted when not properly presented and pursued. If you have the right people working with you, you can still walk away from your home knowing you made the best of a bad situation and saved yourself and your lender(s) tens of thousands of dollars. Whether they want to believe it or not…
Saturday, October 16, 2010
Selling Short While Paying On Time
I’ve touched on this topic before, but it’s worth taking a moment to discuss one of the more prevalent short sale myths that I’m repeatedly asked about – that a short sale wouldn’t be accepted (or even considered) if the borrower were still paying their mortgage on time.
Not true.
We’ve processed many short sales where the borrower was still making their payments. In fact, I can only think of one or two instances where the lender wouldn’t work with the borrower for that reason.
Generally speaking, the hit you’ll take to your credit will be more sever when 60 and 90-day delinquencies start popping up. Without them, you can limit the damage a short sale will do to your credit.
Certainly, I understand the argument that the lender won’t take you seriously – that the urgency isn’t there – if you’re still paying on time every month. And there’s some truth to that, but that hasn’t prevented lenders from working with our clients in the past.
If you can still afford to do so, keep making your payments – at least, until your lender tells you otherwise. If the short sale isn’t accepted, better to be able to say your lender told you to stop paying, as opposed to making the decision on your own…
Not true.
We’ve processed many short sales where the borrower was still making their payments. In fact, I can only think of one or two instances where the lender wouldn’t work with the borrower for that reason.
Generally speaking, the hit you’ll take to your credit will be more sever when 60 and 90-day delinquencies start popping up. Without them, you can limit the damage a short sale will do to your credit.
Certainly, I understand the argument that the lender won’t take you seriously – that the urgency isn’t there – if you’re still paying on time every month. And there’s some truth to that, but that hasn’t prevented lenders from working with our clients in the past.
If you can still afford to do so, keep making your payments – at least, until your lender tells you otherwise. If the short sale isn’t accepted, better to be able to say your lender told you to stop paying, as opposed to making the decision on your own…
Friday, October 8, 2010
Will fear from the foreclosure fiasco push buyers to short sales?
For those who have been following the mortgage/real estate meltdown, the announcements that Bank of America, JP Morgan Chase and GMAC (Ally Financial) would be postponing foreclosures states didn’t come as huge surprise. For months now – years even – stories have circulated about lenders rubber-stamping foreclosures, without properly reviewing the paperwork to see if they are legally able to do so.
It’s been no secret that those lenders (and many others) have retained foreclosure mills – law firms that represent the lender and process massive numbers of foreclosures in a given city or region – to do the lenders dirty work for them, often it appears, fraudulently.
Even Fannie Mae, the quasi-government agency that owns or guarantees just over half of the United States mortgage market (and many of those serviced by BofA, Chase & GMAC), has been equally guilty of such practices. As noted in The Huffington Post last week, Congress has been left asking how a company propped up on taxpayer dollars could do this to the very people keeping it solvent.
Make no mistake these stories are huge. But the question they have left many people asking is: what does it all mean? The answer leads to a larger story.
On the surface, it means that many people who purchased foreclosed homes might want to keep the number of their moving company handy. If it turns out homes were foreclosed on illegally, the original owner might be able to challenge the legitimacy of the foreclosure and the person who is currently living there might be forced to move out.
However, the story of greater significance appeared on the USA Today website last weekend, when they reported that Old Republic Title Company would stop writing policies on some of these foreclosures.
Whereas this scandal to date has been limited to the lenders, their clients and those who have purchased foreclosed homes in recent years, the announcement from ORTC could eventually affect every neighborhood in the U.S – especially if other title companies follow their lead.
By many estimates, lenders are currently sitting on over 3 million foreclosed homes, with still record numbers of homes waiting to be foreclosed on. If title companies won’t issues policies on them – for fear they were foreclosed on illegally, placing the title company themselves in a murky situation – then what? Will lenders be forced to sit on these homes, care for them, pay taxes, association dues, etc., until this mess is cleaned up? What will happen to both the value and curb appeal to those homes and their communities? I think we can all assume that the odds of these homes being cared for the way someone living in them would, are low.
Sure, there is the possibility that lenders would insure the title themselves, but they’d still be looking at a lengthy road to cleaning up the paperwork, before even they’d feel comfortable selling a foreclosed home with any degree of confidence that they followed the process legally.
With foreclosed homes as the pariah of the real estate world, short sales suddenly become a far better option… for everyone.
For the buyer, a short sale is a safer bet. Sure, the process is long, but the buyer is protected. The home hasn’t been foreclosed on; therefore a title company independent of the seller’s lender will perform a title search, insuring clean title.
For the seller, this could mean better offers for their lender. If title companies stop insuring title on a large number of foreclosed homes, the available inventory will be significantly reduced, which would be a boon for anyone listing a short sale.
For the community, it will likely mean a dramatically shorter turn-around from underwater homeowner to new neighbor – and equally as important, far less of a chance that the home would fall in disrepair, squatters might move in, or any other concern a vacant home might bring to the block.
And of course, the lender might benefit most of all, since a successful short sale would mean one less potential foreclosure for them to pay/care for…
It’s been no secret that those lenders (and many others) have retained foreclosure mills – law firms that represent the lender and process massive numbers of foreclosures in a given city or region – to do the lenders dirty work for them, often it appears, fraudulently.
Even Fannie Mae, the quasi-government agency that owns or guarantees just over half of the United States mortgage market (and many of those serviced by BofA, Chase & GMAC), has been equally guilty of such practices. As noted in The Huffington Post last week, Congress has been left asking how a company propped up on taxpayer dollars could do this to the very people keeping it solvent.
Make no mistake these stories are huge. But the question they have left many people asking is: what does it all mean? The answer leads to a larger story.
On the surface, it means that many people who purchased foreclosed homes might want to keep the number of their moving company handy. If it turns out homes were foreclosed on illegally, the original owner might be able to challenge the legitimacy of the foreclosure and the person who is currently living there might be forced to move out.
However, the story of greater significance appeared on the USA Today website last weekend, when they reported that Old Republic Title Company would stop writing policies on some of these foreclosures.
Whereas this scandal to date has been limited to the lenders, their clients and those who have purchased foreclosed homes in recent years, the announcement from ORTC could eventually affect every neighborhood in the U.S – especially if other title companies follow their lead.
By many estimates, lenders are currently sitting on over 3 million foreclosed homes, with still record numbers of homes waiting to be foreclosed on. If title companies won’t issues policies on them – for fear they were foreclosed on illegally, placing the title company themselves in a murky situation – then what? Will lenders be forced to sit on these homes, care for them, pay taxes, association dues, etc., until this mess is cleaned up? What will happen to both the value and curb appeal to those homes and their communities? I think we can all assume that the odds of these homes being cared for the way someone living in them would, are low.
Sure, there is the possibility that lenders would insure the title themselves, but they’d still be looking at a lengthy road to cleaning up the paperwork, before even they’d feel comfortable selling a foreclosed home with any degree of confidence that they followed the process legally.
With foreclosed homes as the pariah of the real estate world, short sales suddenly become a far better option… for everyone.
For the buyer, a short sale is a safer bet. Sure, the process is long, but the buyer is protected. The home hasn’t been foreclosed on; therefore a title company independent of the seller’s lender will perform a title search, insuring clean title.
For the seller, this could mean better offers for their lender. If title companies stop insuring title on a large number of foreclosed homes, the available inventory will be significantly reduced, which would be a boon for anyone listing a short sale.
For the community, it will likely mean a dramatically shorter turn-around from underwater homeowner to new neighbor – and equally as important, far less of a chance that the home would fall in disrepair, squatters might move in, or any other concern a vacant home might bring to the block.
And of course, the lender might benefit most of all, since a successful short sale would mean one less potential foreclosure for them to pay/care for…
Legislating Short Sales
On September 15th 2010, Representatives Robert Andrews (D-NJ) and Thomas Rooney (R-FL) introduced H.R. 6133 - a bill that would require lenders and servicers to speed up the short sale approval process.
The full detail of the bill can be reviewed here, but essentially it requests that the lender render a decision on the short sale within 45 days. While it’s encouraging to finally see congress addressing short sales, the bill doesn’t go far enough.
But, it’s a start.
After three years of dealing with the current mortgage/housing crisis, most banks have made very little progress – if any at all – in streamlining the short sale process. While I’ll be the first to concede that a short sale isn’t the most desirable option for a lender, it’s far better than what is frequently the alternative - foreclosure.
Every time a home is foreclosed on, it brings the value of neighboring properties down as well, forcing people who borrowed responsibly and have remained current on their obligations, underwater. In a poor economy with high unemployment, more and more people find themselves needing to move, but are anchored to a home they now owe more on than is worth. They’re trapped and if the bank can’t execute a short sale in a timely manner, the borrower will likely be foreclosed on, thus continuing the cycle.
In the history of homeownership, it has not been unreasonable to believe you could buy a house and sell it if need be, without filing for bankruptcy. That is no longer the case.
With many still predicting home prices dropping another 15% or more over the next few years, we could be a decade or longer away from prices returning to where they once were. Banks have been given plenty of time to figure out how to deal with this problem, but they’ve failed. Foreclosures are still rising at a record pace and banks have taken more homes back then they know what to do with. The current process does not work.
So while I understand this bill isn’t likely going to go far, it’s a necessary first step in helping fix a huge problem - and you’ve got to start somewhere…
The full detail of the bill can be reviewed here, but essentially it requests that the lender render a decision on the short sale within 45 days. While it’s encouraging to finally see congress addressing short sales, the bill doesn’t go far enough.
But, it’s a start.
After three years of dealing with the current mortgage/housing crisis, most banks have made very little progress – if any at all – in streamlining the short sale process. While I’ll be the first to concede that a short sale isn’t the most desirable option for a lender, it’s far better than what is frequently the alternative - foreclosure.
Every time a home is foreclosed on, it brings the value of neighboring properties down as well, forcing people who borrowed responsibly and have remained current on their obligations, underwater. In a poor economy with high unemployment, more and more people find themselves needing to move, but are anchored to a home they now owe more on than is worth. They’re trapped and if the bank can’t execute a short sale in a timely manner, the borrower will likely be foreclosed on, thus continuing the cycle.
In the history of homeownership, it has not been unreasonable to believe you could buy a house and sell it if need be, without filing for bankruptcy. That is no longer the case.
With many still predicting home prices dropping another 15% or more over the next few years, we could be a decade or longer away from prices returning to where they once were. Banks have been given plenty of time to figure out how to deal with this problem, but they’ve failed. Foreclosures are still rising at a record pace and banks have taken more homes back then they know what to do with. The current process does not work.
So while I understand this bill isn’t likely going to go far, it’s a necessary first step in helping fix a huge problem - and you’ve got to start somewhere…
Friday, September 24, 2010
Setting Short Sale Expectations
The Sacramento Bee recently published an article discussing – among other things – how Realtors prep both sellers and potential buyers for short sales.
Many people don’t realize this, but setting proper expectations regarding what to expect throughout the short sale process, can save or kill a deal just as much as the actual offer itself.
The network of Realtors that we work with are an amazing group agents, who very bluntly and realistically advise on the length of the process, as well as the various responses we could receive from the lender.
When people ask what our success rate is at Short Sale Legal Services, I usually advise them it’s 85% - when the buyer hangs in. When we work with new agents who have not set the proper (or any) expectations, those are the deals we tend lose - more than lender rejections, more than first/second lien bickering.
As stated in the article, it’s not uncommon for us to come across loss mitigation agents who are sitting with 250-300 files on their desk at any given time as well. While my sympathy for them is somewhat limited, it is the reality of the situation.
Once a loss mit rep finally audits a file and decides whether or not it meets investor guidelines – since many of the lenders we deal with only service the loan – they often have to get in line with every other servicer and wait on investor approval.
