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Solving the Foreclosure Crisis with Short Sales
15 Comments · Posted by admin in Bank Owned, Foreclosure, REO, Short Sales
Here’s a thought regarding the issue of resolving the current foreclosure nightmare that our country is going thru. Last week we heard how the government is now going to lease their REO houses back out for the time being….huh? Now the government is in the landlord business too?
There are a lot of very smart people around the country who have ideas on what will need to happen in order to save the banking system from complete collapse. Here’s mine.
Why don’t these banks just sell these houses via a short sale and give the new buyers a mortgage? For purposes of making this discussion simple, I’ll leave out all the tax and capital requirements that bank industry insiders with throw out at me and focus on the external benefits that this type of policy would create.
First, a short sale by definition is when the bank agrees to take a smaller payoff from a sale than what is owed on the balance of the mortgage. If you purchased your house after 2005 or 2006, chances are you owe more now than it is worth, especially if you are in the hardest hit states like Florida, California, Arizona, Nevada, and Michigan. In a few of those markets it is likely you house has dropped in value by almost 50%. There are literally millions of homeowners in this situation right now.
For many, instead of walking away they have chosen to try and work with the bank thru a company like www.sellmyhouse.com to find a buyer and complete a short sale. It is by far a much better option for the seller, bank, community, and the property than letting it sit vacant for a year or two.
With that said, we sure could use more coopertion from the banks. The red tape involved can drive even the most patient people into madness.
Here are some of our recommendations these banks should consider:
- Quit gouging your clients. Dont raise their interest rates to 29% when they are having a hard time paying 8%. Give me a break. We cant go to the government to get a loan like you did. Work with us and we’ll reward you for it when times get better!
- You will never convince me that a foreclosure is ever better for the bank than a short sale…EVER. I am an investor at heart. I’ll pay more for something that doesnt have mold growing in it…wouldnt we all? Work with Realtors to get a reasonable short sale offer and then give that buyer a mortgage if they meet reasonable credit and financial expectations. Waiting for a low ball offer from an investor is great for the investor..but wont fix the current problem. We need a retails buyer eventually as well to make money. A good economy will bring that.
- This would help stabilize housing prices. The fear of the unknown is a huge confidence killer to new buyers. You’d be selling these at actual retail current market value levels instead of rock bottom foreclosure prices. A retail buyer will pay more than an investor wont they? Of course, there is no profit built into that transaction. Now comps would be based on true retail prices which would begin to repair the problem.
- We’d begin reducing inventory levels. Simple supply and demand economics. There banks are holding tremendous volumes of future foreclosure properties right now. When they hit the open market prices will collapse again. We have to widdle that number back down to reasonable levels in order for the banks to stabilize and begin lending normally again.
- You take a non performing note and turn it into a performing note. Isnt that what all the analysts are worried about? Sure, the bank is going to take a loss from the loan amount a few years ago, but they make money lending money. That loss is accounted for the year is defaults. Get it back on the books which will strengthen the banks financials for their investors.
- How about plain old fashion good will? Wouldnt a bank that adopted this policy be seen as the good guy instead of the greedy money hungry bad guy? Wouldnt that also bring them new business?
Our Realtor network continues to be in the middle of this issue due to the sheer number of short sale clients that contact us on a daily basis. We do not have a choice but to work thru the problem until a solution presents itself that makes sense.
Jason K Roberts
Chief Operations Director
386-597-7742
www.SellMyHouse.com
Admin comment by admin · November 13, 2009 at 8:47 pm
I’m sorry, I’ll keep saying this until the cows come home, these large lenders continue to rape and pillage the market and we will not see true recovery until they are allowed to fail on their own. Our government had good intentions, but these loan companies have taking a bail out, then used that money to invest to make a profit, rather investing in our people and our economy. They sit back and let homes foreclose, knowing that they can ask for more bail out money. The won’t answer or accept offers from legitimate buyers to get homes sold. They don’t do loan modication’s, or deed in lieu of, or forebearance. They are not out to contribute to stablizing our economy, they are only out to put has much cash in their coffers as they can while it’s still falling out of the sky of the Federal Government, and thus from our own pockets! It’s time to put our foot down and not provide any more funds! And the credit card companies are next on my list.
