Home : Blogs : Michael Fair : Michael 's Blog

Please Don't Banish Me for My Heresy

It appears to me that a large percentage of the blog postings dealing with the challenges of the short sale, criticize the lender for being slow and sometimes almost unwilling to cooperate with the homeowner requesting a short sale. I have an uneasy feeling that there is something inherently wrong with this picture.

Before I go any further, there are several points I want to make clear:

I am not defending the banking industry and their response to short sales
I empathize and sympathize with the homeowner who is engulfed by a financial crisis not of his own making
I am not criticizing or judging anyone's business practices unless they are unethical and/or ileagal
I have no idea as to an equitable solution for those trapped in distressful financial situations

Maybe I'm wrong, but I sense a spirit of entitlement that I do not believe is justifiable.

Let me use myself as an example. John, a friend comes to me asks to borrow $10.00. He's a little short this month, but he promises me that he will repay me next month. On the basis of that promise I lend him the money.

Payday of the next month comes, but I don't hear from my friend. I have my own bills to pay, and the $10.00 would sure help! I call him at home, I leave messages, I e-mail, but no response. I just can't get in touch with him.

A few days later, I receive a call from a mutual friend, Bill. He tells me that John had some unexpected expenses and was laid off and was unable to repay the $10.00 he had promised to pay. Bill then tells me that if I am willing to accept $2.00 and forgive the debt, that John can pay that $2.00.

I tell Bill to tell John that that he promised to pay me $10.00 and that's what I expect. Bill tells me that it is really in my best interest to accept the $2.00. I can accept the $2.00 or take him to court. Hmmm? filing fees $25.00, time off work, I could face a$50.00 - $100.00 loss to take him to court. Maybe $2.00 is better than nothing, but I'll tell you one thing, I will never ever loan John money again and will tell all of my friends not to loan him money, because he does not keep his word and cannot be trusted.

Maybe I will take him to court. I might not get my money, but maybe I can write the $50.00 off on my taxes as a bad debt.

Granted, that is an extremely simplified example, but why in the world do John and Bill feel that I should have to accept less than the $10.00 I was promised. I would think that if asked, it would be up to me as to whether or not I accepted and under what terms I accepted without being accused of being unreasonable or uncooperative and bad mouthed for a determination not to agree.

Maybe I'm wrong, but if the lender did not in some way take advantage of the borrower, the terms were clearly disclosed and the borrower agreed to the terms, why should there be the expectation that the lender must and will take less than he is owed?

I find this attitude somewhat disturbing, but maybe that's because I'm from the old school that believes if you make a promise, you should keep it. That's integrity. If in a bind, it is certainly acceptable to discuss the problem with the other party and if the other party modifies the agreement to respond in gratitude, but there should be no expectation of a modification, after all, a promise is a promise.

Posted by Michael Fair on 08/11/2009 04:43 PM

Comments (42)

loan modification, short sale, uncoopertive lenders

42 Comments on Please Don't Banish Me for My Heresy

AUG

I don't usually blame the lender. I blame the listing agent for not getting the right contacts in the first place before listing the property so things can move smoother.

And I don't agree with the short sales as I pay all my bills on time, but it's a new way of life for many, and the short sale is reality... the banks need to live with it too.

When you put it in it's simpliest form it does sound bad. But remember business is business and you certainly have that option. What I don't like is when you can not say yes or no, it really can be that simple for me.

AUG

Charles, I agreee with you. What disturbs me is that many homeowner's and their agents appear to view a short sale option as a right and not a privilege. When the request is made, it is a business decision of the lender whether or not to grant it.

It certainly would simplify things and let the parties know where they stand, if the lender did give a timely yes or no and then acted on that decision in a timely fashion.

Mike

It is a privilege. The bank can say yes or no...thst is their right. If they can do it faster and everyone can move on. I think agents complaints may be really centered around the pprocess takes long. Some markets there is no other types of sales and trying to do volume is difficult with the process.

Good, clear post. BTW, it's "hearsay", not "heresay".

Actually it's heresy.

But I really enjoyed this post and yes, your simplication of the situation really drills it home. Congrats on the newsletter feature!

