To Pay, Or Not To Pay?

Short sales are a part of today’s real estate market.  There are millions of families across the country that have to decide between putting food on the table or paying their mortgage?  It can be a difficult choice, and we would never suggest not making your mortgage payment.  But on the other hand, if you are in a bind and need to consider a short sale you are going to have to make some difficult decisions that might affect your credit for some years to come.  One of those decisions is to stop paying your mortgage.

Once you stop paying, the letters start to come.  You’ll probably be inundated with letters from the mortgage companies.  The one company neglected by most, but with more power than expected is the Homeowners Association (HOA).  These companies take an approach of pay or we’ll make sure your house goes to foreclosure.  We have seen it all too many times, where the mortgage companies are in agreement about who gets what and the HOA isn’t getting what it’s owed, but a fraction of that, and the HOA will not release the lien on the property and the house goes to foreclosure.  They are tough.

HOAs don’t wait long either.  You miss a couple of payments to them and you will be reminded very quickly that they want their money.  They normally take action with an attorney right away, and once it’s in the hands of an attorney, the two months you were behind might as well be a year.  You will be responsible for all of the fees associated with the missed payments, to include late fees and those dreaded attorney’s fees.

Now I promise to never tell you to stop making your mortgage payments, but I understand if you have to.  However, if there is one piece of advice I can share, that is to never miss your HOA payment.  If you want to stand any chance whatsoever of being able to short sale your house, be current on your HOA.

Bank of America, Overworked and Understaffed

I received a call yesterday from one of our Short Sale negotiators about a conversation that she had with a Bank of America Loss Mitigator.  She called to check on one of our files and was questioning the incredibly long time it takes to negotiate a Short Sale with them, when the loss mitigator levels with her and says literally “let me level with you here.”  He explains to her that they are a shop of only 128 and that they closed over 90,000 short sales in August.  He goes on to explain that they cannot keep people employed because their workloads are so great that “people go to lunch and never come back.”

I can’t imagine walking into a position where I thought I was going to have a few hundred files on my desk and in reality having a few thousand files instead.  How do you get out of that pit?  This would explain the cheerful conversations we have with loss mitigators from all banks.  I know that anytime I call the banks I greet with a warm “How are you today?” and normally get a very cold “good” in response.

Bank of America earned 3.2 Billion Dollars in the second quarter of 2009, which seems like a lot of money to me, certainly enough to hire a few hundred people to help negotiate all the short sales that are on their books.  Maybe they should talk to some other banks that are negotiating these deals at record speeds.  EMC would be a great start.  They have a great system in place.  Submit your package, call to verify their receipt, wait about a week for them to order the BPO and you will more than likely have an answer in about 30-45 days total, from start to finish.  I wish they would all model after EMC.

Watch Out For Collection Agencies!

After some further research into my post Another Bank Loophole?, I found out what the deal is with Collection Agencies buying up 2nd mortgages.  It turns out that Collection Agencies can legally garnish wages if they want to pursue a debt.  So I guess it would make perfect sense for these companies to buy notes at .30 on the dollar and go after the homeowners wages.  Apparently this is a very lucrative business that I was not aware of.  I can see how banks would rather do this over taking a lesser dollar amount at closing to settle the account.  Hopefully this won’t become the norm.  Remember, we are trying to help people, not draw blood from a stone.

Banks Lie? Who Knew!

Having spent the majority of the last year doing BPOs & selling short sales I’ve learned a lot about the process. I’ve also uncovered, yet another, layer of  bank BS, imagine that.

It’s important to know that banks often lie again and again, clogging up this already sluggish process.  Yes, we all know this, but we’ve finally had a couple of loss mitigators admit that they lied about BPO values.  We refused to give in to their bogus numbers, continuing to send information about the condition of the property & they finally said what I have been saying all along ‘Yes, we added $15K-$20K to the actual BPO value’.  It’s important to know this because a lot of deals fall apart or go to foreclosure because agents take what the bank says as truth & there’s rarely any truth to it at all.

