41 replies to this topic

[M.E.G.]

It is my understanding that part of the reason that the foreclosure looks good to the banks is that their liability to their investors is not as high. The potential for investors to sue banks later down the road saying they did not short sale the property at the highest price is a concern. With the foreclosure, it is a set path the bank takes that has been used for decades. Even though it makes no sense to us that the short sale will bring in more (or less of a loss). I do think down the road we will see lots of types of lawsuits over this whole mess.

Again, I have been told with some of these loans, there are several different "investors" that own it, and you have to get approval from all. And they each have their own formula for how much loss they will take. Sometimes I wonder how any get approved.

I am not for anything that slows down the process of getting through these distressed properties. The longer it takes, the longer everyone who owns a home and plans to keep it is impacted.

M.E.G.

[Steve Heard]

Steve, you make some good points, but I think your real beef is that your income is hurt when someone else comes along and under cuts a sale of one of your listings.

Of course I've got a beef if I've been working on a deal for months and negotiating in good faith and the bank turns down legitimate offers. Imagine you are the Realtor here. You get a call from someone who wants to hire you to sell their property. You contact the bank and get all of the information they need to process the short-sale. They assign a negotiator. All indications are that they are processing the file. You are devoting time to this transaction. In the case I mentioned, we had put the house on the market in December. I paid for marketing, I held open houses, I showed the property, I gathered and faxed and emailed every document they wanted, and spent hours on the phone with the bank.

They foreclosed on it in July, after receiving 3 different offers on it over 7 months! It wasn't that someone came along and offered the bank money. It doesn't work like that. What happened was that the foreclosure department ordered the short-sale department to close the file then auctioned it off at the courthouse steps. An investor walked up and paid cash, then flipped it a week later for $285K.

This isn't just about me, though. It's about people who tried their best to do the right thing, who negotiated in good faith, cooperated with every documentation request only to end up with a foreclosure on their records and possible recourse should the second lien holders go after them in court some time in the future. One client filed a BK to prevent that.

Investors need not have any agents to buy a house with cash. But let's look at another scenario.

This is true for Trustee's Sales (aka foreclosure auctions), but not for market sale. If it is on the MLS they have to use an agent, whether they hire one or use the listing agent. They cannot otherwise negotiate with the banks.

But let's look at another scenario.

A couple sees that they probably won't be able to ever pay off the house they are in and has the wisdom to see another bubble coming, like the one back in the early 90's. They max out their house as much as they can with a second mortgage, then walk away.

If they did that, and their intent was to walk away with the cash, and I know some people did just that, they can be accused of mortgage fraud. By the way, on purchase money loans, the banks can only sell the house and take what they get. On equity lines, the bank has full recourse and can take the borrower to court and get a full judgment against them.

Does it pay to be honest and do the right thing when everyone around you is working the system? I wonder.....

I know lots of folks who gave up their homes for that very reason. I personally could not. There's always someone working the system to get free this or extra that.

[The Average Joe]

From your lofty, I have a job and you don't, perches you cast down your hatred on those who are less fortunate.

That is uncalled for.

That has nothing to do with what I said. There was no hatred, simply the facts. Now if you want to argue that the government shouldn't make it a better deal for the banks to forclose than work with the client, I would agree.
Personally, I have had deadbeat and hard luck cases who owed me significant amounts of money, and I was always willing to work out a deal beyond our contract. I was not OBLIGATED to do so by government mandate. My point is that it is not the banks fault (except in rare cases of proven misconduct) that a homeowner defaults on their loan. How they deal with the situation is motivated by business philosophy, government pressure/opportunity, and arbitrary company policy. As long as they adhere to the law and the terms of the contract, I have no issue other than to make a mental note not to do business with that bank.

[the_professor]

Here's the way I see it , Steve.

The banks always play hard ball with anyone who tries to get a loan. The home builders play hard ball with building houses by taking short cuts on materials and labor and jacking up the prices to unreasonable levels. (When we bought this house they had to come back four times to correct poor workmanship and damages done by the guy who came after the other one.) We paid extra for the builder NOT to build an awkward entertainment enter in our family room. Also paid extra to have the sub-grade carpet and carpet pad instead of the slum grade they call standard.