@ Tim: I was going to correct Michael's headline, but I see you have already tried. But... I think your "correction" is incorrect... LOL. I think he may have meant the word "heresy." As is "going against the accepted teaching." But, then again, we both may be wrong, and he may have meant a third meaning. Michael... you be the referee. Which one did you mean ?

Thanks for the corrections, so much for spell check. I did mean heresy as I suspect I may be going a different direction than many. Although hearsay works as I heard and then said and hearsay also, because I am commenting on those things I hear people say that disturb me.

Mike

After working over 50 short sales, trust me, I have no sympathy for the banks. Sure, the homeowner is in default -- but a short sale, although is a loss to the bank, is a lesser evil than a foreclosure as the foreclosure affects the bank's liquidity. When a bank refuses to assist a homeowner in hardship by modifying the loan because it's 'their policy', then drags on the acceptance of the short sale for 4-6 more months while not earning 1 penny, it's difficult to sympathize. Let's face it, little of the mortgage payment goes toward principal anyway.

Example, my homeowner was denied a loan modification (come to find out, the bank's policy is to deny them all). Bank tells the homeowner that her only choices are; foreclosure, deed in lieu of foreclosure, or a short sale -- and urged the short sale. Homeowner competes all the documents requested, agent sells the property 22 times, but bank can't 'get to the file'. I know you've all experienced this.

Sure, the bank is owed the money -- but I'm short of sympathy for the multi-billion dollar conglomerates who are refusing to assists homeowners in hardship.

Mike, very good comments. I have negotiated a great deal of short sales as well and mortgage modifications and I can tell you it is not whether the lender says yes or no but how they do it. We all know that it makes the most sense to modify a mortgage but let's be reasonable. If you set up a modification that is in default with terms that are sure to cause another default then please don't waste anybodys time! Also, the negotiators should have to follow some rules and not just decide based upon their feeling that day. For instance, you can't have a verbal deal and change it the next day! Especially when the lenders will not usually give you anything to take to the seller in writing. I think if you are open to talking well then simply talk openly!!! Thanks, Paul

it is a business decision of the lender whether or not to grant it.

"I'm short of sympathy for the multi-billion dollar conglomerates who are refusing to assists homeowners in hardship. by Diane"

Banks are businesses not charities - they need to operate in their own best interest and perhaps speeding up the short sale process in lieu of a foreclosure will become the norm.

Owning a home often requires a significant monthly payment to be made. In this current economy many homeowners are being faced with hardship situations were they have insufficient income to pay all the bills. A homeowner that strives to work with the bank by modifying the contract seems the ideal situation but banks seem very hesitant to do this. This leaves only a short sale or foreclosure in many cases.

Rather than place blame on any party it seems to me working together amicably makes the most sense. If I was owed $10 today, but they came back and said would I take $5 today and the rest tomorrow and I knew they had lost their job, I would probably take the loan modification. There's no blame here working together makes it work for everyone. Not working together creates bad consequences which often leads to the blaming other.

I don't blame the lender for not agreeing to a short sale but I don't like the way they are looked at so differently each time. Its also frustrating when I can push one through in days or weeks for an answer and the same bank takes months for the next one. My beef with the process is lack of consistency. The other side of it is for the lenders who hold the 2nd mortgage. I have been involved in several cases where they said no to taking a reduced amount knowing full well the next step was foreclosure. They must like foreclosures better since they pretty much were guaranteed that was the next step. The last one I was working they turned down because the offer wasn't as good as their five month old appriasal that we know was very outdated. So lenders set up a process and plan that is consistent and can be understood.

Mike,

We have a lot of short sales here in Las Vegas and I have a lot of experience with these transactions. I do not agree with your analogy. If there is a short sale, the bank already knows that they will lose money; they can either work now with the potential buyer, or eventually foreclose on the house and then several months later sell the same property for much, much less than offered by the previous potential buyer. In the meantime the property deteriorates, affecting the quality of the entire neighborhood. Personally, I was involved with one transaction where, due to asset manager neglect, we couldn't complete a short sale transaction for $724,000. The bank sold this property as an REO almost a year later for $520,000 (minus a year of carrying costs, of course.) This is just one example where the lack of response from the asset manager resulted in a loss to the lender that was much greater than it needed to be. And the asset managers get paid for this?

