Real Estate Blog - SHOCK! Lenders make more money on foreclosures than short sales!?

Home : Blogs : Pacita Dimacali - e-PRO, SRES, CDPE, MBA East Bay, North CA real estate : Pacita's Quick Bytes of Real Estate

SHOCK! Lenders make more money on foreclosures than short sales!?

Lenders make more money on foreclosures than from short sales or loan modifications. That's what Steve Harney conveyed in a seminar. He caused an earthquake in San Francisco

When loan modifications are turned down, the next thing we attempt is a short sale. And we know that lenders turn over the short sale accounts to loan servicing companies who make our lives hell getting short sales approved. As such, we should know that these loan servicing companies make MORE money by letting the properties foreclose than to approve the short sales OR the loan modification.

RUMBLE...GRUMBLE...CRIES OF DISMAY!

Did he just confirm what we were afraid of?

So I researched this topic and found a few articles worth reviewing. How did I miss these? Was I under a rock in a desert?

CONSUMERLAW.ORG REPORt ON "Why Servicers Foreclose when They Should Modify And Other Puzzles of Servicer Behavior"

DAILY PRESS headline. Oct, 30 2009. Do Mortgage Lenders Make More Money when a Loan Goes iInto Foreclosure?

HUFFINGTON POST. Oct. 21, 2009, Foreclosures Are More Profitable Than Loan Modifications, According To New Report

Washington Post. July 28, 2009. Foreclosures Are Often In Lenders' Best Interest. Numbers Work Against Government Efforts to Help Homeowners.

ThinkGlink. October 21, 2009. Loan Modification Help: Why Lenders Are Slow To Provide Loan Modifications

Dayton Daily News. Oct. 17, 2009. Drop in foreclosures called "very scary". Lender's actions show they think properties are not worth pursuing.

Mortgage101.com. October 23, 2009. Mortgage Companies Make More on Foreclosures Than They Do Modifying Existing Loans. (This blog refers to the news article on Huffington Post)

FLASHBACK: Huffington Post, June 8, 2009. Short Sales: Banks Blocking Way Out of Foreclosure Crisis

FLASHBACK: Huffington Post, May 15, 2009. Short Sales Stories. Lenders tend to stick with more familiar foreclosure process, losing money for everybody.

UPDATE: Huffington Post, November 2, 2009. Homeowners: "Hey Congress, Get Off Your A**"

KNOCKING OURSELVES OUT TRYING TO HELP

So are we engaging in self-flagellation helping our distressed clients with their short sales and loan modification?

Are lenders really more likely to foreclose?

Are the short sale servicing companies really trying to help?

Or are they stalling and withholding their help because they know their leaders would rather have the property burn into foreclosure?

Is there no resolution in signt?

There oughta be a law!

Posted by Pacita Dimacali - e-PRO, SRES, CDPE, MBA East Bay, North CA real estate on 11/07/2009 03:28 PM

Comments (196)

Lenders Make More Money on Foreclosures in the ActiveRain Channel

lenders make more money with foreclosures than short sales or loan modification, why short sales arent approved, short sales, foreclosures

Originally posted at: Pacita's Quick Bytes of Real Estate: SHOCK! Lenders make more money on foreclosures than short sales!?

This post has been included in California Information
Post is included in group: "Whacked"!!!
Post is included in group: Short Sale Support Group
Post is included in group: Diary of a Realtor
Post is included in group: Dedicated Bloggers
Post is included in group: Club Chaos

196 Comments on SHOCK! Lenders make more money on foreclosures than short sales!?

NOV

This is what I have been saying for the past 1.5 years! They are making money. They receive the monies from Fannie or Freddie, then they go back and buy the properties at auction for a smidgen of what the loan is and turn around and sell it. Now, that won't keep them from going after the homeowner down the road should they decide to purchase in 5 to 6 years for "said deficiency".

Americans are paying for this! Bottom is with the new rash of pre-forclosures that the banks just released, we need to go door knocking, hard and consistently to stop the foreclosures.

Great post. I'm glad more is being said about this and we are not sitting there taking it.

Thank you for this educational post and all the links!

A CSR at Countrywide confirmed this three years ago. She came right out and said exactly what you wrote. The homeowner was shocked.