Posted by Donna Scheidl
Admin comment by admin · November 13, 2009 at 8:47 pm
Jason,
We, agent/brokers cannot resolve this issue – if we could, it would have been done by now. Only banks can improve/standardize the process, which they will not do voluntarily because it costs them extra money. Only Government, through some regulatory action could do it. And this is not likely because our legislators reliance on banking industry for contributions.
Having said this, situation with handling Short Sales have improved considerably from some 18 months ago. For now we, real estate professionals, have to use common sense, patience and persistence.
George from Tucson
Admin comment by admin · November 14, 2009 at 9:36 am
Interesting mixture of comments that seem to reflect confusion regarding the nature of short sales and how they fit in the scheme of solutions to resolving mortgage problems.
I handle a fair number of short sales as a seller’s agent and some of my buyer clients are awaiting lender approval of offers they have submitted to the seller’s agent who has in turn submitted the signed contracts to the lender for approval.
Short sales are not a solution to the foreclosure crisis. As a general rule, short sales do less damage to a credit score than foreclosure or bankruptcy. Even if the owner is not delinquent on their mortgage, the credit report will reflect the short sale.
Far more desirable from the owner’s point of view is loan modification. If a borrower meets the income guidelines and eligibility, the best option is usually loan modification. As REALTORS we should offer assistance without charge AND make sure our clients know that they do not need to pay huge fees to anyone to help them obtain loan modification.
John Cleek
Admin comment by admin · November 14, 2009 at 10:23 am
Although I completely agree that a loan modification is best case scenario for all involved in a pre-foreclosure situation, I also believe that a Realtor shouldn’t be involved in the modification of loans. That should be the first step that the owner should go thru directly with their bank. Therein lies the problem. Owners get very frustrated with the time frames and paperwork involved and get to a point where they give up. We get 200-300 of these calls a day. On one phone line the owner is on hold trying to reach somebody live at the bank and on the other line the bank is calling them every few hours pounding them about their late payment. Or how about the owner who knows that they are going to be in trouble very soon, but to date have been able to make their payment. How do you think their psyche is affected when the bank says we can’t help you because you’re not late?
I am also a realist and believe that as Realtors, our time is extremely valuable. It is not realistic to assume you can make a living as a Realtor offering free consulting to loan modification clients. How many times has a Realtor taken on a short sale listing only to find out after 3 months of spending advertising dollars on the house that the bank finally made contact with the client and did a loan modification? We have our own families and bills we have to cover and to expect we should work for free makes no sense to anybody who is actually a full time Realtor. Our job is already hard enough, we only get paid when something closes, and in this market, you need three to four times the listing activity that we did 3 years ago to make sure we get a paycheck each month. And magazines aren’t cutting us any breaks so our advertising dollars have gone up because full time Realtors need more listings now which adds to our expenses. We are not getting a free ride by any of our supplies are we?
In my humble opinion, Realtors get paid to sell houses and should be an option only after an owner is determined not to be a loan modification candidate. Call the bank first…Period. If they won’t help you…we will…by selling it and trying to help you avoid foreclosure with a short sale. If you lost your job, no loan mod in the world can help you keep the house. That’s when a Realtor should get involved.
The debate of short sales solving the foreclosure still rages on however. For 3 years we have posed this question to our bank, news media, and local communities contacts. To this day, not one person has been able to prove a benefit of going to foreclosure over a short sale except for one specific sector…Loan service providers. Why? As long as that house is under their management or going thru the entire foreclosure process, they get paid. Dragging out the process is in their best interest.
For everybody else, a foreclosure is devastating. For the homeowner, a short sale at least shows future lenders that they were willing to hang in there to help resolve the situation for the bank with the least amount of financial damage. A foreclosure is the absolute worst thing you can have on your credit report.