Anybody have a problem with this? I do.

Damian

Yes, a promise is a promise! and yes the banks are not obligated to negotiate with the homeowner for either a loan modification or short sale but whose money are they throwing away by not doing so?

Estimates are that the cost of foreclosure run between $35-$75k plus 1-2% per month and this doesn't include any decline in value that may happen over the 5-6 months it takes to foreclose. Accepting a loan modification or short sale (from someone who has a genuine hardship) is a sound financial decision for the bank. If their asset were "increasing" in value it might make sense to hold on, but the fact is values continue to decline across the country, so the longer they hold the property the more they're losing and it's OUR bailout money they're losing. The government pumped billions of our tax dollars into these companies and the more they lose on these properties the more we lose.

The banks for some reason seem to think that the size of the original loan determines the amount they will accept. We're way past that. If they want to get this moving they only need to consider two things: 1) Does the homeowner have a legitimate hardship that will make them UNABLE to make their payments? 2) What is the market value?

The main problems I see with this argument are as follows.

(1) If the lender is not willing to negotiate the short sale, then they need to simply tell everyone sorry. We won't take a penny less than what is owed. Instead they make you send them mountains of paperwork, then end up losing the paperwork so you have to send it again, then they take 3 months to make a decision all while they know that everyone is waiting and the buyer may grow impatient and disappear. Why can't they make a decision quickly like on a REO?

(2) The federal government has given banks billions of dollars in TARP and other bailout funds to help out consumers. However the banks are only allowing short sales or modifications on maybe 10-20% of the loans if even that much. Let's see they take taxpayer dollars designed to help consumers and then they keep the money and don't help consumers.

(3) This is 2009. Wake up banks. Short sales are a fact of this market. It's not like the banks are being surprised by the request for a short sale anymore. Heck half the people I know talk about short sales in casual conversation at a weekend barbeque.

The current short sale listing I have is either going to be a short sale or a foreclosure as my client lost her job and cannot get a loan modification. I don't agree with the analogy of lending 10 bucks between friends and getting a mortgage from a bank. If my friend lost their job, I wouldn't even expect the $10 back. If it were a higher amount (I probably wouldn't have made a large loan to a friend to begin with), then I would expect repayment at some point in time since I am not a big business that can take these kinds of losses as a tax write-off like the banks can.

We're hearing too many stories like the one Damian (#14) mentioned, where the bank lost a lot more by not taking a short sale and letting a property go into foreclosure. No, they do not have to take a short sale. But if a homeowner is squeezed financially dry because of job loss or other misfortune, or if the borrower doesn't mind taking the credit hit, then the bank only has a couple of other choices. As we cannot force the bank to do a short sale, they cannot force their borrowers to repay.

Heresy it is!

Does anyone understand why the banks "prefer" foreclosure to short sales? If they don't "prefer" foreclosures, why can't the short sale process go more quickly and smoothly?

Hi Michael, Interesting review of the effect of defaulting on a promise to pay. The banks need to get their arms around the whole process and streamline it - fast !

First of all, the comments I see here are doing basically what the National News Media is doing. You are lumping all the banks under one big umbrella that accepted the bail out money and cheated their shareholders and customers. Not all banks fit that scenario. Most are local banks that have strived to keep their noses clean and maintain their profit structures to their shareholders and services to their customers. They get penalized just like the rest of us for the unscrupolous acts by these other banks, and when their mortgage holders decide they just want a cheaper payment because they can get the same sq ft across the street now for a cheaper price they walk because their original lender did them a favor and let them in their first home with $0 down. I'm sorry but I agree with the author of this post, the people signed the mortgage papers making a promise to repay a loan it is not mandatory by the banks to lose and accept a short sale. On another note it takes HUD anywhere from 3 to 6 months to clear up title to a home as well so it is not just the banks that take a long time to get these types of sales done. It is just that HUD does it up front before they put the homes on the market.

I am interested in why loan modifications are not considered more often. The banks often would still get full payment, but on terms that consumers can handle.

Actually Kathleen L - Banks do appear to be charities...charity receivers!

When they get millions/billions of dollars from tax payers and then do not feel the need to themselves be anything other than stand-offish, smug and down right unprofessional- I loose sympathy for the banks.