Generally speaking, a home with one lien and a “larger” lender servicing the loan will mean an average of about 60 days from submission to approval. Add more liens/lenders and that time frame increases. Add a lender or servicer who’s never done a short sale and the time frame could double or triple. Of course, we’ve seen short sales approved in less than two weeks, but that’s rare.
In addition to setting the proper expectations, it also helps to involve someone (attorney or Realtor) who’s very familiar with the current short sale process. Anyone who advises they’ve been doing short sales for “30 years” is being somewhat misleading, since the process in which short sales are approved or rejected is very different now, due not only to the sheer volume, but also for the multitude of different reasons that are now causing people to do short sales. You’re best bet is dealing with someone whose experience is largely based in the past several years, not decades.
So while you’d be hard-pressed to find many people who can refer to their short sale process as a “dream,” you can take steps to accomplish a successful outcome without it turning into a nightmare…
Many people don’t realize this, but setting proper expectations regarding what to expect throughout the short sale process, can save or kill a deal just as much as the actual offer itself.
The network of Realtors that we work with are an amazing group agents, who very bluntly and realistically advise on the length of the process, as well as the various responses we could receive from the lender.
When people ask what our success rate is at Short Sale Legal Services, I usually advise them it’s 85% - when the buyer hangs in. When we work with new agents who have not set the proper (or any) expectations, those are the deals we tend lose - more than lender rejections, more than first/second lien bickering.
As stated in the article, it’s not uncommon for us to come across loss mitigation agents who are sitting with 250-300 files on their desk at any given time as well. While my sympathy for them is somewhat limited, it is the reality of the situation.
Once a loss mit rep finally audits a file and decides whether or not it meets investor guidelines – since many of the lenders we deal with only service the loan – they often have to get in line with every other servicer and wait on investor approval.
Generally speaking, a home with one lien and a “larger” lender servicing the loan will mean an average of about 60 days from submission to approval. Add more liens/lenders and that time frame increases. Add a lender or servicer who’s never done a short sale and the time frame could double or triple. Of course, we’ve seen short sales approved in less than two weeks, but that’s rare.
In addition to setting the proper expectations, it also helps to involve someone (attorney or Realtor) who’s very familiar with the current short sale process. Anyone who advises they’ve been doing short sales for “30 years” is being somewhat misleading, since the process in which short sales are approved or rejected is very different now, due not only to the sheer volume, but also for the multitude of different reasons that are now causing people to do short sales. You’re best bet is dealing with someone whose experience is largely based in the past several years, not decades.
So while you’d be hard-pressed to find many people who can refer to their short sale process as a “dream,” you can take steps to accomplish a successful outcome without it turning into a nightmare…
Friday, September 10, 2010
Foreclosure Roulette
In a blog from The Huffington Post, Arthur Delany dissects the game of foreclosure roulette that hundreds of thousand of Americans are involuntarily playing with their lenders right now.
Once you’ve stopped paying your mortgage – and depending on the laws of the state in which the home is located – you’ve traditionally had between 4 and 10 months before the local sheriff is knocking at your door.
Not anymore.
As noted on radaronline.com, the average foreclosure now takes almost 16 months – meaning people are living mortgage/rent free for almost a year and a half. For many however, they’d prefer for that not to be the case.
From my experience, the overwhelming majority would like the security of coming home every day, without wondering if this will be the evening they pull into their driveway and find their belongings at the curb. For most, stability trumps rent-free living.
If the idea put forth in the article – that lenders are randomly foreclosing to prevent “widespread moral hazard” while leaving the rest so that losses aren’t recognized – is true, lenders are in for a rude awakening.
Few believe the housing crisis is behind us, so to assume that keeping homes that would have otherwise been foreclosed on the books in order to see them return to anywhere near their peak bubble prices, is a fantasy. Many markets are expecting prices to continue dropping over the next two years, while for most markets it could be decades before prices return to what they once were.
Working with people – whether it be long-term loan modifications, rent-to-own or sensible principle reductions, is the only way we’re going to get through this mess.
At a point, lenders are going to have to concede the true values of most homes are far below their peak-appraised value. Instead of playing this waiting game that is doomed to fail, work with people efficiently and help to keep them in their homes. Homeowners have some stability, neighborhoods will be full with maintainable property values and lenders will make far more than what they would otherwise receive, for a vacant listing competing with thousands of other vacant listings.
It’s better for the customer, it’s better for the community and in turn, it will be better for the lender.
And of course, when all else fails, have a streamlined short sale process in place!
Once you’ve stopped paying your mortgage – and depending on the laws of the state in which the home is located – you’ve traditionally had between 4 and 10 months before the local sheriff is knocking at your door.
Not anymore.
As noted on radaronline.com, the average foreclosure now takes almost 16 months – meaning people are living mortgage/rent free for almost a year and a half. For many however, they’d prefer for that not to be the case.
From my experience, the overwhelming majority would like the security of coming home every day, without wondering if this will be the evening they pull into their driveway and find their belongings at the curb. For most, stability trumps rent-free living.
If the idea put forth in the article – that lenders are randomly foreclosing to prevent “widespread moral hazard” while leaving the rest so that losses aren’t recognized – is true, lenders are in for a rude awakening.
Few believe the housing crisis is behind us, so to assume that keeping homes that would have otherwise been foreclosed on the books in order to see them return to anywhere near their peak bubble prices, is a fantasy. Many markets are expecting prices to continue dropping over the next two years, while for most markets it could be decades before prices return to what they once were.
Working with people – whether it be long-term loan modifications, rent-to-own or sensible principle reductions, is the only way we’re going to get through this mess.
At a point, lenders are going to have to concede the true values of most homes are far below their peak-appraised value. Instead of playing this waiting game that is doomed to fail, work with people efficiently and help to keep them in their homes. Homeowners have some stability, neighborhoods will be full with maintainable property values and lenders will make far more than what they would otherwise receive, for a vacant listing competing with thousands of other vacant listings.
It’s better for the customer, it’s better for the community and in turn, it will be better for the lender.
And of course, when all else fails, have a streamlined short sale process in place!
Friday, September 3, 2010
Investing in Short Sales
Les Christie for CNNMoney.com discusses how investors (“vultures”) are swooping in and buying up short sales for long-term rental investment, instead of buying and flipping them as had been popular. While he cites markets like Las Vegas, Phoenix and Miami – communities who’s climate will keep them popular destinations for both seasonal visitors and full time residents – investors are helping combat the growing inventory all over the country, by lining up for deals.
Now, I can’t say I agree that lenders have “gotten faster at processing short sales” as he states in the article, but I can say they certainly profit on them far more than they would on a foreclosure. Between the money they save on legal fees, to the costs of carrying the property until they’re able to re-list (in some states, for months to even years), there is no doubt a short sale saves the lender money.
For the investors, the need for rental units will be high for some time. It’s expected that home values will continue to drop through 2013 and it could be decades before property values come back to their bubble peaks. Factor in high unemployment, strategic defaults, etc., and that leaves a lot of people in need of a home, but with credit that might not merit a decent mortgage for the foreseeable future. Many people we work with, say they’ll never own again and plan on becoming renters for life.
Generally speaking, it’s a win for all sides – the lender, the investor, the homeowner and the renter. Still, we come across plenty of lenders and servicers who have yet to grasp the realities of the new real estate world order. Here’s hoping they come around before the investors lose interest…
Now, I can’t say I agree that lenders have “gotten faster at processing short sales” as he states in the article, but I can say they certainly profit on them far more than they would on a foreclosure. Between the money they save on legal fees, to the costs of carrying the property until they’re able to re-list (in some states, for months to even years), there is no doubt a short sale saves the lender money.
For the investors, the need for rental units will be high for some time. It’s expected that home values will continue to drop through 2013 and it could be decades before property values come back to their bubble peaks. Factor in high unemployment, strategic defaults, etc., and that leaves a lot of people in need of a home, but with credit that might not merit a decent mortgage for the foreseeable future. Many people we work with, say they’ll never own again and plan on becoming renters for life.
Generally speaking, it’s a win for all sides – the lender, the investor, the homeowner and the renter. Still, we come across plenty of lenders and servicers who have yet to grasp the realities of the new real estate world order. Here’s hoping they come around before the investors lose interest…
Monday, August 16, 2010
The Foreclosure Crisis That Will Not Go Away
A great column appeared in The Huffington Post by David Coates, discussing the ongoing foreclosure crisis and what isn’t being done to fix it.
Two excellent points worth noting:
1) We’re past the point where those in need of assistance are the reason for our real estate woes - i.e., they borrowed more than they could afford, etc. We now need new policies that assist those who are casualties of the real estate crisis, not causes of it.
I’ve long been a proponent of principle reductions – they give those struggling with payments a legitimate chance to keep their home and they give those who view their home as an investment gone bad a reason to stay.
2) By making it more difficult to get a mortgage, the growing inventory of available homes will take decades to shrink down due to the lack of demand.
Yes, unemployment may continue to be the main culprit for slow home sales, but tighter lending practices are equally responsible. Certainly, we can’t go back to providing $500k mortgages to people who make $30k a year, but we can begin making sensible, responsible loans again…
Two excellent points worth noting:
1) We’re past the point where those in need of assistance are the reason for our real estate woes - i.e., they borrowed more than they could afford, etc. We now need new policies that assist those who are casualties of the real estate crisis, not causes of it.
I’ve long been a proponent of principle reductions – they give those struggling with payments a legitimate chance to keep their home and they give those who view their home as an investment gone bad a reason to stay.
2) By making it more difficult to get a mortgage, the growing inventory of available homes will take decades to shrink down due to the lack of demand.
Yes, unemployment may continue to be the main culprit for slow home sales, but tighter lending practices are equally responsible. Certainly, we can’t go back to providing $500k mortgages to people who make $30k a year, but we can begin making sensible, responsible loans again…
Thursday, August 5, 2010
No Shame in a Short Sale
It’s not uncommon for people to tell me they feel bad about doing a short sale – that they have an obligation to their lender and feel like by doing a short sale they aren’t honoring their commitment.
While this is a noble sentiment – as I’ve written here many times before – it’s a very one-sided sentiment.
CNBC reports on the findings of US Treasury Departments Kenneth Feinberg, who listed 17 companies that took TARP money, then turned around and made what he labels “ill-advised payments” to employees. More times than not, those ill advised payments were in the form of CEO bonuses. Most, undeserved.
That some of those CEO’s were then quick to turn around and lecture their customers about the “social and moral” responsibility of continuing to make payments reeks of hypocrisy.
While I won’t disagree that when you take out a mortgage, you’ve entered into an agreement and you should do your best to honor it, the realities of today’s market often don’t allow for that.
So do a short sale. Attempt a loan mod. And if you bank is one of the 17 on this list, do so without an ounce of remorse…
While this is a noble sentiment – as I’ve written here many times before – it’s a very one-sided sentiment.
CNBC reports on the findings of US Treasury Departments Kenneth Feinberg, who listed 17 companies that took TARP money, then turned around and made what he labels “ill-advised payments” to employees. More times than not, those ill advised payments were in the form of CEO bonuses. Most, undeserved.
That some of those CEO’s were then quick to turn around and lecture their customers about the “social and moral” responsibility of continuing to make payments reeks of hypocrisy.
While I won’t disagree that when you take out a mortgage, you’ve entered into an agreement and you should do your best to honor it, the realities of today’s market often don’t allow for that.
So do a short sale. Attempt a loan mod. And if you bank is one of the 17 on this list, do so without an ounce of remorse…
Saturday, July 24, 2010
Home value havoc not over – Part II
To follow up on my last entry, it looks like the rest of the country is finding out what’s already been reported here in Detroit – that the real estate crisis is far from over.
Time Magazine reports that prices are being slashed across the country, as inventory levels begin to climb again. The article credits the inability of move-up buyers (people who already own a home, but are looking to upgrade) to take advantage of the low prices – likely because they can’t sell their current home.