For the neighborhood, foreclosures destroy market value and become an eye sore as well as potential crime location. This becomes a safety issue.
For the lender or shareholder who bought that mortgage, when somebody throws up their hands and walks away, mold grows in the south when the air is turned off and water pipes freeze in the winter when the heat doesn’t work. That is the fastest way to destroy property valuation. We see this every single day. Just yesterday, we had a client that tried forever to get a short sale approval with offers in the $110,000 range. They owed $132,000. The house is in Florida but the bank wanted more. Since the foreclosure the owner said that all of the windows are broken out and vandals have taken over the area. I can’t wait to see what that house sells for…but my guess is it will be half of the offer the bank had when we were trying to do the short sale.
We all know what foreclosures do to the economy. Look at the mess we are in now.
If I’m wrong, please convince me. I look forward to hearing all sides and opinions.
Jason K Roberts
Chief Operations Director
http://www.SellMyHouse.com
Drew Dunn Local North Carolina Realtor Affiliate for www.sellmyhouse.com · November 14, 2009 at 10:35 am
I am with Jason on this – I know we have talked extensively about short sales and their benefits. I am sure my area here in North Carolina – specifically the Triangle (Raleigh, Durham, Chapel Hill) and Triad (Greensboro, Winston-Salem, High Point) have the same basic statistics as other good performing areas; we have not seen the dramatic rise nor fall like the California, Florida, or Arizona markets, but, we have a fair number of foreclosures and short sales. I have done a large number of short sales – heading to a short sale appointment in Durham, NC tomorrow – and these short sales have distinct advantages for homeowners and the neighborhoods they are in. I understand the comment above from John regarding loan modifications, but, these are not always effective and I am very aware of many of the banks dragging their feet on these loan mods – it should be noted that loan mods here in North Carolina are under scrutinty by the regulators as a source of potential (and what they claim is actual fraud to the consumer). I have several examples of people in Raleigh, NC and Durham, NC that have asked their lender to work with them on a loan modification and after several months of feet dragging they have accomplished nothing other than a serious discussion of deed in lieu of foreclosure. The short sales that I done have been a true win-win situation for all involved. The house does not go into foreclosure. Yes, short sales do show on the credit report, but, it is not a foreclosure. The homeowner feels some sense of accomplishment in getting the house sold and some money back to the lender. The buyer feels he got a great deal and is promoting the stabilization of the neighborhood by moving in and taking the house back to a, as Jason called it, a performing note. I always sit down and counsel my clients about the short sale process – the time frame, the patience required, the inevitable frustration with the banks process and the issues surrounding the offer process: all things that given the right circumstances can work in the favor of all involved. I have seen some encouraging signs from some banks, but, there are still many that are not actively participating in trying to make the short sale process work. Here in North Carolina, the short sale process will continue to be a viable option for many homeowners who find themselves in need.
Admin comment by admin · November 14, 2009 at 12:17 pm
I like Norm see realtors using the distressed short sale to line their pockets more than to be helpful. They are taking advantage of the person in distress. I want to make clear I am not trying to characterize in whole all the realtors. Here is my problem, there are so many so called short sale experts and I am qualified to state the majority of the agents that engage in short sales do not know how or are just plain lazy and sloppy to get the job done. My experience is three fold, I am licensed as a loan officer, I have practiced lending since 1993, real estate since 1995 and in 2000 I was employed by Bank One Financial Services which is now Chase Bank. My position was REO analyst I worked along side a the loss mitigation specialist. The main reason the bank does not sell short is the ineptitude of the real estate professional who calls him or herself, “Short Sale Specialist.” Again here I am not trying to state all realtors are bad or greedy. I am afterall in this profession to make money but having said that I also believe in sound economic and business principles which drive consumers to me like honesty, hard work, realistic analysis and consultation. When I use the term professional I believe that term means trusted source not experienced, the best or biggest, but trusted. I want the consumers trust, I want to turn the view of realtors as a bad profession as we are viewed to a good trusted profession.