All this time I have been saying that banks make more money at the short sale status than foreclosure...what about clients who have been patiently waiting to get their homes sold as short sales?! You are right Pacita, there should be a law!

Pacita...

I don't know. We seem to have an interesting turn of events in our area. The Lenders are now pushing us to get them closed. We are thinking they're trying to wrap up the short sales by the end of the year.

Rather than form an opinion, this early on, I'm going to wait and see how all of this unfolds. It's unfolding rather quickly. With that in mind, I kinda wanna get that facts. I just love my facts :)

TLW...ROAR!

Pacita - What a terrible thought! I have to admit that it would explain a lot, though.

Lenders are in the business of making money and if they figure out a way to make their money back then they will. I just feel bad for the homeowners.

Yup ... I blogged about this "phenom" a little while ago. They (i.e., the banks) get: the house, the write off, and TARP funds (to stay "afloat" or float their losses, either way same side of that proverbial coin). A perfect Trifecta, IMHO.

I hope this isn't true. I'll take a look at the links you kindly provided.

I'm seeing some lenders pushing to close the short sales.

It is an interesting debate, from both sides. I think that it is not as black and white as everyone seems to think it is. I know there are homes that make more sense for the lender to take back and there are some homes that make more sense to short sell or loan mod. Each property is going to be different and there are many many factors that go into this decision.

i am not supporting either side as the right move can be different for each home.

The whole short sale scene is a big scam being foisted off on innocent, ignorant and desperate sellers. The only people making out OK on short sales are the Realtors who do them. They at least collect a commission, which is really all that they are after.The pathetic argument that they are helping out the seller's just doesn't hold any water. The Seller is screwed no matter what and his/her credit is trashed just about as bad by the short sale as it is by a foreclosure.

So, why are so many "helpful" Realtors out there pushing short sale help - TO MAKE MONEY! They are taking advantage of people who are ina very vulnerable mental state with their "I can help you" pitch. Bull! They're just trying to help themselves to whatever they can get out of the misfortunes of someone else. It is no surprise that the lenders also have their own agenda on the whole short sale vs. foreclosure question. Maybe it is no surprise that some other, fast thinking entrepreneur also created a course to certify short sale specialists. He should have called it "Sleaz-ball U". Maybe the graduates should put CSBS on their cards - Certified Sleaze Ball Specialist.

Short Sales help the bank, the buyer, and the agent. Yes, agents make commissions (paid by the bank) off of short sales. What is better a commission on an REO or a Short Sale? In many cases, if the short sale is not done, the home will end up in foreclosure and severely damage the sellers credit.

Doctors help save lives and get paid - does this make them sleaze balls for capitalizing on sick people. Doctors are well paid? We all have to make a living but If we can help some one out off a bad situation while making a living, it is a very good thing. I completely disagree with the comment above. I enjoy doing short sales and I enjoy helping in the community and in my church. I often turn my clients away from short sales and suggest that they work out loan modifications because it is best for them. I do not get paid but it is the right thing to do. The comment above only applies to a very small portion of short sale agents. It is surprising that someone would make a comment like this.

Clayton Bonjean, Broker, MBA, CDPE, Short Sale Superstar

Barb --- I'm ever the optimist, and perhaps turn a blind eye to insidious practices.

Dana --- you're welcome

Angelia --- it's a shock to my system

Wanda --- when we sell a house to a clients who are qualified to own the house, and we also hope they can KEEP their house, and try to find ways for them out of distress

TLW --- it's a maelstrom, isn't it? Im gonna have to read that report CONSUMERLAW.ORG REPORt ON "Why Servicers Foreclose when They Should Modify And Other Puzzles of Servicer Behavior"

Jason --- got a lump in my throat thinking and trying to make things work for our distressed ciients

Tim -- at what point do lenders become shysters and thieves?

Carla --- you have insight

Christine --- I've had several successful short sales, and my clients, buyers and sellers alike, are every so happy and thankful when that happens

James --- people who are drowning will appreciate other folks who are trying to save them

Norm --- wow! You are quite the cynic. Don't you believe in helping your clients sell or buy a house for a fee? Do you do this for free?

Clayton --- I will hang on to the thought that we are here to help folks who are in distress. We're not in it just for the money.