I also have very limited sympathy for people who bought homes they could not afford and never planned to live in- but instead planned to flip in IMMEDIATELY after closing to make 10-50K. I know of one woman who bought 7 homes from the same builder. That builder is now out of business and the lender is being investigated for mortgage fraud. Their negative am. loans with prepayment penalties just kills me. I have seen people who are forced into short sale solely due to the prepayment penalty. These can run upwards of $15,000 or more.

I do have genuine concern for people who had job loss, illness, death etc. These people fell on hard times and really are in a geniune crisis! If they owed me $10.00 and had tried to contact me I would be in mind to help them.

Many homeowners do call but are told "sorry- we can not help you..click" that is the sound of the lender hanging up the phone.

The Kimberly Lang Team
Keller Williams Elite Realty
24851 S Tamiami Trail Suite 1
Bonita Springs, FL 34134
When you think of Real Estate, Call The Red Realtor
239-677-8773 Kimberly
239-677-8780 David
www.SWFloridaHomeSearch.com
www.KimberlyLang.net
239-949-8339 fax
239-949-8338 office

I just have a quick comment as well. As a lender, I am sure I will be called biased, but to each his own. I do agree that it can get aggravating for each scenario to be treated differently, but each borrower is different, it's going to happen. There are certain rules, but exceptions to each rule as I'm sure everyone would agree in their business.

Most importantly, however, I would like to add as I have in a similar post. We are all in this together. I've heard people talk bad about lenders, realtors, underwriters, lawyers, etc. I believe that if everyone works together in this economy we will get ahead. Everyone is so divided and against one another that it won't change. No one is trying to ruin others business or contract (with the exceptions I'm sure), but we need to help one another instead of blame. Then I hear, "I try but I don't get anything from it." My response is, so what! Live and work the best you can and as ethically as you can and, although it may not fully relieve worry, you can go home to whomever you go home to and rest assured you are doing good.

Will it happen? maybe. Will it happen on a large scale? Most likely not. What will each of us do, though, to help our clients? We go back to grade school, can one person make a difference?

I'll end on that thought. Sorry if I misspelled any word.

Chris Cohn Said:

Does anyone understand why the banks "prefer" foreclosure to short sales? If they don't "prefer" foreclosures, why can't the short sale process go more quickly and smoothly?

In the state of Florida the lender has 4 yearsto pursue a deficiency judgment on a loan that went through short sale and 10 years if it forecloses. The banks have a long time to knock on your door down the road and expect payment. Perhaps the banks want that time.

That is my opinion.

The banks are taking their time to make the shortsale decisions and this will cost them more money.

I am waiting 2 moth for a decision of BOA about a condo shortsale.In this period another condo was sold in same condition ,size and location for 20% Less than our offer.The appraisal will now come in a lot lower than our offer and the bank just lost another 20 %.

I do not know exactly how these banks work but assume that only a very few officers can make a decision and that banks limit / ration their losses to keep their quarterly results inline with expectation in order to keep Wallstreet happy and keep pushing out to inevitable.

Rob Arnold #16 ...Right on the MONEY ~ They are not loosing anything. They have time to play games.

Very nicely presented. Does make total sense. I would like to say that given your example, let's put a different perspective on it. Say you knew John was right on the border line of being able to pay you back the $10.00 he wants to borrow from you. Based on what you knew about him from his past borrowing history since there were other friends who had some trouble getting their money back from John but overall (just as a credit history report would show), he did pay them back, would you then still consider letting him borrow the $10.00?

Just like it was with free-flowing lenders promoting the ZERO-DOWN loans with NO INCOME/NO ASSET VERIFICATION needed and INTEREST-ONLY loans, lenders were like you...having to decide whether or not they should approve a borrower (John) for financial assistance and not verifying their ability to repay the loan. At the time John borrowed the $10.00, he was employed and making money, just as a borrower would state on a loan application. But had that remained true (he lost his job), you, the lender, may or may not have gotten your cash back nonetheless. However, in relation to that many lenders across the country, some of them who were mortgage brokers were left with the daunting task to decide if a "borderline" borrower (like John) could in fact afford a mortgage.