Another helpful tidbit is understanding that when a BPO is ordered the bank already knows what they want that number to be.  Once the BPO is ordered & completed you better cross your fingers and hope that the BPO agent will fight to justify the true market value of the house.  Now here’s the problem, most BPO agents won’t fight at all because they are in this to get REO listings; if they give the bank the value they want, we all know this number is going to be well above market value, they will eventually start getting REO listings from that bank.  Why? If you give the banks the numbers they want to see you stay ‘in good standing’ & will eventually begin receiving the REO listings for all of the houses you over priced on past BPOs.  These agents know that once these properties go to foreclosure they are going to sell quickly and for 30-50% less than if it were a short sale. Completely screwed up and wrong? Yes, indeed, but we all know people will do anything to make money.  I know this all to be true because I’ve had it happen to me, on my neighbor’s house. No, I’m not kidding.  I got a BPO order for my next-door neighbor’s house.  I submitted it at fair market value & it came back because the bank wanted to see the value come in well above market value or they wouldn’t accept the BPO, resulting in me not getting paid.  What did I do? Told them no thanks, as much as I would love to keep the values in my neighborhood high I couldn’t because the values just weren’t there.

My advice: Be ready to fight.  You can meet the BPO agent & have a great conversation, but you never know their true motivation for taking on these orders. Have your ammunition ready because chances are you’ll need it.

Another Bank Loophole?

It looks like the banks have done it again!  They have found a new way to screw the homeowner in default.  I sometimes wonder how the people making these decisions sleep at night, but it’s not my place to judge one way or the other.  All I can do is get the message out about what really goes on behind the scenes in our day-to-day dealings with short sales.

We have a file that has been under contract for quite some time now where the first lien holder has approved the purchase price and is willing to take the loss on the books.  The second has been a bit trickier and has pushed back a bit, but today the river card was thrown on the table and they went all in.  GMAC is owed $50,000 on this second mortgage and they will take no less than ¢.30 on the dollar ($15,000).  The investor’s rationale is that he can sell the note to a collection agency for $15,000, write the loss off on the books and be free and clear of any attorney’s fees and court costs associated with a foreclosure.  The first mortgage has offered the 2^nd $3,000 to clear the title and settle the account and the total loss to the first would be around $100,000.

So how are we handling this?  Well we have gone back to the first and asked that they take a bigger loss and to offer more to the 2^nd.  We have offered a reduction in our commission from 3%, down to 1% to hopefully show good faith, and finally have asked the buyer is she will be able to raise her offer a little bit in order to help the first lien holder recoup some of the loss.  Hopefully everyone chipping in a bit will help this bank investor see the light and see that we are trying to help this homeowner out of a foreclosure and now a possible bankruptcy and to take one of the millions of foreclosures off the books.

I really hope this doesn’t become the norm.  And besides, are the collection agencies really going to start buying up all this debt that they won’t be able to collect on.  Who is going to bail them out?  I certainly hope they don’t expect a bailout from the American Taxpayer.

I don’t think that anything will help though.  I’m not trying to be pessimistic, but having dealt with short sales and the people behind them for over two years now, I continue to lose my faith in the good of man, or at least in the good of the men and woman working at the banks.  It is unfortunate that I even have to write this post, but this is the stuff that really happens every day with banks, not the nice commercials that talk about how banks are here to help you with your problems.  The reality is that they don’t care about the problems of Americans; they only care about the problems of their shareholders and their wallets.

Still Frustrated with Short Sales!

I have been off the Blog radar for a while now, trying to make sense of all the banks out there that have an endless number of short sales in their cues and how they manage them.  I recently had my first short sale listing go to auction and was not surprised to see the bank take less at auction then the offer we had submitted.  Seventeen thousand  less.  Can you believe that?  I don’t get it, and have stopped trying to make sense of it to be honest with you.  It is disappointing to say the least.

On another note, if you haven’t already heard, Taylor Bean & Whitaker was recently raided by the FBI for fraudulent activities.  They were the country’s 3rd largest FHA lender.  Scary isn’t it?  I’m sure that all of the particulars will come out in the news eventually, so stay tuned.

I also read an article on why banks aren’t doing loan modifications.  It turns out that Uncle Sam himself gives the banks incentive money to help out distressed homeowners behind on their mortgage payments.  Here’s the catch.  For every month the homeowner is behind, the bank gets an incentive from the government.  Now, the banks will not help you modify your mortgage unless you are behind on your payment, which gets them the incentive from the government and puts the homeowner further behind on their payment, to include late fees.  Then if the bank does agree to the modification, they tack on all the late fees and penalties to the back end of the loan in the form of a forbearance, which really doesn’t help the homeowner out because now their overall loan amount has gone up, which means that their mortgage payment will go up.  Meanwhile the banks are making money because the homeowner is behind on the payment.  Have I mentioned that the banks are making money because the homeowner is behind on the payment.  Vicious cycle isn’t it?