Norm, Realtors would rather list and sell foreclosures over short sales, so your statement that Realtors are doing short sales for money doesn't hold water. Take a short sale listing, have to hold the sellers hand though a very difficult time in their life, do more work than any other transaction and wait 6 to 9 months to MAYBE get paid, if it gets approved, at a reduced rate or list a foreclosure and have it sold and closed in 30 to 45 days. The time it takes to get a short sale listing from the start to a closed deal, the listing agent is make less than minimum wage for all the hours they have to put in.

Great post, I always believed that there was some incentive for the investor to foreclose and that there was some money coming from the government to cover their losses, I just never did the research to confirm.

We have been told it makes more sense for a lender to SS rather than forelcose due to holding cost, maintenance, attorney fees etc. I don't think it's true for all mortgage loans but now makes a lot more sense on the resistance we get with some of these short sales.

Thanks for the post...

I am not the least bit surprised actually. THe biggest offender of not wanting to do short sales IMHO is B of A. THey are a challenge to say the least.

What I am surprised about is Norm's comments about REALTORS® who do short sales just being out to make money. Is that why you do it Norm? I see on your profile that you have an entire website dedicated to the short sale process, with, SURPRISE, a click through for people to meet with you should they decide to short sale. Care to elaborate on this??? People in glass houses you know.....

Pacita, Congratulations on the feature for an informational, well-written post! I will continue to check in to see other contributions. I want to know more!

While this all may seem true, it really can't be -- at least not in most cases. If it were true, then there would be no short sales. Ever.

Pacita - I blogged abou this last week. I was stunned when a lender outright told me they did not want to short sale the homes, they preferred to foreclosed, and explained to me how it was financially better for the bank. It's insane. There should be a law against it!

I think we need to be careful not to lump all lenders together. Also I JUST saw statistic that the real jobless rate ia 17.5% when you add in those that quit actively looking and those that had to go to part time. It is pretty hard to do a loan mod when you don't have a job or your income is cut in half or more.

Valorie --- I think most realtors do want to help, especially when the ones who are crying out are people they know. We would want people to extend help when it's WE who need it. Golden rule, right?

Carlos --- perhaps we should all write to our legislators and make them see the insanity of bailing out these banks only to have them do these to the consumers (and taxpayers)

Micki --- BofA is definitely the worst one to deal with, and they're a huge beneficiar of the bailout!

Wanda --- I'm sure this is just the tip of the iceberg

Aaron --- the concept of short sales may be the same, but the administration has definitely changed.

Line --- scary, isn't it?

Pacita- We just got a short sale approved where between the negotiator, us and our seller and buyer, we were able to get the investor who owned the note- $700 more than if he foreclosed by doing a short sale. Yes, this happens a lot. We have been fortunate as we have just lost our very first short sale because of the case that the servicer will make more money when they foreclose since 1995. We have been able to get all our short sales closed because we don't take the low ball offers. We get near market value for our short sale listings and that helps with the number analysis for the servicer.

There are other reasons that short sales get turned down, because of vague PAS agreements between the servicer and the note holder.

It goes much deeper than what we are discovering when you study the banking industry. George Washington and Thomas Jefferson and John Adams all said that banks will be the downfall of our country if we allow them the power the government has been giving them. When the FED is in bed with the banking industry it will only create more chaos and hurt all of us.

Now Fannie Mae is going to sign lease agreements with homeowners after they foreclose on them... thus the government becomes the landlord. People like sheep will happily go to the slaughter of their liberties and willingly agree to release their rights under our constitution, as the government continues with the biggest land grab of private property in our history. Katerina

Pacita- Also, the negotiators at the servicers tell us that it only costs $3500 from start to finish to foreclose here in Florida and they laugh at the cover letters that agents send in with their short sale files talking about how they are saving the lender money doing the short sale and quote unreal numbers to the cost of foreclosing. Katerina

It just need to be ab upfront transaction. If they make money that is fine. I do not like them making money from the tax payers and foreclosures in the same transactions. If you feel strongly we should not use these banks. I am not buying a GM car and you can guess the reason!

After the issues I have dealt with over the last few months it sure seems like they don't want to do short sales.

I think the bailout money has enabled some very destructive behaviors.

Pacita,

Well....that explains a lot....you are right...there should be a law!