There were so many ways a borrower could qualify that it was outrageous. I mean, many lenders had programs within programs that when combined together, the loan worked even though the borrowers had left themselves with only $100.00 each month after all of their expenses were covered. Many of these combined loan programs also came at a hefty price through either a higher interest rate or an increase in points. There were even loan programs for those with horrible credit scores. The only detriment to that was a much higher interest rate and cost. Loan officers would sell those loan programs by telling them they could refinance their high interest rate loans at a later date when their credit scores got better, get a lower rate and pull out the equity to help pay down their debts which in turn should increase their credit scores but not explain the limitations and restrictions to a refinance process. This gave many homeowners false hope that it was as easy as it sounded but when the market started to decline in home values, many of these borrowers couldn't refinance because the loan officer failed to state that they'll only refinance up to 80% of your home's value less your current mortgage balance. Some will only refinance up to 70% of the homes value.

Do I agree that a lender undergoing a short sale should be willing to accept a less than owed amount despite a "promise to pay" agreement? Given the economy and unemployment rate today along with the financial hardships many are going through I would say sure. Why? Because millions of homeowner's to this day are still trying to pay for their mortgages on time in order to maintain their high credit scores and not show a default on their credit history despite paying for a home they won't gain any equity on anytime soon. They can't refinance because the market is upside down and can't sell it because their home is worth far less than what they owe on it. It's just how the housing market is right now. Drastic times call for drastic measures and if selling a home via a short sale is the only viable option for a family to rid themselves of a major financial burden in order to care, protect, educate and feed their families then so be it. It should be done.

Think about this. Lenders pay a small amount of interest on money we deposit into their banks (unless yours pays dividends). They in turn use "OUR" money in order to generate more capital which comes in the form of loans made to "US" that they charge interest on. So in essence, we're borrowing our own money and in turn paying interest to the bank that is far greater than the interest we're actually earning on the cash we have in the bank. Taking advantage of the borrower/consumer? It sure seems so. Is that the nature of how banks work? Sure...but so is the nature of the housing market now. Only difference is the banks get bail-out cash and distressed homeowner's basically remain in distress.

Michael, you definitely have put a different spin on the whole short sales market. As I read your post I wondered how some of the short sale "experts" in my area approached their customers. It does make one wonder.

The SOLE reason that real estate agents are pissed off at the way banks handle short sales is they want to get PAID--sooner rather than later. That's the ONLY reason. If GETTING PAID wasn't the reason for their angst, the homeowner would be happy to stay in his home payment free while the process took as long as it takes.

A Consumer (#30), I was hired by my seller to sell her home as a short sale. I do not expect to get paid as I do not know if this will make it to closing. If it does, it is simply a bonus. Yet I am trying to get the offer accepted, signed, sealed and delivered (and we were told our offer is exactly what the BPO stated value at).

Now we're waiting for the bank to sign the contract and have been waiting for more than 2 weeks since we were told it was going to be accepted (this has taken a total of 2 months of calling, faxing, refaxing and being tossed around like a beach ball).

I have gone through a roller-coaster of emotions with my seller. We even tried to sell it without having to do the short sale but no one was biting. The listing has been on the market since March '09.

With that said, I guess you do your job and don't expect to get paid, right? But when we are hired to complete a specific sale, we shouldn't expect reimbursement according to you. I've been working hard on this listing for 5 months. If I get paid at all it will not be a quick paycheck.

I agree with your blog, and I must say, I find it interesting that so many of the commentors want to tell banks/lenders how to run the bank's/lender's business. To take a short sale or to foreclose is the bank's/lender's decision not the agent's or seller's (since the bank/lender has a binding contract in effect that has only been breached by the other party). Besides this, there's plenty of blame to go around for all parties involved. Further, it's not as if the bank/lender derives any great benefit from either option presented.

I think many agents and their clients need to adopt the practice of knowing when to cut their losses and move on (just like the banks/lenders already do).

I like your simplified explanation of the short sale and it drilled it home. You also used the word 'integrity' - I'm afraid that there's not much of it around anymore.

Michael:

I couldn't agree with you more. I also hate the idea of screwing your banker because you your house depreciated even though you can afford to pay it. Let's see how the entitled masses would feel about having to pay more to the bank to cover appreciation. If it works in one direction, it should be enforced in the other.