Much of the positive news in the real market recently, centered around first time buyers taking advantage of the tax credit that had been offered last year and extended in to this past spring. With many of those potential buyers now spoken for, the lull that many expected seems to be here.
While I agree with the last paragraph of the article – that you should wait to sell your home until you absolutely have to – for many people they’ve already crossed in to “must sell” territory. For them, a short sale is likely the best way to go...
Time Magazine reports that prices are being slashed across the country, as inventory levels begin to climb again. The article credits the inability of move-up buyers (people who already own a home, but are looking to upgrade) to take advantage of the low prices – likely because they can’t sell their current home.
Much of the positive news in the real market recently, centered around first time buyers taking advantage of the tax credit that had been offered last year and extended in to this past spring. With many of those potential buyers now spoken for, the lull that many expected seems to be here.
While I agree with the last paragraph of the article – that you should wait to sell your home until you absolutely have to – for many people they’ve already crossed in to “must sell” territory. For them, a short sale is likely the best way to go...
Friday, July 16, 2010
Short sale on - Home value havoc not over
It feels like every couple weeks or so, we hear or read about how the “recovery” has arrived and home values are on the way up. Then, an article like this one in the Detroit Free Press comes out.
Face it folks, we’ve still got a ways to go before the word “recovery” can be mentioned with a straight face.
There is no doubt the tax credit helped to spur sales, but as long as unemployment stays high, there is no way a serious, permanent recovery can be made.
Granted, we’re worse off here in Metro Detroit than in many other parts of the country, but we also never peaked as high as many areas did during the bubble years. Still, the articles projections for property values dropping to 50% of their pre-2007 worth by 2013 are pretty amazing.
So for those on the fence about a short sale, wondering if they will see their property values come back if they wait a little bit longer - let it go. Get out now and go cheaper, unless time and money are on your side…
Face it folks, we’ve still got a ways to go before the word “recovery” can be mentioned with a straight face.
There is no doubt the tax credit helped to spur sales, but as long as unemployment stays high, there is no way a serious, permanent recovery can be made.
Granted, we’re worse off here in Metro Detroit than in many other parts of the country, but we also never peaked as high as many areas did during the bubble years. Still, the articles projections for property values dropping to 50% of their pre-2007 worth by 2013 are pretty amazing.
So for those on the fence about a short sale, wondering if they will see their property values come back if they wait a little bit longer - let it go. Get out now and go cheaper, unless time and money are on your side…
Fannie Mae: Pursuing you for your money With YOUR money!
Shahien Nasiripour of The Huffington Post reported on a story that has flown somewhat under the radar, regarding Fannie Mae’s announcement of their intent to pursue for the deficiencies (in states that allow it) of those who strategically default on their mortgages.
I’ve written about Strategic Defaults in the past – when someone who could otherwise afford their mortgage payment decides they’re tired of paying on an underwater, depreciating asset (i.e. throwing good money at bad) and simply walks away without attempting a loan modification, short sale or other loss mitigation action.
While the mortgage industry obviously frowns on this act, more and more people are finding it’s often the best way out of a situation they really had almost no hand in creating.
Sure, there are people who borrowed irresponsibly but in general, far more people are casualties of the current real estate crisis, than they are the causes of it.
Let me digress for a moment and use myself as an example, to help better understand the rationale behind choosing to strategically default. I purchased a condo almost 10 years ago. I’ve made my payments on time every month and, while I only put 5% down, I’ve done everything I’ve been contractually expected to do. However, if I wanted to sell today, I would have to bring $100k to the table to cover the amount my property has dropped in value. Pass.
To take it a step further, the bank has made tens of thousand off of me in interest payments, whereas my down payment and all my money sunk into remodeling, etc., is gone. By my choosing to discontinue making payments and walk away, the bank is more or less losing future money I’m obligated to pay, but not a ton as far as money already loaned out. I’m losing out on real actual money that was invested and will see no return.
Keep in mind this is my primary residence. To take a hit on an investment property is unfortunate, but it’s a gamble and most people going in know this. To buy a home in which you plan to reside, it’s not unreasonable to think the value will go up – lenders and mortgage companies have been selling us on that for years. It wasn’t unreasonable for me to think that I would be able to sell my place 5, 10 years later and make a profit, let alone cover the mortgage amount.
For the first time since the great depression, that is no longer a reasonable expectation.
So, people like myself find themselves in a curious position. I could try a modification, but then I would have to go delinquent on my payments, thus ruining my credit AND taking a chance that a loan mod wouldn’t be approved – or even offered. With few people actually getting temporary modifications, let alone permanent ones, it’s a risky bet. I could do a short sale, but with a second mortgage, it’s highly likely I’ll still get stuck paying back a portion or all of the deficiency – especially since I live in Michigan.
So while a strategic default might sound like an irresponsible action, the very concept was born out of the banks underwhelming desire to work with people.
Back to Fannie Mae.
Fannie Mae bears just as much responsibility for the mess we’re in as any other lending institution. Maybe more, between their sub-prime lending practices/nonsensical lending formulas and their inability to accurately predict the potential outcome of those practices.
Consider the following – it’s been written that Fannie Mae (and other lending intuitions) generally believed that property values would continue to appreciate at 6%-8% annually… forever. Essentially, they took peak bubble appreciation and concluded it would stay that way indefinitely, never dropping. As Kyle Bass of Hayman Advisors put it, simply hiring an actuary to look just three years into the future could have probably avoided much of what we’re stuck dealing with today.
Fast forward to the present.
As cited in the article, almost 80% of Fannie Mae and Freddie Mac are owned by taxpayers, thanks to a bailout that not only kept the two mortgage entities from failing, but ensuring that they had unlimited financial assistance.
And the thanks they offer to the very people who provided them with that money? You will play by their rules and go along with what they decide is right for you. If you choose to decide your own fate without working with them, they will use your tax dollars to pursue you.
Obviously, a short sale is the easier way to work around this, however that still might not release you from liability for the deficiency – it may just reduce the amount you’re liable for. For that reason, your best bet is to work on change from the top – your elected officials. Write to your member of congress, senators or anyone in your municipality, city or state who might have influence and let them know that in order receive the massive amount of tax payer cash being funneled to Fannie & Freddie, they need to do a better job of working with the people keeping them solvent…
I’ve written about Strategic Defaults in the past – when someone who could otherwise afford their mortgage payment decides they’re tired of paying on an underwater, depreciating asset (i.e. throwing good money at bad) and simply walks away without attempting a loan modification, short sale or other loss mitigation action.
While the mortgage industry obviously frowns on this act, more and more people are finding it’s often the best way out of a situation they really had almost no hand in creating.
Sure, there are people who borrowed irresponsibly but in general, far more people are casualties of the current real estate crisis, than they are the causes of it.
Let me digress for a moment and use myself as an example, to help better understand the rationale behind choosing to strategically default. I purchased a condo almost 10 years ago. I’ve made my payments on time every month and, while I only put 5% down, I’ve done everything I’ve been contractually expected to do. However, if I wanted to sell today, I would have to bring $100k to the table to cover the amount my property has dropped in value. Pass.
To take it a step further, the bank has made tens of thousand off of me in interest payments, whereas my down payment and all my money sunk into remodeling, etc., is gone. By my choosing to discontinue making payments and walk away, the bank is more or less losing future money I’m obligated to pay, but not a ton as far as money already loaned out. I’m losing out on real actual money that was invested and will see no return.
Keep in mind this is my primary residence. To take a hit on an investment property is unfortunate, but it’s a gamble and most people going in know this. To buy a home in which you plan to reside, it’s not unreasonable to think the value will go up – lenders and mortgage companies have been selling us on that for years. It wasn’t unreasonable for me to think that I would be able to sell my place 5, 10 years later and make a profit, let alone cover the mortgage amount.
For the first time since the great depression, that is no longer a reasonable expectation.
So, people like myself find themselves in a curious position. I could try a modification, but then I would have to go delinquent on my payments, thus ruining my credit AND taking a chance that a loan mod wouldn’t be approved – or even offered. With few people actually getting temporary modifications, let alone permanent ones, it’s a risky bet. I could do a short sale, but with a second mortgage, it’s highly likely I’ll still get stuck paying back a portion or all of the deficiency – especially since I live in Michigan.
So while a strategic default might sound like an irresponsible action, the very concept was born out of the banks underwhelming desire to work with people.
Back to Fannie Mae.
Fannie Mae bears just as much responsibility for the mess we’re in as any other lending institution. Maybe more, between their sub-prime lending practices/nonsensical lending formulas and their inability to accurately predict the potential outcome of those practices.
Consider the following – it’s been written that Fannie Mae (and other lending intuitions) generally believed that property values would continue to appreciate at 6%-8% annually… forever. Essentially, they took peak bubble appreciation and concluded it would stay that way indefinitely, never dropping. As Kyle Bass of Hayman Advisors put it, simply hiring an actuary to look just three years into the future could have probably avoided much of what we’re stuck dealing with today.
Fast forward to the present.
As cited in the article, almost 80% of Fannie Mae and Freddie Mac are owned by taxpayers, thanks to a bailout that not only kept the two mortgage entities from failing, but ensuring that they had unlimited financial assistance.
And the thanks they offer to the very people who provided them with that money? You will play by their rules and go along with what they decide is right for you. If you choose to decide your own fate without working with them, they will use your tax dollars to pursue you.
Obviously, a short sale is the easier way to work around this, however that still might not release you from liability for the deficiency – it may just reduce the amount you’re liable for. For that reason, your best bet is to work on change from the top – your elected officials. Write to your member of congress, senators or anyone in your municipality, city or state who might have influence and let them know that in order receive the massive amount of tax payer cash being funneled to Fannie & Freddie, they need to do a better job of working with the people keeping them solvent…
On A Lighter Note... NBA Short Sales
While Ron Artest was busy heaping praise on his psychiatrist, during his post game interview after helping the Lakers beat the Celtics in this years NBA Finals, he should have also been thanking his Realtor. As reported in the Sacramento Bee, Artest recently completed a short sale on his home in Loomis, CA - leaving behind a $450,000 deficiency.
People often ask if a high income prevents a short sale from going through and the answer is no - as is certainly the case here - it simply might mean having to pay back more of the deficiency, if applicable in the state the property is located or based on the mortgage structure.
In Artests case, it appears that none of the deficiency will be need to be paid back, since California is generally a non-deficiency state.
Of course, you might want to thank those of us here in Detroit as well - had your brawl with our fans not lead to your being traded, you might have ended up having to short sell a property in Indiana - which is a deficiency state...
People often ask if a high income prevents a short sale from going through and the answer is no - as is certainly the case here - it simply might mean having to pay back more of the deficiency, if applicable in the state the property is located or based on the mortgage structure.
In Artests case, it appears that none of the deficiency will be need to be paid back, since California is generally a non-deficiency state.
Of course, you might want to thank those of us here in Detroit as well - had your brawl with our fans not lead to your being traded, you might have ended up having to short sell a property in Indiana - which is a deficiency state...
Friday, July 9, 2010
Avoid A Last Minute Short Sale
The Detroit Free Press touched on a subject recently that seems to be somewhat of a growing problem – banks taking possession of homes before they’re allowed to, or at least, supposed to.
It’s one of the best reasons not to wait to attempt a short sale.
Yes, you typically have 120 days from the date of your last mortgage payment until the sheriff’s sale (and another 6 months or more through the redemption period), but if a lender or servicer deems your home to be vacant or abandoned, they often have the right to “winterize” the home to protect their investment.
Usually, that means shutting off the water and changing the locks. This is where many of the issues cited in the article begin.
If you start working with your lender early, these problems are typically avoidable. The longer you wait, you’re not only gambling that you’ll be able to provide the bank with what they’re seeking (payment, short sale, etc.), but you’re gambling that they will be able to communicate the resolution to the necessary parties in a timely manner. This is far from a safe bet.