Well, I am not surprised. Almost everybody is making money on this foreclosure crisis except.... homeowners/borrowers, agent are making a little and so the rest must be going somewhere. We know the banks are not hurting that much, so it stands to reason that the investors, wall street, and everyone else with a hand.... is making something more than the rest.

Pacita...

Very thought provoking. As far as agents making money ... we're all just trying to hang in there as we wait for BofA to give us an answer!

Yep, I got a bead on this last year and I think it makes a difference what part of the country you are in. As Katerina said in Florida it only costs $3500 to foreclose but in Illinois, that just starts the paperwork rolling thru court!

I wonder IF this is true in states that have a 6 month statute of redemption?

I'll have to read the links just my first thought. In Michigan the homeowner can redeem the house up to 6 months after the sheriffs sale. So the banks WILL NOT put them on the market for 6 months. They sit, empty, power off, basements flooded, mold grows.

I just don't get it...they lose about 40K up here on each foreclosure.

I have suspected this for awhile. Thanks for the links so I can get more information.

Pacita.. Your post is very interesting and eye opening to me. Thanks for doing all that research and reporting back to us.

This year, knock on wood, I've had lenders be far more agreeable to short sales than desiring to foreclose. In fact, I've received short sale approval on all my listings except for one, and that lone denial was because the seller finally got a job. But before the seller found a job, I had his short sale approved 3 times, and each time the buyer walked.

I think it depends on the lender, though. Wachovia told me it makes more money doing a short sale than it does on a foreclosure. That's probably why Wachovia has its act together regarding short sales.

But a rep from Bank of America told me it gets more money to do a foreclosure because it can tap government funds. And that doesn't surprise me at all.

Pacita this is excellent and timely info. Sure gives one pause when you think about it.

Norm, do you do REOs? Just wondering.

Seems like this is the case -- hard to know what goes on behind the scenes.

Hi Pacita,

Great Post. Makes you wonder. I've heard both theories from several asset managers. We'll find out eventually as it all plays out.

Hi Pacita,

It depends on which bank holds the paper. If the bank your dealing with is one of the 50 or so banks that have a "SHARED LOSS AGREEMENT" in place with the FDIC, it will be next to impossible to get a short sale to happen. (Bank of America, CitiMortgage, Wells Fargo, etc.). Basically, the "AGREEMENT" states that for any residential mortgage where the bank experiences a loss via a foreclosure, the FDIC will step in and cover anywhere from 80% - 95% of the loss. THE LOSS IS CALCULATED USING THE ORIGINAL LOAN BALANCE (even if the bank purchased the mortgage at 70% of the outstanding loan amount!). Pretty tough to run the numbers on a short sale when the government is subsidizing the banks' loss.

You got it! Dont be fooled! Bank wizards do NOTHING unless it is profitable. If a short sale will go for $400k and yet they deny all offers only to REO it for $300k doesnt it obviously mean that the loss is more beneficial to them on paper then showing a profit? They do owe tarp money to unlce Sam so in terms of showing losses this is the likely answer. Nothing else makes sense. $100k variance multiplied by how many bad assetts? The math speaks loudly!!

Norm, You obviously have some issues with short sales. I can tell you right now, the majority of our clients were released from further obligation and when I went back to ask about their fico scores after 6 months , most dropped about a 100 pts, some did have credit cards cancelled or limits dropped but for the most part they came out fairly clean in lieu of doing a foreclosure or bankruptcy.

It really depends individually what their scenario is and whom the lenders are and what legal counsel advises the homeowners to do.

ALL of our clients are encouraged to seek legal counsel before doing a short sale as well as have an attorney review their short sale approval letter prior to proceeding.

One short sale I knew up front was a mistake but the sellers wanted me to proceed and list. Once we had an offer I begged them one more time to see an attorney b4 proceeding and I was right. They either needed to foreclose or do loan mod. I had already set the stage with the lender that my clients would prefer to keep the home and once my client went back to the bank with the info from her attorney the bank ended up doing a loan modification and allowed them to keep their home.

Pacita

Great information and thanks for the links!

It is possible to get short sales closed. Yes sometimes banks are not fair in the process.

Nestor and Katerina --I have 4 short sales in escrow, and two of them are closing next week, thank goodness. The other two are iffy: one is with Bank of America (!), and the other has two loans. Both have received very good offers at fair market value, so they can't be considered low ball offers.