I have noticed that when it comes to short sales realtors cry we need to have government regulation and I stated those realtors are greedy as they are looking to government to force the banks to sell short. The banks are part of the economic equation and need to do what is in the best interest of the bank which has many depositors and investors whose retirements, life savings, college funds, Christmas funds… are held. I find the call to action by the realtors as whole sale greed and counter productive to the free economy.
Yes banks make money on foreclosures but the bank selling short is usually not the one buying the defaulted paper. The bank selling short loses the money at foreclosure and the one buying the bad asset and selling for profit is in the business of REO and most likely is not the original lender or holder of the note. They are purchasing at a discount in order for the losing bank to receive instant funds for their bad asset. Their is an incentive for the bank who has the bad loan to sell short again the problem is there are too many short sale experts who do not know the first thing about a short sale. These agent can not get a normal listing so the prey on the distressed person who actually needs a real expert and professional not some cracker jack marketing specialist spending big advertising dollars to announce that they are the saviour coming. I sell REO properties and occasionally I will get a short sale listing and to date I have sold everyone I listed. I attribute my success not due to a designation as certified specialist, I am a knowledgeable professional in this area of real estate due to my experience as a lender first and real estate agent second.
Now validating Norm, I ask all the agents here have you ever tried to sell a short sale where you were on the selling side not the listing side? I do not even try anymore as it is near impossible. It is not the banks fault it is the ignorant agent specialist whose only specialty is knowing how to get the short sale listing, they do not know the first thing about getting it approved. I have sat in many short sale consulting seminars and the main thing taught is how to get the listing, not hoEveryw to get it approved. In this current market of distress too many agents are going after the short sale and the designation, why? It is the path of least resistance thus the greed is disclosed by action. Lastly, the MLS systems are requiring us to disclose short sale on MLS. First problem it is not in the best interest of the home owner to do so as it gives up their confidentiality which we as realtors are suppose to guard as a priority of our ethics. Second a short is not short until an offer is written, I do not care if it is listed short. The actual sale is not short until offer is accepted short. Disclosure of short sale should come at time of counter offer where seller states that buyer is made aware offer is short of pay off and requires third party approval. This gives buyer the option out or come higher in price. Also disclosure of short sale or distress sale puts seller at a disadvantage right out of the starting line in negotiations as the motive to sell is disclosed. Is this not against the law or our ethics?
What it market short, bidding war happens and actual acceptance covers payoff and expenses? Not short, so short does not come until offer is written short and seller is willing to accept. To me our MLS systems are not protecting clients right to confidentiality and this I find to be paradoxical to what is the code of ethics and a deligitimzation of the realtor organization. This is all about greed and not making money. If we look to find the banks guilty of wrongdoing I say two wrongs do not make a right. We are feeding the greed and we are not a solution to the crisis we are furthering it, we are aiding in the devaluation of America’s assets, Real Estate.
Mark Moen (Realty Executives Experts)
Admin comment by admin · November 14, 2009 at 12:25 pm
WOW Mark! There are so many things in that 14 page post that I disagree but the most startling is the comment that “banks make money on foreclosures”. What universe do you live in where a bank is actually better off financially by selling something for less (and from every single piece of data I have ever seen, a lot less) than what they lent somebody for it??
But lets start with this questions first. With your vast experience as a loan officer over these many years, do you claim any responsibility for the “reason” there are so many short sales and foreclosures on the market now? Or is it just easier to throw the blame on somebody else because you eventually plan on running for office and need the votes??
JKR
Admin comment by admin · November 14, 2009 at 12:58 pm
Good post and you are right — if we all work for free, soon we will all be losing our own homes. All the best.
Bob & Carolin Benjamin – E Phoenix Arizona Real Estate
Admin comment by admin · November 14, 2009 at 1:19 pm
Comment by Pacita Dimacali – e-PRO, SRES, CDPE, MBA East Bay, North CA real estate:
It’s offensive to read a generalization that realtors who do short sales are “greedy”. The amount of work and the length of time it takes to for a short sale to be approved hardly makes lucrative, when we can pour that energy into other types of sales that require less work, less time, less angst.