A client of ours had initiated a short sale, just prior to the sheriff’s sale date. We continued to work with his lender after the sale, but the lender never informed their local attorney’s. Our client had already moved out of the area and wasn’t receiving his forwarded mail – including letters from the lenders attorneys. When he didn’t respond to the letters, the attorneys decided they would shorten the redemption period and get the home re-listed. When we found out, we fought it and Chase had them reinstate the full redemption period.
Once a step like that is usually taken, it’s rarely reversed.
I understand that many people wait until the last minute so they continue to live rent free for as long as possible. If that’s your intention, I can’t say I blame you. But, be aware that’s it tough to have it both ways. If you want to wait, it’s a gamble. If you’re like me and Vegas ain’t your speed, start working with your lender early and increase your chances of a positive resolution. Living rent free for a couple months is nice, but I’d rather be excused from a six-digit deficiency…
It’s one of the best reasons not to wait to attempt a short sale.
Yes, you typically have 120 days from the date of your last mortgage payment until the sheriff’s sale (and another 6 months or more through the redemption period), but if a lender or servicer deems your home to be vacant or abandoned, they often have the right to “winterize” the home to protect their investment.
Usually, that means shutting off the water and changing the locks. This is where many of the issues cited in the article begin.
If you start working with your lender early, these problems are typically avoidable. The longer you wait, you’re not only gambling that you’ll be able to provide the bank with what they’re seeking (payment, short sale, etc.), but you’re gambling that they will be able to communicate the resolution to the necessary parties in a timely manner. This is far from a safe bet.
A client of ours had initiated a short sale, just prior to the sheriff’s sale date. We continued to work with his lender after the sale, but the lender never informed their local attorney’s. Our client had already moved out of the area and wasn’t receiving his forwarded mail – including letters from the lenders attorneys. When he didn’t respond to the letters, the attorneys decided they would shorten the redemption period and get the home re-listed. When we found out, we fought it and Chase had them reinstate the full redemption period.
Once a step like that is usually taken, it’s rarely reversed.
I understand that many people wait until the last minute so they continue to live rent free for as long as possible. If that’s your intention, I can’t say I blame you. But, be aware that’s it tough to have it both ways. If you want to wait, it’s a gamble. If you’re like me and Vegas ain’t your speed, start working with your lender early and increase your chances of a positive resolution. Living rent free for a couple months is nice, but I’d rather be excused from a six-digit deficiency…
Friday, June 25, 2010
Dealing with your HOA on a Short Sale
An interesting article was featured on the NPR website recently, about a homeowners association that decided to foreclose on the home of an army captain over $800 in unpaid dues.
While the circumstances of the situation that lead to this horrible outcome are somewhat uncommon, dealing with a stubborn HOA is not.
When someone is no longer able to pay their mortgage, it only makes sense that they are unable to pay their monthly association dues as well.
But when it comes time to sell the home, the HOA can refuse to remove the lien they have on the property, blocking the sale from going through until they receive payment of the outstanding dues.
Increasingly, we find ourselves having to negotiate with the HOA if the lender won’t absorb all of the outstanding dues. More times than not, the HOA is unwilling to reduce the balance.
It’s a shortsighted move on the part of the HOA.
Let’s say the association is owed $4,000 and we come to them with $2,000. Ideal? No. But, it means they get half the money owed to them and – more importantly – a new resident moves in and resumes making the monthly payments that had ceased.
When they say no, they get nothing. The home goes into foreclosure and in a redemption state like Michigan, it will sit empty for at least 6-10 months. Likely, it will be for longer since condos aren’t very popular here at the moment. Even if they pursue for the money owed, what are the odds they collect? The legal costs to pursue will likely cost more than the $4k balance and the person they’re pursing is probably insolvent and either on the verge of bankruptcy, or already there.
Most associations only look at what they’re receiving today, not what they stand to lose in the months or years to come.
Don’t let your HOA stop you from short selling your home. Make them realize the big picture…
While the circumstances of the situation that lead to this horrible outcome are somewhat uncommon, dealing with a stubborn HOA is not.
When someone is no longer able to pay their mortgage, it only makes sense that they are unable to pay their monthly association dues as well.
But when it comes time to sell the home, the HOA can refuse to remove the lien they have on the property, blocking the sale from going through until they receive payment of the outstanding dues.
Increasingly, we find ourselves having to negotiate with the HOA if the lender won’t absorb all of the outstanding dues. More times than not, the HOA is unwilling to reduce the balance.
It’s a shortsighted move on the part of the HOA.
Let’s say the association is owed $4,000 and we come to them with $2,000. Ideal? No. But, it means they get half the money owed to them and – more importantly – a new resident moves in and resumes making the monthly payments that had ceased.
When they say no, they get nothing. The home goes into foreclosure and in a redemption state like Michigan, it will sit empty for at least 6-10 months. Likely, it will be for longer since condos aren’t very popular here at the moment. Even if they pursue for the money owed, what are the odds they collect? The legal costs to pursue will likely cost more than the $4k balance and the person they’re pursing is probably insolvent and either on the verge of bankruptcy, or already there.
Most associations only look at what they’re receiving today, not what they stand to lose in the months or years to come.
Don’t let your HOA stop you from short selling your home. Make them realize the big picture…
Friday, June 18, 2010
Homeowner No More
While the effect the mortgage crisis has had on the economy is no secret, an interesting article in the Sacramento Bee, discusses one aspect that many don’t think of - mobility.
"They're underwater. They can't sell the house. They can't rent it. They can't get money to move," says urban theorist Richard Florida, who theorizes that unlike our parents who worked one job in one location for a lifetime, today’s system is set up for more mobility. His new book “The Great Reset” argues that we need less home ownership and more mobility to rev up the nation's economy.
It’s an interesting argument. Certainly, a case can be made here in Michigan that more people would’ve left the state in search of employment, had their home not been weighing them down.
Of course, its yet another reason to consider a short sale first and THEN become a renter...
"They're underwater. They can't sell the house. They can't rent it. They can't get money to move," says urban theorist Richard Florida, who theorizes that unlike our parents who worked one job in one location for a lifetime, today’s system is set up for more mobility. His new book “The Great Reset” argues that we need less home ownership and more mobility to rev up the nation's economy.
It’s an interesting argument. Certainly, a case can be made here in Michigan that more people would’ve left the state in search of employment, had their home not been weighing them down.
Of course, its yet another reason to consider a short sale first and THEN become a renter...
Friday, June 11, 2010
Chase Warns Investors About Strategic Defaults
Shahien Nasiripour of The Huffington Post, writes about the latest warning from Chase to its investors, as noted in a recent filing with the SEC, regarding strategic defaults - deciding to walk away from your underwater home, even though you can still afford the payments.
To hear that they’re just now telling investors that strategic defaults could become a concern is staggering. Even more remarkable is that the entire $98 billion portfolio Chase inherited from WAMU is underwater. Though, I’m sure someone, somewhere still received a bonus…
But the quotes attributed to Freddie Mac executive vice president Don Bisenius really caught my attention:
"Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn't make it good social policy," argued Freddie executive vice president Don Bisenius in a May 3 note. His main argument? It affects neighbors' property values.
In a March 8 note, Bisenius contrasted strategic defaulters with "responsible" homeowners.
"But unlike some who walk away from their mortgage obligations -- a practice known as strategic defaults -- most responsible homeowners pay their mortgage regardless of current property values," he wrote.”
Of course, this isn’t the first time we’ve seen executives from a company guilty of their own irresponsible lending practices, lecturing on social or moral responsibility. Which isn’t unlike a husband cheating on his wife and then saying he’s not sure if he trusts her any more.
Now, I understand that Mr. Bisenius is focusing on those who can afford their homes but are choosing not to pay, as opposed to those who aren’t able. At the end of the day, it still comes down to the same fix… principle reductions. Right or wrong, more and more people are walking. Lecturing and finger wagging won’t fix this mess. Giving people some equity back will.
To hear that they’re just now telling investors that strategic defaults could become a concern is staggering. Even more remarkable is that the entire $98 billion portfolio Chase inherited from WAMU is underwater. Though, I’m sure someone, somewhere still received a bonus…
But the quotes attributed to Freddie Mac executive vice president Don Bisenius really caught my attention:
"Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn't make it good social policy," argued Freddie executive vice president Don Bisenius in a May 3 note. His main argument? It affects neighbors' property values.
In a March 8 note, Bisenius contrasted strategic defaulters with "responsible" homeowners.
"But unlike some who walk away from their mortgage obligations -- a practice known as strategic defaults -- most responsible homeowners pay their mortgage regardless of current property values," he wrote.”
Of course, this isn’t the first time we’ve seen executives from a company guilty of their own irresponsible lending practices, lecturing on social or moral responsibility. Which isn’t unlike a husband cheating on his wife and then saying he’s not sure if he trusts her any more.
Now, I understand that Mr. Bisenius is focusing on those who can afford their homes but are choosing not to pay, as opposed to those who aren’t able. At the end of the day, it still comes down to the same fix… principle reductions. Right or wrong, more and more people are walking. Lecturing and finger wagging won’t fix this mess. Giving people some equity back will.
Friday, June 4, 2010
"Disorganization at Banks Causing Mistaken Foreclosures"
A great article on the website Pro Publica discusses how mass disorganization within banks is causing homes to fall into foreclosure when they shouldn’t.
Anyone who deals with these lenders on a regular basis is likely all too familiar with the details of the article. Whether it’s a lenders collections department not communicating with their own loss mitigation department, or the lender themselves not communicating with the attorney’s they’ve hired to advance the foreclosure process, to say it’s a mess is an understatement.
We see it firsthand all the time.
We’ve had to request a redemption period reinstated, when the law firm representing the lender accidentally shortened it without checking with their client first. The short sale was still being reviewed.
We’ve had short sales rejected due to missing information that had been confirmed received, only to see the rejections reversed when time-stamped faxes were submitted.
We’ve seen clients foreclosed on when the short sale was approved and simply awaiting the closing date, due to internal miscommunications.
I could go on, and on, and on…
While many of the problems we run into are organizational issues, many are employee issues as well. Show me a loss mitigation employee and I’ll show you someone who really wants to let you know that you did/sent/said something wrong and that they can’t help you. Neither can the next 12 other people you’ll be passed on to, before being disconnected. I generalize of course – some of the loss mit reps we speak with are very good at what they do and we’re very quick to pass that on to their supervisors. Unfortunately, that’s only happened five times.
It’s a shame. A lot of people are in desperate need of a job and could do far better than those currently employed. Bank of America has had such a difficult time processing short sales, that they’ve reverted to having all short sales submitted online into a system called “Equator” - where a customer or their agent can initiate a short sale through the website and then respond to prompts for additional documentation until eventually (hopefully), a decision is rendered. It is a totally impersonal process, so best of luck trying to speak with your negotiator should you need to. And you almost always need to.
The amount of disorganization we experience is completely unacceptable and websites like Equator are unnecessary. Hire people who can do their jobs. Hire people who can function without a script. Hire people who better resemble the actors in your commercials promoting your customer-first-we-care-we-promise slogans and the disorganization will be greatly reduced…
Anyone who deals with these lenders on a regular basis is likely all too familiar with the details of the article. Whether it’s a lenders collections department not communicating with their own loss mitigation department, or the lender themselves not communicating with the attorney’s they’ve hired to advance the foreclosure process, to say it’s a mess is an understatement.
We see it firsthand all the time.
We’ve had to request a redemption period reinstated, when the law firm representing the lender accidentally shortened it without checking with their client first. The short sale was still being reviewed.
We’ve had short sales rejected due to missing information that had been confirmed received, only to see the rejections reversed when time-stamped faxes were submitted.
We’ve seen clients foreclosed on when the short sale was approved and simply awaiting the closing date, due to internal miscommunications.