Eric --- I know it depends on the bank. But we do need to know WHICH banks. Last year, I tried to do a short sale whose bank is Downey Savings who, as it turned out, sold the note to Deutsche Bank who would not approve any short sales. So I guess if we knew who actually holds the note, we can save ourselve much aggravation.

Mark --- you may be right. The banks have their bailout, so maybe that's why they don't care

Lori --- short sales can be extremely frustrating during the limbo period, and so satisfying when they close

Rosemary -- it is heart-breaking to see our distressed homeowners at the point of desperation. I've had sellers try to do loan modification and get rejected. They're trying for short sales, but are frustrated at the delays.

Richard - BoA is giving everyone a fit!

Lyn --- it also depends on which bank. If I see Downey Savings anywhere on the loan, and I find out the notes have been sold to an investor (like Deutsche Bank) that's a kiss of death.

Missy -- it is bafflng, isn't it?

Wayne --- I'm sure we'll get more info. The report is intriguing. We probalby should publish the heck out of that and get the word out, especially to our legislators who were hoping the bank bailout was going to help the consumer. NOT!

Sybil -- strange that the findings on the report didn't get more coverage. I'm going to keep tabs on Huffington's site. I didn't find this anywere else, not even Drudge Report (HA!)

Elizabeth -- I've also found Wachovia to be the best to deal with, and Bank of America the worst

Dan --- glad I helped ring the bell (alarm?) a little louder via Activerain.

Bob and Carolin --- this surely doesn't make me have any confidence in the short sale negotiators. If they're not going to approvethe short sale, why go through the exercise in futility

Rudy --- I certainly hope this is resolved soon. If not, let's sic our legislators on them!

Kent --- your last sentence is what bugs me the most about this scenario"...tough to run the numbers on a short sale when the government is subsidizing the banks' loss"

Terry - we have to keep a close eye on this story

Joey --- I agree. It doesn't make sense!

Roland --- although we do close short sales, the number of foreclosures still exceed short sales. And many of those foreclosed properties were initally offered as short sales.

The banks dont get any obama money if they do a short sale, they want the workouts.

Larry --- ouch, ouch, ouch!

In Arizona a lender can not make a profit over what the loan balance is if the home is foreclosed.If it is sold for more money they must return to the extra to the borrower, I wonder how many other states are the same.

Hi Pacita -- These articles you reference (I read half of them) refer to modifications, not short sales. What am I missing here?

I think there must be some truth in these reports, however, I have been blessed with almost all approvals, UNLESS FHA was involved...then we had some problems trying to help a family that had just moved into a new house without getting FHA permission or a family who needed to upsize but wasn't in financial straits.

Norm is completely off-base with his remarks. If helping people do short sales was just about the money, I would rather clean toilets. I would always get paid and no one's emotional well-being would be on the line 24/7.

Boy, I'm going to have to keep my ears open on this one. I've heard it costs a lot more for a foreclosure.

In my area of Temecula, CA the lenders have really started coming around when it comes to approving short sales. We have been getting most of our short sales approved in 30-45 days, which is light years faster than a year ago. Not sure how this is going to pan-out, but it will keep us all on our toes.

NOV

Pacita- If you have fair market offers on your short sales and your sellers are willing to pay promissory notes on the seconds, there should be no reason for BofA to say no to the short sale. We have had only one rejection out of hundreds of short sales. We carry 39 to 50 listings with 80% of those being short sales and at any given time we have 18 of those under contract going through the short sale process. Of course, we have had to go all the way to the top of the lenders' companies to get them approved. But even with PMI paying out and FDIC paying out in full, we still get the short sales approved. Maybe it is our geo location that makes the lenders not want to own a lot of foreclosed properties. We are also always on the listing side. Katerina

Richard --guess the other folks would have to comment on what it is in their respective states

Chris -- I've updated the post to include additional articles. Haven't you heard of owners whose loan modifications were rejected?Then they tried short sale, but it takes so frigging long, and the short sales aren't approved that they end up losing thei homes to foreclosure?