I represent both buyers and sellers of short sales who are genuinely in need of help. Some of these short sales are condos that are worth half of what they were when the clients bought the condos. Case in point: I am helping a good friend sell his condo that is worth $199K. Do the math. Will anyone get rich with this sale?
But why do we do it?
Reasons for helping (REALLY!)
• Sellers are in dire financial distress
• Sellers are looking for a less disastrous effect n their credit
• Foreclosed homes are neglected, trashed, looted, invite criminal activity and become a blight in their neighborhood, thus devaluing the market value of neighboring homes
• As long as sellers are in their home until it is sold, they can look after the property
• Buyers, on the other hand may have limited funds and are seeking to take advantage of this opportunity to buy while homes and interest rates favor buying a home
My short term objective: to help our clients through this financial quagmire
My long term objective: to be the realtor they will think of and they will refer to whenever they and their associats want to buy or sell real estate property in the future.
Admin comment by admin · November 14, 2009 at 1:36 pm
Very well put, and I wholeheartedly agree with you…
How about this example:
Short sale for a client who lost husband and income on a condo that they paid $270,000 for in 2005.
BofA declined 6 offers over the period of 1 year and 5 months starting with $135,000 and going down, finally accepting a $64,000 offer.
We never gave up on this client… even though our average sales price is $450,000 and we had closed MANY many other short sales in that period of time.
Why?
According to Mark and Norm, it was GREED!
Admin comment by admin · November 15, 2009 at 7:45 am
All Realtors that list short sales & foreclosure properties CAN afford to take the classes & shouldn’t list short sales or any that even come within $10K of becoming a short sale, until they do. The directives have changed so much & continue to change. NAR is offering a Short Sales & Foreclosure Resource Certification in Texas for $10 and the application fee of $175 has been waived until 12/31/09. Do yourself, your associates, & your clients a favor & have the knowledge of what it takes to get one through.
Kay Bailey
Real Estate Consultant at Coldwell Banker United Realty Professionals
Admin comment by admin · November 15, 2009 at 7:45 am
I do think it is a very good idea that Realtors have some sort of certification, really more for the paperwork requirments involved with a short sale than anything else. Selling a short sale involves the same processes that traditional houses utilize aside from the one phraze that has to be added “Lender approval required”.
With that said, the real issue that short sales have and reason they have such a very low closing ratio is the red tape surrounding the service providers. I do not believe for one minute that certifying every Realtor will fix the problem. We handle the short sale negotiation for many of our Realtor Partners around the coutnry, some new but most have been in the business for 10+ years. In our experience, we do not have a better closing ratio in certain markets over others because the Realtor is certified. The paperwork is basically the same for every short sale. They always lose it one or two times anyway and blame it on us.
Until the banks (really the service providers) get their act together, short sales will not be as productive as they should be considering the collapse of this real estate market. When that happens, I still think the Realtor needs to do what they do best which is sell the house. The paperwork, although a huge pain, is not that difficult to figure out if you have access to Google.
Jason Roberts
Founder & CEO
http://www.sellmyhouse.com
Joe Stradcutter · November 16, 2009 at 2:53 pm
As a short sale specialist for Minneapolis/St. Paul and greater MN, I am moving more and more toward an investor model for my short sale clients. While not getting too philosophical, I still go back to two of Albert Einstein’s quotes: “One cannot solve a problem with the same mind that created it.” and “Doing the same thing over and over and expecting a different result is insanity.”
Realtors and consumers have been struggling with short sales for the past 3 years. Banks continue to:
- take months to give answers to buyers who want to buy this non-performing asset. (Name another industry where a customer wants to buy something and the answer is “We’ll get back to you in a few months.”
- not work with each other in a multiple lien situation. The first lender doesn’t want to give too much to the second lender, the second lender wants more, etc.
- the lenders are no longer paying for back taxes, homeowner’s association dues, utilities, etc. even in true hardship cases. Many of my short sale clients have no job and no income but the banks still expect them to pay. Again, this is a definition of insanity.