I could go on, and on, and on…
While many of the problems we run into are organizational issues, many are employee issues as well. Show me a loss mitigation employee and I’ll show you someone who really wants to let you know that you did/sent/said something wrong and that they can’t help you. Neither can the next 12 other people you’ll be passed on to, before being disconnected. I generalize of course – some of the loss mit reps we speak with are very good at what they do and we’re very quick to pass that on to their supervisors. Unfortunately, that’s only happened five times.
It’s a shame. A lot of people are in desperate need of a job and could do far better than those currently employed. Bank of America has had such a difficult time processing short sales, that they’ve reverted to having all short sales submitted online into a system called “Equator” - where a customer or their agent can initiate a short sale through the website and then respond to prompts for additional documentation until eventually (hopefully), a decision is rendered. It is a totally impersonal process, so best of luck trying to speak with your negotiator should you need to. And you almost always need to.
The amount of disorganization we experience is completely unacceptable and websites like Equator are unnecessary. Hire people who can do their jobs. Hire people who can function without a script. Hire people who better resemble the actors in your commercials promoting your customer-first-we-care-we-promise slogans and the disorganization will be greatly reduced…
Friday, May 28, 2010
JP Morgan Chase, the Bank of “No”
Shahien Nasiripour of The Huffington Post, wrote a great article recently regarding the top brass at Chase arguing against loan modifications, citing the “sanctity of contracts.”
On the surface this may seem like a black and white issue, but it’s not. While it’s hard to argue against the “sanctity of their contracts,” being correct in this instance is almost irrelevant. Yes, all of your contracts can be enforced and you are not required to modify a single loan. Now what?
Perhaps Chase is under the impression that the majority of homeowners seeking assistance are just trying to get out of/modify their mortgages for the fun of it – to save a couple bucks - and once the request is denied, they’ll go back to happily paying their mortgage as they once did.
Not likely.
The reality is, most people will end up being foreclosed on. By not working with their customers, Chase will take back hundreds of thousands of homes – on top of the inventory they’re already stockpiling. Banks are not set up to manage properties, nor is it profitable for them to do so. If /when those homes finally are sold and off the books, it would be for far less than what was originally owed on them. As people start filing for bankruptcy – particularly chapter 7 – the ability for Chase to collect on the deficiency is gone. Now they’re stuck with whatever fraction of the original mortgage is left over, minus the costs to maintain the home, pay taxes and legal fees, etc., with no chance to recoup their losses.
Lowering the principle or approving a short sale will significantly curb those losses.
Take a home with a $200k mortgage. Chase refuses to work with their customer on a modification and forecloses. The home lists as an REO months later, for $120k. Now, all the homes on that street take a similar hit. After all, a home’s value is really only worth what someone is willing to pay for it. As more homeowners find themselves in similar positions (the delinquency rate is currently about 1 in 4), the values continue to decline.
Let’s not forget what all those abandoned/vacant homes will do to neighborhood values as well. Pay me a visit here in Detroit - I’d be happy to tour you through that reality.
For each home they take back and inevitably sell for less, they’re bringing the value down themselves, likely depreciating other investments of their own (as the 4th largest US residential mortgage lender, it’s a safe assumption they’ll have some other properties in the neighborhood). Instead of simply fixing the problem now with principle reductions, they’d rather just let the same thing happen via foreclosure, only over years and years and years.
Had they modified that same mortgage to $120k (or even $150k) from the start, they could have stopped the bleeding immediately and began the recovery. In a couple years, prices might not be up to where they were, but at least they’re no longer dropping.
And most important, principle reductions will keep money flowing in! Sure, it might be less of a flow than what Chase would like to see, but it’ll be considerably more than what “no” brings them – nothing…
On the surface this may seem like a black and white issue, but it’s not. While it’s hard to argue against the “sanctity of their contracts,” being correct in this instance is almost irrelevant. Yes, all of your contracts can be enforced and you are not required to modify a single loan. Now what?
Perhaps Chase is under the impression that the majority of homeowners seeking assistance are just trying to get out of/modify their mortgages for the fun of it – to save a couple bucks - and once the request is denied, they’ll go back to happily paying their mortgage as they once did.
Not likely.
The reality is, most people will end up being foreclosed on. By not working with their customers, Chase will take back hundreds of thousands of homes – on top of the inventory they’re already stockpiling. Banks are not set up to manage properties, nor is it profitable for them to do so. If /when those homes finally are sold and off the books, it would be for far less than what was originally owed on them. As people start filing for bankruptcy – particularly chapter 7 – the ability for Chase to collect on the deficiency is gone. Now they’re stuck with whatever fraction of the original mortgage is left over, minus the costs to maintain the home, pay taxes and legal fees, etc., with no chance to recoup their losses.
Lowering the principle or approving a short sale will significantly curb those losses.
Take a home with a $200k mortgage. Chase refuses to work with their customer on a modification and forecloses. The home lists as an REO months later, for $120k. Now, all the homes on that street take a similar hit. After all, a home’s value is really only worth what someone is willing to pay for it. As more homeowners find themselves in similar positions (the delinquency rate is currently about 1 in 4), the values continue to decline.
Let’s not forget what all those abandoned/vacant homes will do to neighborhood values as well. Pay me a visit here in Detroit - I’d be happy to tour you through that reality.
For each home they take back and inevitably sell for less, they’re bringing the value down themselves, likely depreciating other investments of their own (as the 4th largest US residential mortgage lender, it’s a safe assumption they’ll have some other properties in the neighborhood). Instead of simply fixing the problem now with principle reductions, they’d rather just let the same thing happen via foreclosure, only over years and years and years.
Had they modified that same mortgage to $120k (or even $150k) from the start, they could have stopped the bleeding immediately and began the recovery. In a couple years, prices might not be up to where they were, but at least they’re no longer dropping.
And most important, principle reductions will keep money flowing in! Sure, it might be less of a flow than what Chase would like to see, but it’ll be considerably more than what “no” brings them – nothing…
Thursday, May 20, 2010
Short Sale Buyers Are Out There, Eh.
For all the doom and gloom that’s surrounded the US real estate market over the past few years, there are some bright spots – and the source of that light is from outside our borders. From the Pacific Rim to Western Europe, foreign buyers have wanted to participate in the American real estate market for years but couldn’t afford it. Now, they’re getting their chance. And for many US sellers, they need not look across either pond for a viable buyer, but only towards our northern border.
An article out of the Toronto Star, discusses the influx of Canadian buyers who have always flocked to Sunbelt states like Arizona, Nevada or the snowbird haven of Florida, where rentals or hotels were far more realistic/cost effective options. For the time being, that’s no longer the case.
While the strong Canadian dollar might hurt their export business, it means a limited amount of math is necessary to figure out what that US property might really cost. In the past, a $250,000 US Florida condo might’ve meant almost $365,000 CAN. Not anymore. Now, that $45,000 US Florida short sale will cost you… $45,000 CAN. Big difference.
The article also points out that the stability of Canada’s banking system – more regulated than the US system – means financing is easier to access than the current US mortgage market, especially on investment properties/second homes.
So for those who think selling their home is a lost cause right now, give it a shot. The buyers are out there, if you’re looking in the right place… past our borders.
An article out of the Toronto Star, discusses the influx of Canadian buyers who have always flocked to Sunbelt states like Arizona, Nevada or the snowbird haven of Florida, where rentals or hotels were far more realistic/cost effective options. For the time being, that’s no longer the case.
While the strong Canadian dollar might hurt their export business, it means a limited amount of math is necessary to figure out what that US property might really cost. In the past, a $250,000 US Florida condo might’ve meant almost $365,000 CAN. Not anymore. Now, that $45,000 US Florida short sale will cost you… $45,000 CAN. Big difference.
The article also points out that the stability of Canada’s banking system – more regulated than the US system – means financing is easier to access than the current US mortgage market, especially on investment properties/second homes.
So for those who think selling their home is a lost cause right now, give it a shot. The buyers are out there, if you’re looking in the right place… past our borders.
Wednesday, May 12, 2010
Class Action Lawsuit Against Bank of America*
From an interesting article out of the Seattle Post-Intelligencer, two Seattle-area homeowners have filed a class-action suit against Bank of America claiming the bank has failed to work with owners facing foreclosure.
It’s about time.
We see first hand every day, how difficult lenders make it – especially Bank of America – for someone to do a short sale. We rarely get involved in the loan modification process, but by all accounts, it’s even more difficult than a short sale. Whether the lenders want to admit it or not, both loss mitigation practices save lenders far more money than the alternative, foreclosure.
Still, lenders take their time, bumble through the process and more often than we’d like to see, screw the deal up.
Now, someone is going to do something about it. Bravo! We’ll be watching this one and will provide updates as they become available…
*Not to be outdone, it looks like Chase is being sued as well! In an article featured on The Huffington Post, a California couple was told to go delinquent (which unfortunately is very common), before the mass confusion/incompetence that is your typical loss mitigation department "accidentally" led to foreclosure. Remarkable...
It’s about time.
We see first hand every day, how difficult lenders make it – especially Bank of America – for someone to do a short sale. We rarely get involved in the loan modification process, but by all accounts, it’s even more difficult than a short sale. Whether the lenders want to admit it or not, both loss mitigation practices save lenders far more money than the alternative, foreclosure.
Still, lenders take their time, bumble through the process and more often than we’d like to see, screw the deal up.
Now, someone is going to do something about it. Bravo! We’ll be watching this one and will provide updates as they become available…
*Not to be outdone, it looks like Chase is being sued as well! In an article featured on The Huffington Post, a California couple was told to go delinquent (which unfortunately is very common), before the mass confusion/incompetence that is your typical loss mitigation department "accidentally" led to foreclosure. Remarkable...
Friday, April 23, 2010
Short Sales + Principle Reductions = Crisis Over
I’ve argued for a long time now – and will continue to do so until proven otherwise – that short sales and principle reductions are the way out of the mess we’re in. Short sales, for the most part, are now a fixture in the mortgage/real estate crisis vernacular. Principle reductions on the other hand, have remained a term rarely heard in the mainstream and almost never uttered by one of the big four lenders… until now.
Two recent articles broached the topic of principle reductions.
Bank of America will introduce a plan to begin reducing a percentage of mortgages for it’s hundreds of thousands troubled borrowers who are currently underwater and faced with significant hardship, as outlined in an article in the WSJ. While this seems like a PR stunt more than anything else (since those who will actually benefit from this represent a minuscule number comparative to the amount of people this could actually help), it is a step in the right direction that many figured would never seriously be considered.
Another article posted on The Huffington Post, discusses how HAMP has actually discouraged lenders from approving principle reductions. Unlike the move by BofA, it seems like this is an unintended consequence (as the article points out) of a program designed to genuinely help people. Upon realizing this, it is my hope the administration will tweak their current plan and begin instituting real fixes that involve principle reductions, forcing the lenders and servicers who are simply placating their customers at the moment, to jump in with both feet and provide realistic, long lasting solutions…
Two recent articles broached the topic of principle reductions.
Bank of America will introduce a plan to begin reducing a percentage of mortgages for it’s hundreds of thousands troubled borrowers who are currently underwater and faced with significant hardship, as outlined in an article in the WSJ. While this seems like a PR stunt more than anything else (since those who will actually benefit from this represent a minuscule number comparative to the amount of people this could actually help), it is a step in the right direction that many figured would never seriously be considered.
Another article posted on The Huffington Post, discusses how HAMP has actually discouraged lenders from approving principle reductions. Unlike the move by BofA, it seems like this is an unintended consequence (as the article points out) of a program designed to genuinely help people. Upon realizing this, it is my hope the administration will tweak their current plan and begin instituting real fixes that involve principle reductions, forcing the lenders and servicers who are simply placating their customers at the moment, to jump in with both feet and provide realistic, long lasting solutions…
Getting Paid to Sell Short
With the Home Affordable Foreclosure Alternatives Program (HAFA) ready to take effect in April, the New York Times briefly outlined some of the program’s highlights in an article that appeared about a month in advance of the date servicers are required to begin abiding by it.