Then you try to get a house refinanced and they give you the run around until you end up paying down the interest with a few thousand, they said you'd not have to spend to get a good interest rate, when you first talked to them. Oh, I just love those agents at the mortgage companies! But nobody gets them for lying to a home owner who wants to refinance. I ended up going to a direct lender and saved thousands on the commission fees the other crooks were trying to stick me with.

If you want to sell your house most real estate agents don't want to lift a finger except to hand you the contract to sign. Then they turn around and tell an interested buyer they can talk you down on the price and what you owe on the mortgage, which is none of their business. Most real estate agents talk like old gossip ladies over the back fence. The last time we were looking to buy a resale the listing agent told us where the people worked, how many kids they had and threw in the fact that they were getting a divorce, to show us they were motivated. It was sickening. I sent the home owners a letter and told them what we had heard from their agent.....he couldn't even be fired! I heard he insisted on getting his cut of the sale afterwards. He laughed and told them to take it up with the Board of Realtors. (And who runs the Board of Realtors? Real Estate agents!)
He claimed he never said those things and picked up his check at closing, just like he had done nothing wrong. I wish we had had a tape recorder!

It's ALL a racket. I hear you when you say you worked your butt off for months, but let me ask you a question. Who makes all the rules regarding housing? Who tells the banks to lower their risk assessments on home loans? Who demands, yes, demands, that programs are passed that allow those who can't really afford a house, to buy one?

If you want to be pissed about how things are done, regarding houses, you should look at our government housing laws and our administration.

And by the way, there are ways around having a bank come after you for walking away after taking out a huge second mortgage. You know there are. But, I won't divulge them here for obvious reasons.

So the bottom line is this, you, my husband and I and others who do the right thing are getting the crappy end of the stick. But what is our Government doing for us?

That's right.....nothing. Before you blame the banks, you had better look at who is allowing them to do business the way they do.

I'm confused. I thought Tea Party supporters were for less government and free market.

[Steve Heard]

Here's the way I see it , Steve.

The banks always play hard ball with anyone who tries to get a loan. The home builders play hard ball with building houses by taking short cuts on materials and labor and jacking up the prices to unreasonable levels. (When we bought this house they had to come back four times to correct poor workmanship and damages done by the guy who came after the other one.) We paid extra for the builder NOT to build an awkward entertainment enter in our family room. Also paid extra to have the sub-grade carpet and carpet pad instead of the slum grade they call standard.

Then you try to get a house refinanced and they give you the run around until you end up paying down the interest with a few thousand, they said you'd not have to spend to get a good interest rate, when you first talked to them. Oh, I just love those agents at the mortgage companies! But nobody gets them for lying to a home owner who wants to refinance. I ended up going to a direct lender and saved thousands on the commission fees the other crooks were trying to stick me with.

If you want to sell your house most real estate agents don't want to lift a finger except to hand you the contract to sign. Then they turn around and tell an interested buyer they can talk you down on the price and what you owe on the mortgage, which is none of their business. Most real estate agents talk like old gossip ladies over the back fence. The last time we were looking to buy a resale the listing agent told us where the people worked, how many kids they had and threw in the fact that they were getting a divorce, to show us they were motivated. It was sickening. I sent the home owners a letter and told them what we had heard from their agent.....he couldn't even be fired! I heard he insisted on getting his cut of the sale afterwards. He laughed and told them to take it up with the Board of Realtors. (And who runs the Board of Realtors? Real Estate agents!)
He claimed he never said those things and picked up his check at closing, just like he had done nothing wrong. I wish we had had a tape recorder!

It's ALL a racket. I hear you when you say you worked your butt off for months, but let me ask you a question. Who makes all the rules regarding housing? Who tells the banks to lower their risk assessments on home loans? Who demands, yes, demands, that programs are passed that allow those who can't really afford a house, to buy one?