- try to force the seller into deficiency judgments or promissory notes. Again, most people don’t have the money to do this. So, either sign or the short sale won’t go through. With a promissory note, many of my clients then have to file bankruptcy.
So …. is there another solution? Possibly, if the banks and end buyers will consider another scenario. Here is one solution. An investor comes in and buys the property (I recommend cash)and cleans up all of the “clouds” associated with the short sale, i.e. back taxes, the second lien holder, HOA dues, utilities etc.
The investor must disclose to all parties that they intend to sell the property as soon as possible to a new buyer and make a profit. During the short sale negotiations with the bank, the property is not listed on the MLS.
If the bank accepts the short sale, the investor puts it back on the market and should receive fair market value at that point. Again, the investor discloses to the end buyer that he has recently bought it from the bank. The investor pays for commissions, closing costs, etc. The buyer has received a quick answer and the seller can move on with their life.
So what has this accomplished?
It has kept a foreclosure off the seller’s record.
It has kept a foreclosure out of the neighborhood which drives down prices.
It gets money to the bank sooner than waiting for it to go into foreclosure. And usually the bank will get a higher price than a foreclosure.
More realtors will show the property if it is not a typical short sale. Again, EVERYTHING must be disclosed to all parties.
So why doesn’t this happen?
Most buyers are FHA and have a 90 day seasoning rule. Most investors don’t want to hold a property for 90 days unless they are going to fix/repair. This rule was put into place to prevent equity stripping. Guess what? There is no equity in these houses. As long as the new buyer is aware that the investor purchased it recently and everything is disclosed, let the buyer and his lender decide if they want to buy and at what price.
There is a group of people who feel that end buyers should be able to buy at the same price as an investor. The logic is that as realtors, we should be getting the most money to the bank. So then let’s ask the buyer these questions? Are you going to pay cash? Are you going to pay for ALL closing costs and commissions? Are you going to clear up all the “clouds” on the short sale. The answer to these questions is usually “no”, the buyer just wants a good deal but doesn’t want to take on all of the risk that an investor will. And as long as the bank knows the investor is making a profit on the short sale, the investor should be able to profit.
Is the “investor-buying-the-short-sale” model for everyone and every property? Absolutely not. But I do not know anyone who can say that the current short sale model works.
There will be more short sales coming on the market within the next 3 years with many of the option ARMs coming due and high unemployment. Banks do not have the internal systems to handle them now and show no signs of being able to handle them in the future.
Right now, there are no easy solutions but if we continue to try and solve this problem the way we have been over the past 3 years and expect different results, then we have no one to blame but ourselves.
Joe Stradcutter
Sell My House – Minnesota Short Sale Specialist, Certified Distressed Property Expert
Admin comment by admin · November 17, 2009 at 8:13 am
Great post Joe. I couldn’t agree more. Banks want to sell retail but their process is such a joke right now that isn’t realistic. That leaves investors and they aren’t going to buy unless they can make a profit. What a mess. I’m starting to think that all short sales should be sent in with an investor offer right from the beginning.
Jason Roberts
Founder & CEO
http://www.sellmyhouse.com
JACKIE BURKE · November 18, 2009 at 1:19 pm
I can only state my personal opinion as well as my own experience in the area of Short Sales. I see them as a boon for the home owner and the buyer. The lender would probably be better off foreclosing and reselling. But what I have noticed is the lack of knowledge that most Realtors have with regard to these Short Sales. I’ve had to learn the hard way myself but would have preferred a simple course.
The biggest problem I’ve seen is that Realtors and Buyers are not comprehending the actual timetable for closing and that most Short Sale offering prices are not final sales prices. On two of the deals in which I worked a loss mitgation company handled the lender. They were a life saver and well worth their money. They do try and streamline the process but it’s still lengthy.
Perhaps a little more knowledge spread around about the process would be of great benefit to all parties involved.
Jackie Burke, Realtor, Realtor Affiliate for Sell My House, Manor/Austin, Texas.