It’s silly really, all of it.  It doesn’t seem like there is an end in sight and despite the fact that millions of Americans keep finding themselves in situations where they can no longer afford their mortgages, the banks still don’t want to play ball.  Oh well, I guess the lesson learned here is that we should have just let the banks fail when we had the opportunity.  Now we are stuck with them playing the same old games.

Fannie Mae Is Part Of The Problem

I’m working a deal where my client is putting more than 25% down and has been ready to close since the 15th of May.  It is a bank owned property and we put a strong offer in with a quick closing to meet the needs of the bank to close quickly.  So you ask where the problem is?  Well, the problem is with the attorney’s offices that Fannie Mae chooses over traditional title companies.  There are three companies in particular that I have done deals with or know of people who have similar experiences as me.  First is David Stern’s office.  They are bad.  Second is Watson Title.  They are equally as bad.  Third is Spear and Hoffman P.A.  They are the subject of this post.

We have been trying to close this deal for two weeks now with no luck.  We signed a two week extension addendum because Spear and Hoffman couldn’t get the title work done in a timely fashion.  The problem is that they refuse to communicate with anyone involved  in the closing. When confronted with the obvious issue of not communicating with the realtor and lender, they simply ignore us.

So, we go to the listing agent, who represents Fannie Mae and ask that they contact their assets manager representative at Fannie Mae to see if they can expedite this process?  So here is where I get confused.  The listing agent tells me that they have complained about this title company not closing on time, and their lack of communication and complete negligence with regard to the transaction and its timliness, and after making Fannie Mae aware of the ongoing problem, they (the listing agent) get repremanded for not closing the files on time.  Huh???  I don’t get it, do you?  Shouldn’t Fannie Mae be repremanding the attorney’s office for not doing their job?

My client is completely frustrated, and rightfully so, and we still don’t know what is going on.  I did get an e-mail saying that we would be closing on the 29th of May, but when I responded to the e-mail inquiring about the time and place of the closing, it was back to being ignored.  I guess Fannie Mae just doesn’t want to sell houses to ready, willing, and able buyers.

If anyone out there has had similar experiences with any of these title/attorney’s offices, please file a complaint to Fannie Mae.  Maybe if enough of us start complaining about the horrible service, they will open their eyes to the real problem.

Water On Road When Raining

Banks really are stupid.  They never cease to amaze me.  I wonder what it’s going to take to make them realize that realtors aren’t lying to them about the current values.  I just read an update posted by the President of the Pinellas Realtor Organization that states “In April, the median price for pre-foreclosures sold was $141,200. In comparison, bank owned properties sold for a dismal $70,050—more than 50% below pre-foreclosurs and greater than 53% below non-distressed residential sales.”  Does that even compute with banks?  Really, 50% less when it goes to auction, plus the fact that they have to pay attorney’s fees and court costs and payoff leans.  It really is important for the banks to understand this because according to the Pinellas Board, the distressed segment of the market accounts for 20% of all active listings, 58% of the pending contracts, and over 37% of the sold properties at the latest count in April.

I have heard on more than one occasion from Realtors about how they have gotten the banks offers for substantially higher amounts than they actually sold for at auction.  What’s funny is that even when you provide the stats to the banks they shun the importance of taking a really good look at the first offer and providing a reasonable counter to the buyer.  It’s bad enough that the buyer has to wait up to three months, while being bound to the contract, not knowing if they are going to miss out on all the other good buys, just to find out that the bank thinks they can get more money for the property.

So I guess I’m still looking for the explanation of why it’s so difficult to get short sales done.  You would think with the statistics the way they are, that the process would be sped up a bit and that the Loss Mitigation’s Departments would be a little more helpful to get these of their books, but clearly that is not the case.  Clearly we will continue to battle it out with the banks, providing them with indisputable evidence that our market continues to decline, all the while questioning how these companies made any money in the first place.  Lets hope that change is on it’s way!

Short Sale Bureaucracy

It looks like there might finally be an end in sight with respect to how short sales are handled.  I’m not exactly sure if I like the idea of government intervention, but in light of the current situation it might be what is needed to help get some of the millions of pre-foreclosure properties off the market in a timely manner and for fair market value.