However let me say this, by being rigid and inflexible, the banks have created this cottage industry (debt services industry) out of their own customer disservice policies. If banks would have worked with clients to maybe take a cheaper rate or extended the total number of payments then we wouldn't be seeing this trend. Instead, a bank tells a client that they will not work on a payment plan with them while they are current. What they are literally telling the client is stop paying our loan.

Banks with stupid, self-defeating policies, financial packages for the non-affording, and little to no downpayment, they made their own mess and are continuing to make more of it. Luckily they have the government to help, which I consider to be a co-conspirator in the whole mess anyway.

Where did integrity go? Bring back debter's prison.

The banks deserve everything they get. Have you forgotten how much return they get on every30 year mortgage they write over the life of a loan? They have gone out of their way over the past 4-year to write as creative a loan as possible to entice anybody with a pulse to go for the American dream, as they assumed property prices would continue to increase & they would get their second pound of flesh at the end of the day through refinancing. Then they packaged off the faulty loans in neat wrapping paper & sold them to other fat cats in other institutions hoping to make another quick book on another minimum wage earner vying for the same dream. The only people who are getting hurt in this entire debacle are the weak & low-income earners who want a better life for their kids than they have had. Banks don't "loose" money they just earn less. It is the "little guy" syndrome all over again. They were sold nightmares that were packaged as dreams & nobody explained that they would have to work 2 & 3 jobs just to pay the interest on these loans. They get caught for closing fees, title searches, and attorney fees, recording fees, drive by appraisals, first loans, and second loans & whatever they want to throw in there. Everybody else gets paid but they end up paying the piper. I have been to closing that I have left wanting to throw up & have seen buyers with their heads spinning. Most of them had no idea what was going on. Just sign, sign, sign & pay, pay, pay. - In "five years you will be a millionaire." Now the banks are winning again. They are getting bailed out & don't even get a slap on the wrist. They are being rewarded for their greed by getting taxpayer money to fund bonuses or "incentive plans" to continue to be creative in taking advantage wherever possible of the next poor slob being sold the same nightmare down the road.

Whatever happened to a conscience or empathy for those less fortunate? Whatever happened to "giving back" to others less fortunate? I have arranged "short sales" for people who ended up homeless after the sale & were given 1 hour to vacate the premises. I don't know about anybody else but I certainly have had many sleepless nights wondering how they survived as there is no government service that will help these people & unfortunately I am not wealthy enough to take care of all the ones that touched my life. Banks don't care about them! They are just another statistic on the road to making another million dollars bonus at the end of the year.

It is easy for those on high pedestals to pontificate & say that a dollar owed is a dollar due but it should not include giving them your first born!

I somewhat agree with your anology, but there are a few things missing:

Do you refuse to answer or return there phone calls?
Do you continue to loose the fax with the request they send you?
Do tell them one thing one day and the other thing the next?
Do you have them jump through a bunch of hoops then say no?
Did you friends Uncle Sam just bail you out with $1,000.00, and yet your refuse to help him with $8.00?

Bill: You're absolutely correct! I actually tried calling BOA myself and finding out if I could refinance my own mortgage at get the lower rate when it was down in the 4% range. After they reviewed their own database of home valuations for my particular area and the comps, they came up with a value that was about $20,000 LESS than what i currently owe them. Despite the fact that I know the comps in my area is spot on with where my mortgage is now. So, I'm not a prime candidate to refinance and they provided me with a phone number to call and discuss the modification alternatives.

As you said, it's as though they're forcing borrower's to default on their loans because the refinance options are not as viable as its being presented out in the marketplace. And, as I mentioned, most lenders are very strict about the percentage of loan-to-value they'll work with as many have come down to as much 70% LTV which puts mostly everyone out of the refinance option.

I have a client who has and continues to pay for his mortgage on time each and every month, and has done so since 2007. But, he can't refinance because the value of his home is less than his mortgage. And, there are no loan programs for people who are paying their mortgages on time to this day. I wonder why the US Government can't come up with a plan to help those who are current on their mortgage and help them avoid the thought of skipping payments just so they can have their loan modified since they can't do so under conventional means which in turn can help alleviate additional distressed properties from hitting the market. They're so focused on those that are already in the short sale/foreclosure process that as they help those in that category, the good one's eventually start trickling down into the distressed funnel.