If you want to be pissed about how things are done, regarding houses, you should look at our government housing laws and our administration.

And by the way, there are ways around having a bank come after you for walking away after taking out a huge second mortgage. You know there are. But, I won't divulge them here for obvious reasons.

So the bottom line is this, you, my husband and I and others who do the right thing are getting the crappy end of the stick. But what is our Government doing for us?

That's right.....nothing. Before you blame the banks, you had better look at who is allowing them to do business the way they do.

Maxine, I could write a book in response to what you've written. For now, I'll make a few points.

First, you contradict yourself. On one hand you say that the banks play hard ball and on the other say that someone demaned that the banks lower their risk assessments to allow people to purchase homes when they could not afford one.

The subject has been been examined and written about ad nauseum. The fact is that the banks were de-regulated, then allowed to creat loans which were sold to investors. The banks had little risk and the investors wanted more and more interest. Once they had maxed out the traditional 30 year fixed rate 20% down market, they started looking for ways to get existing homeowners to refinance and to borrow more, and to find ways to get people who didn't qualify into new loan programs. They came up with equity lines, not to 75% as you mentioned, but to 100%! They even had other loan programs for 125% of the property value. They came up with pay option arms, stated income, no doc and all sorts of programs which they charged fees to originate, charged 7% and more when the market was at 5.5%, then sold to them to investors who demanded, yes demanded, higher interest bearing products.

As for your opinion of Realtors, sorry you feel that way. I do not, and I haven't met very many of the type you are talking about. Me and my colleagues are professionals with years of experience and on-going training, constantly updating and being updated on market trends, finance guidelines, and legal legal matters.

Speaking of legal matters. You are incorrect. I am not aware of ways to get around the law regarding non-purchase money loans, with the possible exception of BK, which to my knowledge erases a debt but not the lien on the property, and I mentioned BK in an earlier post.

What other ways are you aware of?

Lastly, this isn't about Realtors or loan originators or builders or exotic loans. It is about banks failing to do what was in their best interests when faced with offers for short-sales and who instead, foreclosed on properties.

[sat]

I know of a couple who attempted a short sale two years ago. They needed to downsize, since he was retiring and their kids had moved out. I think she said they owed $100,000 more than the house was worth, but they were turned down twice for a short sale. So they decided to just walk away. The bank has not officially foreclosed on them, so almost two years later they still live in that house, without making a payment. I would guess the bank has lost over 40K in payments, and the house is probably worth less than two years ago when they first attempted a short sale.

Don't get me wrong, I am not condoning foreclosre. It just seems in this situation with the bank, it would have worked out better for them if they went ahead with a short sale.

[rpo]

THE BANKS BROKE THE LAW.

Um, what law was that? If the bank takes a loss by foreclosing rather than short-saling, they only hurt themselves (which isn't actually true. My understanding is that there is some government incentive for them to foreclose).
Your response to my original comment gave sad stories, but I fail to see why the bank was obligated to work with anybody. They took a bigger loss than they should have (theoretically, although again, I believe they are getting some kind of subsidy from the feds on foreclosures as opposed to short sales), but that is their choice to make. While in an ideal world the bank would work with the borrower, they are not obligated to once the buyer is in breach of their contract.

The law they broke was the forging of signatures. Dozens of employees have testified that was common practice in order to foreclose on homeowners. On top of that, the notary signatures and stamps were being forged as well. THAT is why the banks are being forced to pay up now. This was all over the news for months.......

[Redone]

A few years ago one could place a second mortgage on their house for as much as 75% of it's value. This could mean a couple hundred thousand dollars! I saw ads all the time for this sort of mortgage, and thought it ridiculous!

Actually, IRWIN HOME EQUITY had the 125% 2nd mortgage.


MEG makes a good point, this is not one entity but an entity for thousands of investors.

[Steve Heard]

But to ask the bank, to EAT their losses may be the worse thing as it will always come back with us paying the bill for it, somehow. You know that, and I know that. Checking account fees will raise, over draft fees will go up and banking in general will cost us all more. They NEVER eat any of their losses if they can help it.