Dawn --- I tried to help a retired teacher do a short sale. When WAMU (second lien holder) refused to approve the short sale, taking their own sweet time (5 months!) to respond, only to reject the offer, I finally had to give it up and recommended that he speak to an attorney about foreclosure and bankruptcy. It was eventually foreclosed. Then it was listed at a LOWER price than what the previous buyer had offered, by $25K!

Nancy -- these news articles got me so enraged I am scourig the internet for other stories, Huffington Post is a great resource, especially since it invited homeowners to share their experience

James -- good for you. My brother had to sell his home as a short sale in Temecula for half of what he paid. Let's hope we get more short sales approved. Howevr, it seems that there are more foreclosures than short sales that actually close escrow.

Nestor and Katerina --- the buyers' offers on the short sales are all fair market value. One buyer even came up with $10K more to pay off the delinquent HOA fines/dues that BOA refused to pay. Regardless, BOA still took nearly 5 months to even respond!

Welcome to America. We forget that the bank never loses. Bottom line. Great post

Pacita,

Lots of great research here - I've often suspected as much which is why I got out of Short Sales over 2 years ago, now. It was very frustrating in the early dys to have a cash investore willing to buy a home only to have it foreclose and then come back on the market for $50K Less.

I know it is frustrating now too, and I am sure this explains a lot.

I'm going to go ahead and re-blog this for my readers...

John

No news here. For two years, I've been HARPING about the fact that it is often in the lender's best financial interest to foreclose. Do they tell that to the home owner when they advise them that the home owner must first ruin their credit by defaulting?? Of course, not. That too is in the lender's best interest.

Great post Pacita!

I know around here banks would rather the short sale but, they prefer a cash deal even though a buyer has stellar credit and a decent down payment. Looks like it's different in other parts of the country judging by what others are saying in their posts.

Also, when a bank let's a seller do a short sale, they sign an agreement stating that their bank WILL come after them for the balance which most times is negotiable. We had a lawyer come to our office a few weeks ago and he stated what I wrote.

As a former banker I seriously doubt any bank prefers to foreclose. It all boils down to an educated guess using a mathmatical model as to which option yields the most net to the bank. And by the way, at the foreclosure versus short sale decision point, the bank has already taken a huge loss on the property. Remember too that not amny banks got TARP funds. Most did not, so what was their governemental subsidy?

Thank you for the post. Now I have some information that supports what I've been saying all along...

Wow - many, many, many comments contributing to the hysteria. There oughta be a law, etc., etc. A bank, or any business, does what is in it's best interest whether it's a modification, short sale, deed in lieu, or a foreclosure. It's very easy to HARP (pun intended) about the banks because they big, impersonal, and tend to always have a stupid policy and/or employee that makes the institution look foolish or even criminal.

The bottom line is that a home purchase is a business transaction. When it goes bad it can get ugly. A homeowner in distress should reply on professional, legal advice when dealing with the lender is they expect to negotiate a decent ending. Realtors, even those experienced with short sales, are not often equipped to successfully deal with a lender in many of these situations. Your seller should be represented by an attorney or, at the very least, bring in a HUD approved counselor for assistance.

-----------

Wow what an eye opening post, I need to read this in great detail!

A bank is a business. Period.

Banks are in business to make money. Period.

I for one wish REALTORS(R) would stop trying to tell people how to run their business: You've got REALTORS(R) trying to tell the Government what to do and how to do it and how much money they should steal from tax-payers (to have job security). You've got REALTORS(R) getting upset because banks want to make money and it may have a bearing on their incomes.

We (as a whole) need to get over ourselves.

Of course there are backroom deals with FNMA and the lenders and our politicians!!! How else can a criminal like HArold Raimes from FNMA make 90mil off the backs of homeowners and an criminal like Barney Frank isnt wearing an Ornage jumpsuit???

C'mon people! get these criminals out of office!!! No incumbents! no more Pelosis, Reeds, Franks, Dodds, Kennedys, Obamas, Geitners etc!!! They have profited and turned their backs on us for years!! If we cant send them to jail then send them packing!

In any other place in the world they may have been put against a wall with a blindfold for what they are responsible for!

This is unbelievable but explains and confirms some of what I've been thinking for some time now. Thank youi for such an indepth post. some of it may be regional, so I need to investigate what is happening in my area.

Very sad that this continues on.........