A couple of our clients have already been “approved to participate” in a short sale via this program and here is what we’re seeing so far…
• The servicers involved in the two files we’re currently working on are Wells Fargo and CitiMortgage. I’m sure it surprises no one to see it isn’t Bank of America and Chase utilizing this process ahead of the deadline.
• In the “Approval to Participate” (ATP) letters, both lenders have provided the amount the property should be listed for. In both cases, the requested list amount is higher than what we perceived the fair market value to be, but not dramatically higher.
• Both letters state an offer must be received by the servicers within 120 days of the ATP being issued.
• The letter from Citi, shows a sliding scale for the acceptable net, based on the date the file would be approved. For example, they suggest the list price be $51,000 and that the net to them should be $44,800 from 2.19.10-3.19.10, $43,860 from 3.20.10-4.19.10, and $42,840 until the expiration of 6.19.10. The letter from Wells Fargo simply says they must receive a net of about $69k (roughly $10k less than the list price) prior to the 120 day expiration. In this instance, the Wells Fargo letter makes more sense, since the Citi letter encourages the buyer to wait for the price to drop.
• And of course - the point of the NYT article - both letters claim that the seller will receive $1,000 at closing, should the file close prior to the 120-day expiration date, or $750 afterward. However, they both go on to state that: “You may elect to receive cash or apply some or all of the compensation to sale costs not paid by HUD, for example, discount points, or home warranty plans.” In the Wells Fargo deal, the investor would only approve a 2% sellers concession, so the $750 will be going towards the balance of the 3% sellers concession the buyer required. Sure, you hate to see that money going back into the deal, but I’d rather that happen, than see the deal die.
Once we close these files, I’ll be sure and blog about any additional thoughts/insights etc. On the surface, I don’t think this plan is a bad one. There is no doubt the lenders/servicers/investors will find loopholes that benefit themselves, but at least it seems like a step in the right direction - for now…
A couple of our clients have already been “approved to participate” in a short sale via this program and here is what we’re seeing so far…
• The servicers involved in the two files we’re currently working on are Wells Fargo and CitiMortgage. I’m sure it surprises no one to see it isn’t Bank of America and Chase utilizing this process ahead of the deadline.
• In the “Approval to Participate” (ATP) letters, both lenders have provided the amount the property should be listed for. In both cases, the requested list amount is higher than what we perceived the fair market value to be, but not dramatically higher.
• Both letters state an offer must be received by the servicers within 120 days of the ATP being issued.
• The letter from Citi, shows a sliding scale for the acceptable net, based on the date the file would be approved. For example, they suggest the list price be $51,000 and that the net to them should be $44,800 from 2.19.10-3.19.10, $43,860 from 3.20.10-4.19.10, and $42,840 until the expiration of 6.19.10. The letter from Wells Fargo simply says they must receive a net of about $69k (roughly $10k less than the list price) prior to the 120 day expiration. In this instance, the Wells Fargo letter makes more sense, since the Citi letter encourages the buyer to wait for the price to drop.
• And of course - the point of the NYT article - both letters claim that the seller will receive $1,000 at closing, should the file close prior to the 120-day expiration date, or $750 afterward. However, they both go on to state that: “You may elect to receive cash or apply some or all of the compensation to sale costs not paid by HUD, for example, discount points, or home warranty plans.” In the Wells Fargo deal, the investor would only approve a 2% sellers concession, so the $750 will be going towards the balance of the 3% sellers concession the buyer required. Sure, you hate to see that money going back into the deal, but I’d rather that happen, than see the deal die.
Once we close these files, I’ll be sure and blog about any additional thoughts/insights etc. On the surface, I don’t think this plan is a bad one. There is no doubt the lenders/servicers/investors will find loopholes that benefit themselves, but at least it seems like a step in the right direction - for now…
Thursday, April 15, 2010
Bank of America Forecloses on Wrong Home
Well, this article might not have anything to do with Short Sales per se, but anyone who reads this blog regularly should be well aware of my disdain for Bank of America, so it's certainly worth posting.
Forwarded to me by an associate yesterday, this story really seems to be picking up steam in the national media. A woman in PA came home to find her house had essentially been "winterized" by Bank of America - the process in which a lender protects a home after it has been foreclosed or abandoned, by changing the locks, shutting off the water, etc. Of course, the obvious problem here is that the owner of this particular home was current on her payments and very much still living there. The article details the mess that has since - and understandably - ensued.
Others are starting to come forward with similar stories - one couple in particular who had this happen to them actually paid in cash for their home and didn't have a mortgage period, let alone one with BofA!
I understand though. As a customer of BofA myself, I received a notice about year ago advising me that my short sale had been denied, due to a lack of paper work. Makes sense, since I never submitted a short sale! Turns out there was a mix-up because our firm had so many files in their system with me listed as the point of contact.
These stories are horrible, but I'm glad they're coming out. Once the housing market recovers and people begin buying and refinancing again, they're going to be looking at far more than rates when choosing a mortgage company. They're going to be looking at customer service and loss mitigation practices as well. Those lenders who are being reasonable with their customers, will do well. Those like Bank of America, will not.
Forwarded to me by an associate yesterday, this story really seems to be picking up steam in the national media. A woman in PA came home to find her house had essentially been "winterized" by Bank of America - the process in which a lender protects a home after it has been foreclosed or abandoned, by changing the locks, shutting off the water, etc. Of course, the obvious problem here is that the owner of this particular home was current on her payments and very much still living there. The article details the mess that has since - and understandably - ensued.
Others are starting to come forward with similar stories - one couple in particular who had this happen to them actually paid in cash for their home and didn't have a mortgage period, let alone one with BofA!
I understand though. As a customer of BofA myself, I received a notice about year ago advising me that my short sale had been denied, due to a lack of paper work. Makes sense, since I never submitted a short sale! Turns out there was a mix-up because our firm had so many files in their system with me listed as the point of contact.
These stories are horrible, but I'm glad they're coming out. Once the housing market recovers and people begin buying and refinancing again, they're going to be looking at far more than rates when choosing a mortgage company. They're going to be looking at customer service and loss mitigation practices as well. Those lenders who are being reasonable with their customers, will do well. Those like Bank of America, will not.
Monday, April 5, 2010
Walking Away is O.K., but a Short Sale is Better
Another great article from the WSJ. Brett Arends talks about one of my favorite topics - walking way from your mortgage. I think the article covers all the bases, especially the moral argument, I so won't keep you from it with my own dribble. But, I do think it's worth attempting a short sale first. While the feeling of truly sticking it to the bank is one clearly worth the experience, you still have to think about yourself. True, the banks might not be pursing deficiencies en masse at the moment, but who knows what will happen. I've heard rumors the new Foreclosure Alternatives Program launched by the Obama administration may very well prohibit lenders from getting a deficiency judgment. Until we know more, look out for #1 and stick it to #2. Or something like that...
Monday, March 29, 2010
Short Sales to Rescue Move-Up Buyers?
An article in USA Today from February 10th 2010, highlighted a growing problem – one plunging the real estate market deeper and deeper into the abyss… the plight of the move-up buyer.
A large part of any booming real estate market is the move-up buyer. Sure, first time buyers are important, as are downsizing empty nesters. But move-up buyers account for possibly the largest segment of the real estate market. After all, the average American only stays in their home for about 7 1/2 years.
So what happens when an overwhelming number of potential move-up buyers can’t move-up because their homes are underwater?
Well, they could do what many do and mail in the keys. Naturally, a foreclosure on their credit report won’t allow for them to buy again anytime soon, but they’ll likely be able to rent and likely, for more space and for less than what they’re current mortgage is. I think we’ll see a lot of former homeowners become permanent renters going forward. But, renting isn’t for everyone. Additionally, a recovering market needs more buyers, not renters.
Another option would be to pay off the difference between what is currently owed, and whatever offer you’re able to get. Realistically though, how many people have that kind of money to spend right now? Not many.
Which brings us to short sales. By negotiating a short sale while still remaining current (yes, that is possible), that a seller can purchase again immediately. If you have a 60-90 late on your credit report, a wait of 18-24 months is more likely.
Of course, the best fix would be principle reductions. But until that happens, a short sale might be the best way to move-up…
A large part of any booming real estate market is the move-up buyer. Sure, first time buyers are important, as are downsizing empty nesters. But move-up buyers account for possibly the largest segment of the real estate market. After all, the average American only stays in their home for about 7 1/2 years.
So what happens when an overwhelming number of potential move-up buyers can’t move-up because their homes are underwater?
Well, they could do what many do and mail in the keys. Naturally, a foreclosure on their credit report won’t allow for them to buy again anytime soon, but they’ll likely be able to rent and likely, for more space and for less than what they’re current mortgage is. I think we’ll see a lot of former homeowners become permanent renters going forward. But, renting isn’t for everyone. Additionally, a recovering market needs more buyers, not renters.
Another option would be to pay off the difference between what is currently owed, and whatever offer you’re able to get. Realistically though, how many people have that kind of money to spend right now? Not many.
Which brings us to short sales. By negotiating a short sale while still remaining current (yes, that is possible), that a seller can purchase again immediately. If you have a 60-90 late on your credit report, a wait of 18-24 months is more likely.
Of course, the best fix would be principle reductions. But until that happens, a short sale might be the best way to move-up…
Wednesday, March 17, 2010
Short Sale = Deficiency Release? Not Always…
A recent article on CNN Money discussed the general belief that once a short sale has been accepted by the lender, they are no longer able to pursue for the deficiency. The article serves as a good reminder that this is not necessarily true.
While many lenders will include a deficiency release in their approval letters, some will not. This is increasingly true on second liens/mortgages. Still, it’s often worth pursuing a short sale even if a release from all liability for the deficiency isn’t available.
Consider the following:
You have two mortgages. The first is owed $150k, the second is owed $50k. It’s possible that the second will agree to the payoff from the first (usually, $1500-$3000) but retain the right to pursue you down the road. Some may ask, why bother moving forward if they can still pursue you?
Here is why:
Likely, the first has accepted the short sale and released you from liability for the deficiency. That means the typically larger amount owed – the first lien – is gone. Not only are they off your shoulders, so are the thousands of dollars in late fees, attorney fees etc., they’d likely have added to your tab, had they foreclosed.
True, you’re still stuck with the second, but more times than not, you can negotiate down the total amount owed to a fraction of what it was, all while getting them to release you from any liability for the remainder. Less if you can pay off the negotiated amount in cash, more if you require a promissory note – assuming your lender or servicer offers that.
If negotiating isn’t an option, the amount owed is still going to be a couple thousand lighter with the payoff from the first. Even more, they’ve release the lien, so the amount they will likely pursue you for is the amount you owed them at the time the lien was released. That balance is no longer rising by the day.
The bottom line is, if negotiating the deficiency down or a full liability release aren’t options, it’s often still worth pursuing the short sale anyway – just be prepared to hear from your lender or servicer again…
While many lenders will include a deficiency release in their approval letters, some will not. This is increasingly true on second liens/mortgages. Still, it’s often worth pursuing a short sale even if a release from all liability for the deficiency isn’t available.
Consider the following:
You have two mortgages. The first is owed $150k, the second is owed $50k. It’s possible that the second will agree to the payoff from the first (usually, $1500-$3000) but retain the right to pursue you down the road. Some may ask, why bother moving forward if they can still pursue you?
Here is why:
Likely, the first has accepted the short sale and released you from liability for the deficiency. That means the typically larger amount owed – the first lien – is gone. Not only are they off your shoulders, so are the thousands of dollars in late fees, attorney fees etc., they’d likely have added to your tab, had they foreclosed.