Maxine, the issue isn't about asking them to EAT their losses, but to CUT their losses. We want them to take MORE for the properties, not less.

In regards to letting you and thousands who read this forum, know how to cheat the bank by dumping a loan after a ReFi and then buying another house with the ReFi cash....I won't.

I don't want you to uncover any secrets which could encourage fraud, but I'll tell you that although I am not an attorney and cannot give legal advice or opinion, I think that if there was a way to get out of liability on a non-purchase money loan short of bankruptcy, it would be widely known and discussed. If there is some way, I am not aware of it, and neither are the attorneys in my building (Lichney Law and Flahive Law) which make their living advising clients on real estate law. They speak at our offices regularly and according to them, there is no way around it unless you file a BK or can prove fraud on the part of the lender. Feel free to PM me if you know something they don't. I'm curious.

To get back to your thinking the bank is short selling itself by taking a lesser amount from an investor, instead of selling the house for the best price in a short sale.....here is your answer....

Due to the many defaults on current and past mortgages, the banks are desperate for CASH. And cash talks much louder than a thirty year mortgage that may also be foreclosed on in the near future. That is the short and ugly truth of the matter.

Look it up and do a little homework and you will find this to be the truth. They are betting the future will bring more foreclosures and are giving out far less mortgages today, than years ago, when the economy looked better. Banking could be called a chess game or a con, which ever you prefer.

Thanks for the suggestion. I do my homework every day. Real Estate is what I do for a living. I think you are misunderstanding the process and chronology of events. Here's a typical situation:

Mr. Brown loses his job. He finds one in another city, and has to relocate. He wants to sell his house, but it is worth less than he owes.

He hires an agent to sell his property as a short-sale. The agent lists the property and receives an offer $310,000. The buyer is offering $310,000, not asking the bank to loan that money to him. The bank will get that $310,000 in one lump sum at close of escrow, whether the $310,000 comes out of the buyer's pocket or if he gets a loan from another bank.

Week after week the agent calls, talking to various individuals, leaving messages, sending faxes and emails of documents requested. They keep telling him they're working on it. The buyer gets tired of waiting and withdraws the offer. This scenario is repeated for several months.

Finally, while the agent is still submitting offers to the bank and responding to their requests for more documentation and updated documentation, the foreclosure department sells it at the courthouse steps to the highest bidder for $214,000.

Had the bank accepted the $310,000, they would have been paid in cash at close of escrow.

Instead, they turned the property over to their foreclosure department, who set their own price, independent and with no knowledge of previous offers. Their job was to liquidate the asset.

Do you see that it's not a matter of how the bank was going to get paid on the short-sale vs. the foreclosure? They buyer wasn't requesting that bank to loan him the money to buy. The bank was going to get paid the full amount on the day of close of escrow.

That's why so many people are upset, and that's why the government is stepping in. They had an opportunity to cut their losses by $96,000, in cash. Instead, they took a greater loss and can look to government for a tax break or a bailout, or to mortgage insurance for reimbursement. They did not do what they could to mitigate their losses.

[rpo]

Nicely written Steve.

I see the same thing happen over and over. The worst yet was a home with an offer of $355k in cash that took seven months for the bank to respond. Their response was to insist on $360k ($5k more). The buyer agreed and the appropriate paperwork was submitted to the bank. Two weeks later, while still waiting for a final approval, the bank foreclosed and proceeded to sell the property for $201k at auction. That was a loss of $154,000 at which time the bank still had a cash offer on the table!

If the bank pays an average salary of $50k, they could have hired two more employees plus pocketed $54k from the sale EVEN IF those two employees only job was to stop this type of screw-up just ONCE per year.

[Redone]

"Do you see that it's not a matter of how the bank was going to get paid on the short-sale vs. the foreclosure? They buyer wasn't requesting that bank to loan him the money to buy. The bank was going to get paid the full amount on the day of close of escrow."


This would be a true statement IF they owned the loan or called the shots.

Many times, only servicing the loans.