Jessica,

Read a book called the Creature from Jekyll Island.....it will open your eyes as to WHAT the baking system and federal reserve REALLY is..

Sergio:

I'm not the least bit interested in conspiracy theories....

I'm very interested in any trade organization or government agency that tries to throw its weight around by telling private business what to do and how to do it.

Pacita, I appreciate all the links you posted. It's a great collection for delving into this further. It's never made sense to me why banks refused excellent offers on short sales as from my side it looked like they would be losing more money if they foreclosed. I'll have to read it all to help me come to a better understanding of the situation. Thanks again for your hard work on this one.

I agreee wow I was thinking I was alone here. We should all keep track of the lenders that won't work with us and be sure to send the new buyers to the lenders that were good enough to work wiith us. After all they screwed the sellers, buyers, us the realtors, inspectors and title company, everyone involved in the sale.

So lets boycot those that were laughing at us when we were doing way more work to help the LITTLE guy & all along they knew we were going to get nowhere.

Pacita, This is a very complicated topic. And a great topic for discussion. There is far more that goes on behind the scenes than what we are privy too. I have had many conversations with bankers, lenders, negotiators and attorneys and almost all agree a short sale is better than a foreclosure for all parties. BUT...the best situation is for the borrower to make their payments.

I will pass on reading the linked to articles. I don't believe the premise for one minute and if it is true there is nothing I can do about it. It will just piss me off.

And Norm....your comment is insulting to those of us that are in the trenches doing short sales and helping people. Your comment is based on ignorance of short sales. My market is 90% distressed properties. I work for months to get a short sale approved and closed and usually make less than $2,000. So trust me...it certainly ain't for the money.

Larry, Banks DO get "Obama money" for doing short sales. Your statement is incorrect.

Very good post Pacita. Well done!!!

Jess- Nor am i am.

But dont think for a moment that Banks are a "private" business.

Enjoy the day!

Hi Pacita!! Wow! This has turned out to be quite the post!! I'm not sure what the banks are trying to do?! I think that if you have a ready/willing buyer for a property, a decent sales price, and a clear cut hardship...what else is there to discuss?? Especially in a declining market...better known as above 400K here in AZ. All the Best!!

I look at this thru the eyes of our national real estate investor network and from my clients who owned bank stock when the 'earthquake' hit last fall. The servicer is the only one the comes out ahead by taking a file all the way to foreclosure! Why, they get to manage it longer and therefore get paid longer! It's a greed thing..the same thing that drove us to this in the first place.

An empty house loses value every single month it sits. In the north, pipes break when the heat isnt on. In the south mold grows when the air isnt on. Its common sense and we all know it! How does that not hurt the value. Our investors sure do take that into consideration when they buy one of them as an REO after sitting emtpy for 1 or 2 years.

Here's the kicker. The very same tax payers who have bailed out these large too big to fail banks are also the very same people who lost all of their equity in these banks when the share prices collapsed. No imagine a few of those people who also lost their jobs because of all this. They pay taxes that helped keep these banks open from TARP, the same bank gouges them with 28% interest rates because they were one day late on their payment, They lose 90% of their investment in the stock price on top of it, and finally when they cant afford to keep their house which is worth less now than they owe on it, the service company screws them by not accepting a short sale because they'll make more money dragging out a foreclosure on them.

And Norm...wow. Have you ever done a short sale listing? Is there one Realtor in the world that would actually go thru that nightmare process if they didnt have to??? Not sure who you are mad at but come on..why beat up on the Realtor. 4 years ago ok....we were all making a killing becuase you could fall out of bed and make money. Today..if you dont have 25-30 listings you may not get a paycheck this week!

Pacita; Wait a minute. your list primarily consists of articles referring to foreclosures being better than loan modifications (probably very true). Loan modifications are hardly ever successful for the long haul. The Huffington Post articles are primarily about how slow the lenders are in working the foreclosures. Hey . . . you'd be slow if you got 40,000 faxes per day and had an incompetent staff.

I'm still not buying it . . . sorry. None of these articles really say that foreclosures are better for the lenders than short sales. Obviously, in properties with LOTS of liens a foreclosure is better. Yes, the note holder has to pay the servicer until the foreclosure, so there is money to be made there. But, the servicer has to pay their employees, so . . . still not buying it.