True, you’re still stuck with the second, but more times than not, you can negotiate down the total amount owed to a fraction of what it was, all while getting them to release you from any liability for the remainder. Less if you can pay off the negotiated amount in cash, more if you require a promissory note – assuming your lender or servicer offers that.
If negotiating isn’t an option, the amount owed is still going to be a couple thousand lighter with the payoff from the first. Even more, they’ve release the lien, so the amount they will likely pursue you for is the amount you owed them at the time the lien was released. That balance is no longer rising by the day.
The bottom line is, if negotiating the deficiency down or a full liability release aren’t options, it’s often still worth pursuing the short sale anyway – just be prepared to hear from your lender or servicer again…
Friday, March 12, 2010
Let Foreclosures Happen? Wrong…
Recently, I was forwarded an article written by housingwire.com publisher Paul Jackson, challenging the notion that housing is central to the economic recovery ahead. The crux of the article cites a recent study that found no disparity between consumer spending in major metropolitan areas with horrible real estate markets, versus those with more stable housing markets. The conclusion being perhaps the housing crisis isn’t the focal point of the current recession and maybe we should go ahead and let banks foreclose and collect on their notes en masse.
Wrong.
While the studies findings may in fact be accurate, I don’t believe Mr. Jackson’s conclusions realistically portray the possible outcome/consequences of stopping the homeowner assistance programs and the start of widespread foreclosure and pursuit.
For starters, people who have been foreclosed on in high foreclosure regions, but whom are still spending money, clearly haven’t been pursued by their lenders yet for the balance. I’m confident someone having to pay back a $100k, $200k or $500k deficiency would be struggling financially far beyond this studies findings. In fact, they’ll be repaying their lender, who isn’t currently lending to anyone. So their money, which was going into the economy, is now moving around within their bank – meaning bonus to bank executive, nothing to local storeowner.
What would happen to all the homes owned by the banks? At the moment, there are approximately two million shadow foreclosures – homes that have been foreclosed on, but haven’t been released for sale. If the number is that high while people are being offered assistance, imagine where that number will balloon to when the assistance goes away. What will that do to the property values of the people who are still paying? Better yet, with all those foreclosures popping up on peoples credit reports, who will be left to buy this huge stockpile of abandoned bank-owned homes? Banks are not real estate management companies, so the thought of them maintaining all these homes is laughable. Neighborhoods will fall into disrepair and squatters will be rampant.
Additionally, the idea that the problem is rooted in and around people living in homes they couldn’t afford in the first place is disingenuous. Sure, there were plenty that fall into that category, but the majority could afford their home when it was purchased, they just can’t afford it now. There are very few people I’ve encountered in my life who haven’t experienced some sort of temporary hardship over the course of their lives - unemployment, health issues, divorce, etc. Or maybe I just know some really unlucky people. That we’re in a recession/depression only amplifies the problem. In the past, you could get over these temporary hurdles by refinancing. Or if that didn’t work, by selling. You can’t do that anymore, since the majority of homeowners in a number of markets are underwater. Nationwide, one in four homeowners owe more than their house is worth.
While I agree that lowering an interest rate isn’t going to do a whole lot, principle reductions and short sales/deed-in-lieu’s will. If someone has a solid payment history and is currently employed, reduce their principle. Sure, it will mean less for the lender, but they’ll be ok. They’ve likely made tens to hundreds of thousands in interest as it is, so the “loss” will likely be offset by what was already gained. Not to mention, what they will continue to make by keeping their customer in the home and paying.
If someone has lost their job/has no income, let them attempt a short sale or deed-in-lieu. Allowing someone to find a new buyer and save the lender the cost of the foreclosure process, in return for being released from the deficiency will do far more for the economy. New buyers will move in and resume making mortgage payments, albeit for less than the never-should-have-been-worth bubble prices. The lender won’t have to assume the costs of caring for the homes and they’ll likely be picking up new customers. Sure, the same lender won’t always/likely pick up the mortgage of the new buyer, but they’ll pick up enough that it will all even out.
So there you have it. Loan modifications might not be the answer, but neither is foreclosing across the board. Principle reductions and short sales/deed-in-lieu’s are our best way out of this mess…
Wrong.
While the studies findings may in fact be accurate, I don’t believe Mr. Jackson’s conclusions realistically portray the possible outcome/consequences of stopping the homeowner assistance programs and the start of widespread foreclosure and pursuit.
For starters, people who have been foreclosed on in high foreclosure regions, but whom are still spending money, clearly haven’t been pursued by their lenders yet for the balance. I’m confident someone having to pay back a $100k, $200k or $500k deficiency would be struggling financially far beyond this studies findings. In fact, they’ll be repaying their lender, who isn’t currently lending to anyone. So their money, which was going into the economy, is now moving around within their bank – meaning bonus to bank executive, nothing to local storeowner.
What would happen to all the homes owned by the banks? At the moment, there are approximately two million shadow foreclosures – homes that have been foreclosed on, but haven’t been released for sale. If the number is that high while people are being offered assistance, imagine where that number will balloon to when the assistance goes away. What will that do to the property values of the people who are still paying? Better yet, with all those foreclosures popping up on peoples credit reports, who will be left to buy this huge stockpile of abandoned bank-owned homes? Banks are not real estate management companies, so the thought of them maintaining all these homes is laughable. Neighborhoods will fall into disrepair and squatters will be rampant.
Additionally, the idea that the problem is rooted in and around people living in homes they couldn’t afford in the first place is disingenuous. Sure, there were plenty that fall into that category, but the majority could afford their home when it was purchased, they just can’t afford it now. There are very few people I’ve encountered in my life who haven’t experienced some sort of temporary hardship over the course of their lives - unemployment, health issues, divorce, etc. Or maybe I just know some really unlucky people. That we’re in a recession/depression only amplifies the problem. In the past, you could get over these temporary hurdles by refinancing. Or if that didn’t work, by selling. You can’t do that anymore, since the majority of homeowners in a number of markets are underwater. Nationwide, one in four homeowners owe more than their house is worth.
While I agree that lowering an interest rate isn’t going to do a whole lot, principle reductions and short sales/deed-in-lieu’s will. If someone has a solid payment history and is currently employed, reduce their principle. Sure, it will mean less for the lender, but they’ll be ok. They’ve likely made tens to hundreds of thousands in interest as it is, so the “loss” will likely be offset by what was already gained. Not to mention, what they will continue to make by keeping their customer in the home and paying.
If someone has lost their job/has no income, let them attempt a short sale or deed-in-lieu. Allowing someone to find a new buyer and save the lender the cost of the foreclosure process, in return for being released from the deficiency will do far more for the economy. New buyers will move in and resume making mortgage payments, albeit for less than the never-should-have-been-worth bubble prices. The lender won’t have to assume the costs of caring for the homes and they’ll likely be picking up new customers. Sure, the same lender won’t always/likely pick up the mortgage of the new buyer, but they’ll pick up enough that it will all even out.
So there you have it. Loan modifications might not be the answer, but neither is foreclosing across the board. Principle reductions and short sales/deed-in-lieu’s are our best way out of this mess…
Friday, February 26, 2010
Million Dollar Short Sales on the Rise
An interesting article from Bloomberg News was carried locally in the Detroit Free Press over the holidays, that I thought was worth sharing. Many people with a moderate understanding of short sales, typically assume the homes involved carry a value that would be found on the lower end of the pricing spectrum. Not so. As the article mentions, "Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate...".
We've seen it for awhile now - especially from clients in Las Vegas and Northern California - where it's not uncommon for someone to owe upwards of a million dollars on a home, only to see it appraise at around $400k. Or less.
There is a general belief, and this article touches on it, that we're only seeing the tip of the high-end short sale iceberg. Many million dollar and up homeowners refinanced in 2005 and 2006, with a large number going with various ARM products. A lot of those loans will re-set this year and next. As the article cites, the median U.S. home price is down 25% from it's peak in July 2006. With prices still predicted to drop 10% nationally over the next year, what will happen with those adjusting ARM's? For the majority, re-financing won't be an option, since the homes are now likely worth far less than what they were when the loans were originally taken out. Factor in rising unemployment and I think you'll find a lot of these homeowners coming down to two decisions - strategic default or short sale.
Some more interesting stats from the article:
- "Payments on about 12% of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3% on loans less than $250,000 and 7.4% on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, Calif.-based research firm. The rate for mortgages above $1 million was 4.7% a year earlier."
- "Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn't break out short sales by size of mortgage."
We've seen it for awhile now - especially from clients in Las Vegas and Northern California - where it's not uncommon for someone to owe upwards of a million dollars on a home, only to see it appraise at around $400k. Or less.
There is a general belief, and this article touches on it, that we're only seeing the tip of the high-end short sale iceberg. Many million dollar and up homeowners refinanced in 2005 and 2006, with a large number going with various ARM products. A lot of those loans will re-set this year and next. As the article cites, the median U.S. home price is down 25% from it's peak in July 2006. With prices still predicted to drop 10% nationally over the next year, what will happen with those adjusting ARM's? For the majority, re-financing won't be an option, since the homes are now likely worth far less than what they were when the loans were originally taken out. Factor in rising unemployment and I think you'll find a lot of these homeowners coming down to two decisions - strategic default or short sale.
Some more interesting stats from the article:
- "Payments on about 12% of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3% on loans less than $250,000 and 7.4% on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, Calif.-based research firm. The rate for mortgages above $1 million was 4.7% a year earlier."
- "Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn't break out short sales by size of mortgage."
Friday, February 12, 2010
The New American Dream... Renting
A great article in the Wall Street Journal recently, talks about the new American dream - renting. As the growing trend of strategic defaults continues, columnist Mark Whitehouse showcases a community in southern California where increasingly, people are either walking away from/short selling their homes, only to rent larger and more desirable homes in the same neighborhood. Among some of the more remarkable stats cited:
"For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven't paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month -- an injection that in the long term could be worth more than the tax breaks in the Obama administration's economic-stimulus package."
It seems to me $5 billion being pumped back into the economy will go a lot farther, than it will as a bank executive bonus...
"For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven't paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month -- an injection that in the long term could be worth more than the tax breaks in the Obama administration's economic-stimulus package."
It seems to me $5 billion being pumped back into the economy will go a lot farther, than it will as a bank executive bonus...
Friday, February 5, 2010
Short Sales - The New Moral Obligation
I came across an interesting article in the LA Times back in November, discussing a paper written by University of Arizona law school professor Brent T. White. In the article, Mr. White essentially advises people to walk away from their mortgages in droves. Certainly, it makes sense. Banks have been responsible for some of the most inappropriate lending practices in our lifetime and while there are plenty of guilty parties on the receiving end of those funds, the majority are innocent bystanders now caught up in the mess these practices have caused.
I'll be the first to concede that two wrongs don't make a right, but many people who need to move - for whatever reason - are unable to do so at the moment. And while Mr. White refers those who don't want to walk away from their homes as "woodheads," I understand and respect their dilemma. They made a commitment and even through the situation they find themselves in won't allow them to honor it, they desperately want to. I respect that a great deal - especially since many are victims of these market conditions, not the causes of it. Sadly, the lenders don't respect them.
Naturally, my first recommendation is to try a short sale - it very well might be the best option for both sides. The seller can walk away with less damage to their credit and the piece of mind knowing they likely brought the lender more money than they'd have received via foreclosure. The lender walks away without having to take back yet another home, only to resell it for less and likely get stuck paying taxes, association dues, etc., with a slim chance of recouping all expenses.
Of course some people, the bank will tell you, don't "qualify" for a short sale and those are the people I think Mr. White speaks to. And if those people start listening to his words, short sales will start sounding better and better to the lenders...