If you were bleeding profusely from your wrists, would you simply put your hand over the wound to try and stop it from gushing or would you also place a tourniquet on the upper part of the arm to help stop the blood from flowing down to the wound?

Short sales and foreclosures will continue to rise unless something is done to prevent those in good mortgage standings from going under. In essence, we need to put a tourniquet on the good loans so they won't flow down into the area where the damage is prominent.

AUG

I noticed a couple of things that weren't mentioned in Michael's original scenario, which would have made it more comparable to today's real-life situation:

There was no mention of the interest John must have been paying to Michael for the $10.00 loan.
There was no mention of bailout/TARP money that Michael may have received from the government.

Borrowers have every right to ask for a loan modification or short sale; lenders have every right to accept or deny them.

In principle Michael has a point with the simplified example. However:

- this is business and the lenders took an excessive risk and knew it. They are also responsible for their losses for not being prudent.

- because this is business, everything is negotiable.

- if the lenders are receiving billions in bailout money, then they should be more cooperative with short sales. The problem is that we demand no accountability from our elected officials. So they are giving away the money. What do they care, they have the best healthcare, stable income, great retirement, and their family members can work as lobbyists for big corp....

I'm actually a little taken aback that anyone has disagreed with your basic premise, Michael.

If you make a promise, you keep it. Period.

The mortgagor signed a contract saying they would pay back the money--they are obligated to pay it back. What contract obligates the bank to do a short sale?

That's not to say they shouldn't do a short sale or that they don't have some moral or ethical obligation to do it. That's not saying it is or isn't in their best interest financially. These are separate arguments.

But it is a FACT beyond dispute that the banks have no legal obligation to do a short sale while the home owner DOES have a legal obligation to pay back the money.

Well done, Mike. I'm glad to see many of us still believe in integrity and personal responsibility.

AUG

I understand it's the lender's right to deny the short sale, but don't understand the decision to do so when they are going to then list it for less than the short sale price.

When you break it down to it's basic parts, it doesn't sound good, but it is reality, and business decisions need to be made in a timely manner.

AUG

Here we go again! The borrower is supposed to have integrity and morals about this situation, but what about the lender? I wrote a post on this subject awhile back. My main answer is there.

Just because a borrower is attempting a short sale doesn't automatically mean that they are attempting to get out of a debt. Most are trying to do their best to pay what they can and a short sale is simply the best option to get the lender the most money possible. Shame on lenders who say that they will do short sales and then take 4-6 months to approve/deny them. In almost all cases, the original buyer has already walked from the deal.

So my question for you in that case, should the borrower then be responsible for the amount of the short sale since they had a ready, willing, and able buyer 4 months ago, but because of the banks slow-moving process, the buyer has left. Now, the bank tells the borrower, "sorry, but you still owe us. Guess we're just going to foreclose." Is that your idea of integrity?

Even if a short sale is completed, it may not relieve the borrower of the original debt. With deficiency judgements, personal loans, etc, being put in place for the remainder of the balance. Oh, and let's not forget the hit to the borrower's credit. Btw, the majority of people that I've helped in this situation usually are stressed completely out by it, can't sleep, can't eat, are generally extremely upset by the whole ordeal. If they didn't have integrity, then it probably wouldn't bother them, would it?

This whole mess is a lot more complicated than a $10 loan to a friend, both looking at it from an individual (case by case) standpoint and as the industry in general. There are lots of factors that come into play: the borrower's ability to pay, the bank's intent to actually make money, Gov't bailout funds, state laws, etc, etc.

You say that agents and borrowers attempting short sales seem to act like their entitled to them. That's not the case at all. What they are entitled to is a FAST ANSWER. If the lender is willing to accept (or as many have said, recommended to the borrower to do a short-sale), then the bank should also be willing to respond to a short sale offer in a reasonable time-frame. Reasonable does not mean 4 months from now.

Finally, I have to say that if you've not be personally hit with the situation, personally involved in helping with it, or have someone close to you going through this, I think it would be next to impossible for you to actually judge anybody's integrity facing it.

Just my thoughts.

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?