If this program is anything like the Making Home Affordable initiative, then only six people in the country will qualify and you will not be one of them.  If you think you might need to modify your loan, you can find out if you are eligible by going to the Making Home Affordable webpage.

The particulars of the administrations plan are outlined below.  Keep your fingers crossed that this will unkink the chain and not add more knots to it.  I hope to have positive stories to report and not the usual short sale horror stories.

Obama Administration Announces Financial Incentives and Uniform Process for Short Sales

National Association of REALTORS® Government Affairs Division 500 New Jersey Avenue, NW, Washington DC, 20001 REALTOR® is a registered collective membership mark which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS® and subscribe to its strict Code of Ethics

Responding to the call of the National Association of REALTORS®, on May 14, 2009, the Obama Administration announced incentives and uniform procedures for short sales under its new Foreclosure Alternatives Program (FAP). For borrowers who do not qualify to have their loans modified on a permanent basis under the Making Home Affordable Loan Modification Program, the servicer may consider a short sale or, if that is not successful, a deed-in-lieu of foreclosure.

Borrowers (Homeowners). Borrowers/homeowners qualify under the FAP if they meet minimum eligibility requirements for the Home Affordable Modification program but don’t qualify for a modification or do not successfully complete the three month trial period. Before proceeding with a foreclosure, servicers must determine if a short sale is appropriate.

Incentives. Incentives include: (1) $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure; (2) $1,500 for borrowers/homeowners to help with relocation expenses; and (3) up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).

Standardized Documents. The program will include streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter. The goal is to minimize complexity and increase use of the short sale option.

Property Valuation by Appraisal or BPO. Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements. The price may be determined based on an appraisal or one or more broker price opinions (BPOs), issued no more than 120 days before the date of the short sale agreement.

Timeline. In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions. Property must be listed with a licensed real estate professional with experience in the neighborhood. No foreclosure may take place during the marketing period (at least 90 days) specified in the Short Sale Agreement.

Commissions. The Short Sale Agreement must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received.

No Borrower Fees. Servicers may not charge fees to borrowers/homeowners for participating in the FAP.

Program Expiration. The program is in effect through 2012.

DIL Option. Servicers have the option to require the borrower/homeowner to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale Agreement (plus any extensions).

Back to the BPO

I am seeing a lot of talk about how it is unethical for investors who are purchasing Short Sale properties to try and “sway” the value of the BPO with the banks.  I have my own opinions on this, but recently read a comment on the web, in response to an article written on the subject that really sums it up.

It is important to note on this forum that it is NOT unethical or illegal for an investor to manage a BPO price. If you identify a single property and send out 10 of the top appraisers in the area, all 10 of them would price the property at 10 different amounts, and justify their value based on their own reasoning. None of them would appraise it the same, and the value would vary greatly. Now picture this, for the most part, lenders don’t want to pay an appraiser to go out and do an appraisal, instead they try to save a buck and send out a realtor to give their opinion of value. The key word here is “Opinion”.  And just as with licensed appraisers, you can send 10 agents out to a property for a BPO value and all 10 would come up with varying price ranges, along with justification as to why they feel their price is right. In addition to this, many of these realtors are hungry and will over evaluate the property to impress the lender, in the hopes that the lender will give them the listing after the bank takes it back at a foreclosure sale. So based on the real truth that both appraisers and Realtor all have a different opinion of value for every property, it only makes sense for any business person (including investors) to manage this process. Many of the naysayers that have been writing make it appear that an investor can show up at a house to meet the BPO agent, and whisper sweet nothings in their ear so that they will give a low value on the property. The truth is that the only way an investor can justify a low value, is because a house down the street was sold as an REO (after a foreclosure) for cheap! These lower sold comps are out there and can indeed prove a case for a lower value. If there are several of these, it makes a stronger case. But the point is that there are properties close by with lower values, as well as some properties that sold conventionally for a bit more. If you are putting money up on an investment, you want the best deal. Hence verifying with the BPO agent that they are aware of the lower sold comps and to take them into consideration. Part two of an investment is to obtain the greatest return. Hence supporting a sales price with the higher values that were sold conventionally. There is nothing illegal or unethical about that folks. In fact, the owner occupant who is buying the house is doing so at a significantly lower price than other current homes for sale in the same neighborhood.

There you have it, someone with some common sense who gets it.  If you are the writer of this article, I thank you for putting it in a way that everyone can understand.