I'll be the first to concede that two wrongs don't make a right, but many people who need to move - for whatever reason - are unable to do so at the moment. And while Mr. White refers those who don't want to walk away from their homes as "woodheads," I understand and respect their dilemma. They made a commitment and even through the situation they find themselves in won't allow them to honor it, they desperately want to. I respect that a great deal - especially since many are victims of these market conditions, not the causes of it. Sadly, the lenders don't respect them.
Naturally, my first recommendation is to try a short sale - it very well might be the best option for both sides. The seller can walk away with less damage to their credit and the piece of mind knowing they likely brought the lender more money than they'd have received via foreclosure. The lender walks away without having to take back yet another home, only to resell it for less and likely get stuck paying taxes, association dues, etc., with a slim chance of recouping all expenses.
Of course some people, the bank will tell you, don't "qualify" for a short sale and those are the people I think Mr. White speaks to. And if those people start listening to his words, short sales will start sounding better and better to the lenders...
Friday, January 29, 2010
Short Sales vs. Strategic Defaults
Here is a great link to an article featured in USA Today (11.2.09), that discusses Strategic Defaults - someone who can afford their mortgage, but because their home is so far underwater, simply walk away without showing any of the signs of a typical foreclosure candidate. We're hearing about strategic defaults more and more - if lenders don't simplify the short sale process, we expect the trend to continue for years...
Wednesday, January 20, 2010
Reversing Short Sale Rejection
Recently, we assisted a couple here in Michigan with a short sale. It was one of the better examples we’ve had where we were initially told no and fought it. Here are the details:
John & Jane (not their real names) become engaged, but live about 60 miles apart. He shares joint-custody of a young daughter from a previous marriage and is required to live near his ex-wife and within their daughter’s current school district. Jane therefore decides she’ll list her condo and move into John’s place. Months pass, no offers. They get married, no offers. She becomes pregnant, no offers. Finally, after a year on the market, an offer comes in. It’s a good offer; probably a couple thousand above fair market value. We submit it.
Now, at this point, I could share stories of the incompetence and inefficiencies we typically experience, but for the sake of keeping this from turning into a novel, just know there was plenty of each. That said, after almost two months to the day since submitting, we received the following email:
“The request for short sale has been declined by investor. The borrower is current on both loans and shows a fico over 700. This request does not show a hardship that warrants the request of a short sale. Sorry I do not have better news for you.”
What? Did they bother to read the hardship letter? We went back and forth with our negotiator, who seemed to think that Jane would just stay in the condo and had been looking to move for casual reasons, so we turned to the executive offices at GMAC. Our argument to them went something like this:
Ms. Jane will not be keeping this condo. She has done everything she possibly can to honor her obligation. She’s continued to make timely payments, while assisting her husband with her new residence, knowing that all equity in her home was lost to the collapsing market. She’s tried for a year to sell her home and this is the first offer she’s received. She’s pregnant and wants to be with her husband. She will not carry the baby in a separate residence, nor will she raise the baby in a separate residence. They can’t afford both homes, as is shown in the paper work we submitted. They can’t live in her condo, as noted in the hardship letter we submitted. You have two options, accept the short sale or tell us where to send the keys. Staying in the residence is not an option. If you’d like the opportunity to sell a condo in Michigan right now, then it’s all yours. Otherwise, I highly recommend reconsidering.
They did.
Of course, I’m condensing this for the sake of everyone’s attentions spans. Even after the initial rejection, it still took over two weeks before a new negotiator was assigned in the Executive office. From there, it took about 30 more days, but we received our approval. Not only was the deal approved, but our client was also released from all liability for the deficiency.
Now, I won’t attempt to dissect how this was rejected in the first place. The point is – as it often is in my blogs – don’t give up. Tell them you want to hear “no” from the most important person available before you’ll stop calling…
John & Jane (not their real names) become engaged, but live about 60 miles apart. He shares joint-custody of a young daughter from a previous marriage and is required to live near his ex-wife and within their daughter’s current school district. Jane therefore decides she’ll list her condo and move into John’s place. Months pass, no offers. They get married, no offers. She becomes pregnant, no offers. Finally, after a year on the market, an offer comes in. It’s a good offer; probably a couple thousand above fair market value. We submit it.
Now, at this point, I could share stories of the incompetence and inefficiencies we typically experience, but for the sake of keeping this from turning into a novel, just know there was plenty of each. That said, after almost two months to the day since submitting, we received the following email:
“The request for short sale has been declined by investor. The borrower is current on both loans and shows a fico over 700. This request does not show a hardship that warrants the request of a short sale. Sorry I do not have better news for you.”
What? Did they bother to read the hardship letter? We went back and forth with our negotiator, who seemed to think that Jane would just stay in the condo and had been looking to move for casual reasons, so we turned to the executive offices at GMAC. Our argument to them went something like this:
Ms. Jane will not be keeping this condo. She has done everything she possibly can to honor her obligation. She’s continued to make timely payments, while assisting her husband with her new residence, knowing that all equity in her home was lost to the collapsing market. She’s tried for a year to sell her home and this is the first offer she’s received. She’s pregnant and wants to be with her husband. She will not carry the baby in a separate residence, nor will she raise the baby in a separate residence. They can’t afford both homes, as is shown in the paper work we submitted. They can’t live in her condo, as noted in the hardship letter we submitted. You have two options, accept the short sale or tell us where to send the keys. Staying in the residence is not an option. If you’d like the opportunity to sell a condo in Michigan right now, then it’s all yours. Otherwise, I highly recommend reconsidering.
They did.
Of course, I’m condensing this for the sake of everyone’s attentions spans. Even after the initial rejection, it still took over two weeks before a new negotiator was assigned in the Executive office. From there, it took about 30 more days, but we received our approval. Not only was the deal approved, but our client was also released from all liability for the deficiency.
Now, I won’t attempt to dissect how this was rejected in the first place. The point is – as it often is in my blogs – don’t give up. Tell them you want to hear “no” from the most important person available before you’ll stop calling…
Monday, January 18, 2010
US Bank says: Your Mortgage or Your Mother
“At U.S. Bank, our Five Star Service Guarantee means that every teller, every loan officer, every manager and every employee is committed to responsive, respectful, prompt and helpful service. The Five Star Service Guarantee means putting your needs first and foremost. It means focusing on what you need to maximize your business or personal financial management. It’s our promise - to change forever what you expect from a financial institution. And it’s a promise WE GUARANTEE!”
People often ask me what the odds are that a lender will flat out deny a short sale and my response is, at the bare minimum, they will usually at least counter.
However, usually means that every once in a while, one will get denied without a counter. Below, is one of those instances where the lender came back saying they wouldn’t agree to the short sale, period.
This was a situation many are unfortunately familiar with: loss of job/income, while caring for an elderly relative – in this case, our client’s mother.
We submitted the short sale to US Bank. As we followed up, we encountered a higher level of incompetence from loss mitigation than even we’ve grown accustomed too. We bounced around from person to person for weeks and then fought with our negotiator for months. Documents were lost, calls and emails we were promised would be returned, weren’t. At one point, our negotiator even lost our file.
Fed up, we found our way into the executive offices of US Bank and were put in touch with the Executive Vice President of Consumer Finance, Mortgages & Collections.
She apologized for our experience and promised to help. And by “help” she meant going line by line through each credit card statement, looking for any holes in the story our clients presented in their hardship letter.
Of course she couldn’t find any and with the exception of a single $100 credit card purchase to a clothing catalog around Christmas time, every penny could be accounted for towards food, shelter, basic necessities, and mom.
Still, even after conceding that the offer we submitted was above fair market value, US Bank decided that these people didn’t need a short sale, but a loan mod and credit counseling. When we argued that neither would help them better handle their mothers expenses, we were told the following:
“Care for your mother is a choice, your mortgage is an obligation.”
They insisted that we go back to our clients and let them know a loan mod is what they were offering and to call back. We advised US Bank that a loan mod was not possible and that two options were available – accept the short sale, or let us know where to send the keys. They never responded.
Our clients mailed in the keys a couple weeks ago, hopefully wrapped in the US Bank Five Star Service Guarantee I opened this piece with…
People often ask me what the odds are that a lender will flat out deny a short sale and my response is, at the bare minimum, they will usually at least counter.
However, usually means that every once in a while, one will get denied without a counter. Below, is one of those instances where the lender came back saying they wouldn’t agree to the short sale, period.
This was a situation many are unfortunately familiar with: loss of job/income, while caring for an elderly relative – in this case, our client’s mother.
We submitted the short sale to US Bank. As we followed up, we encountered a higher level of incompetence from loss mitigation than even we’ve grown accustomed too. We bounced around from person to person for weeks and then fought with our negotiator for months. Documents were lost, calls and emails we were promised would be returned, weren’t. At one point, our negotiator even lost our file.
Fed up, we found our way into the executive offices of US Bank and were put in touch with the Executive Vice President of Consumer Finance, Mortgages & Collections.
She apologized for our experience and promised to help. And by “help” she meant going line by line through each credit card statement, looking for any holes in the story our clients presented in their hardship letter.
Of course she couldn’t find any and with the exception of a single $100 credit card purchase to a clothing catalog around Christmas time, every penny could be accounted for towards food, shelter, basic necessities, and mom.
Still, even after conceding that the offer we submitted was above fair market value, US Bank decided that these people didn’t need a short sale, but a loan mod and credit counseling. When we argued that neither would help them better handle their mothers expenses, we were told the following:
“Care for your mother is a choice, your mortgage is an obligation.”
They insisted that we go back to our clients and let them know a loan mod is what they were offering and to call back. We advised US Bank that a loan mod was not possible and that two options were available – accept the short sale, or let us know where to send the keys. They never responded.
Our clients mailed in the keys a couple weeks ago, hopefully wrapped in the US Bank Five Star Service Guarantee I opened this piece with…
Short Sale Introduction
Welcome to my blog! I am currently blogging on our company website, www.shortsalelegalervices.com as well, but as those blogs begin to expire, I'm going to keep them alive be re-posting them here.
For those not familiar with the term (but are hearing it more and more), a short sale is when a property is sold for less than what is owed. The bank decides that taking less, is still a better option than incurring the costs of foreclosure.
Example: Bob owes $200k on his home and is thinking about selling it, but his Realtor advises him fair market value is only about $150k. Bob has a couple options: 1) Stay put and keep making payments he likely can't afford; 2) Sell it for $150k and pay $50k out of pocket; 3) Mail in the keys, let the lender foreclose and wait for them to pursue him; or 4) Attempt a short sale.
While a short sale still might see Bob have to pay something out of pocket, odds are it will be for far less than the full amount. Additionally, the hit to his credit will likely be less detrimental than a foreclosure would be.
At the moment, the short sale process is a living, breathing process. As banks and lenders slowly realize that short sales won't be going away any time soon, they are trying to adjust accordingly. Policy's change weekly and we try our best to stay on top of those changes and share them with all of you. Feel free to write me with questions, comments and feedback - I look forward to hearing from you!
For those not familiar with the term (but are hearing it more and more), a short sale is when a property is sold for less than what is owed. The bank decides that taking less, is still a better option than incurring the costs of foreclosure.
Example: Bob owes $200k on his home and is thinking about selling it, but his Realtor advises him fair market value is only about $150k. Bob has a couple options: 1) Stay put and keep making payments he likely can't afford; 2) Sell it for $150k and pay $50k out of pocket; 3) Mail in the keys, let the lender foreclose and wait for them to pursue him; or 4) Attempt a short sale.
While a short sale still might see Bob have to pay something out of pocket, odds are it will be for far less than the full amount. Additionally, the hit to his credit will likely be less detrimental than a foreclosure would be.
At the moment, the short sale process is a living, breathing process. As banks and lenders slowly realize that short sales won't be going away any time soon, they are trying to adjust accordingly. Policy's change weekly and we try our best to stay on top of those changes and share them with all of you. Feel free to write me with questions, comments and feedback - I look forward to hearing from you!
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