Lastly, the Huffington Post is a liberal news outlet created by Ariana Huffington as an alternative to conservative news outlets. From your list, the most nationally-respected paper is The Washington Post.

I apologize if my tone is strong. I do not mean for it to be so, I'm just in gentle disagreement.

It's absolutely true that the banks are making a killing in this economy.

The banks have HUD and Fannie Mae to bail them out. Then there are the loss share agreements with the FDIC.

I had a guy who had managed not to make a mortgage payment in 38 months. Then when Obama came to office and the TARP plan and stimulus money went into effect to save the banks, they foreclosed on him very very quickly. My guy was a repentant sinner. It was a sad case.

I had this guy's house sold twice for around $70k -- but I finally had to release the listing because I could not negotiate the short sale -- there was a third-party lien from someone who had bought a note from LA Weight Loss Centers. (The seller's wife -- who was not on the note and was separated from the mortgagor had gone to LA Weight Loss and rescinded the contract immediately; but then she lost the paperwork. Her ex-husband did not even know she had gone there, let alone that there was a lien on the house!)

The house was appraised by HUD for around $73k.

HUD bought the house at the Sheriff's sale for $89k. Then they turned around a few months later for $43k.

Are the American people getting ripped off? Absolutely. The little guys are going down and the whole country is going with them.

The banks and a few investors are making really making a lot of money!

An unfortunate reality. I've been telling my clients this for years.

Quite the discuss here, good to see the opinions pro and con on short sales. Now off to list another one.....!

Pacita, thank you for an excellent and well documented post. The cost of money to lenders is FAR below what they charge homebuyer's for the use of credit.I am a capitalist but I do not buy-in to the thinking that BANKS are a business and that this is an excuse for them to gouge as they collect money from Washington.

The easy money policy by the Fed under Greenspan and by the lenders is the reason we're sitting here with all the inventory that's in default. It's not that there "ought to be a law" but there should be conscience on the part of lenders--and a willingness to work together with consumers, to mitigate the problems--instead kicking them when their down in the name of making greater profits.

Of course you must pay your mortgage to avoid foreclosure, however the system continues to take advantage of The Average American.

Great post shedding some light on this whole mess...

Let's be clear about something. Most of these short sales or foreclosures are being sold at a price that is LESS than the original mortgage balance. So, to say the banks are making a killing is incorrect. Most of these homes are under water. Please explain to me how the lender is making money here. If you want to say they lose LESS with foreclosures vs short sales, then fine.

Let's also not lose sight of something else....

Many borrowers are just walking away from their homes simply because the loan balance is much more than the current value. These are people who CAN make the payments but now feel their home is a poor investment. Why should people have the ability to walk away from a bad investment?

There is no guarantee that buying a home is going to bring returns.

Been in the foreclosure market for 5+ years. Your sources are the last place I would look for reality. Frank is responsible for half the mess we are in and he gets quoted?

Yes, there ought to be a law. A law against Frank and others manipulating markets and then getting bonuses paid out for doing it. Forcing banks to lend money to people who could never pay it back.

There ought to be law against taking my money and giving it to people who made stupid decisions.

I see many posts on here from people who should know what is going on but are clueless. Learn about disintermediation. A bank is not a big shiny building with money in it.

Look at what happened in 1978, 1995, and on September 18, 2008. It is getting worse by the minute.

If you are not concerned, you are not paying attention.

@Norm - you are off base! You allege that Realtors recommend short sales to their unsuspecting clients because they know that they will get paid. That's nonsense. Short sales are a nightmare. At end of the transaction after you figure all the hours spent on the file, you would be better off working the counter at McDonalds.

There is no conspiracy here folks. The big banks did get lots of $$$$ and there are problems with the TARP legislation. It is naive to make bold sweeping statements that banks prefer to go to foreclosure because there's more $ in it. There are way too many variables to make these statements.

Pacita - Using Adriana Huffington as a source is not the best idea. There are many credible news sources without having to go to Huffington Post.

I have a tenant who has been on time with payments for over two years, in a home I lease to good folks who need a great place to live. They are friends of mine now. Three months ago, his business has hit "hard times"...he's worked long hours to make ends meet. They owe me 3 months rent, and they have decided to move from Winston Salem, NC to Savannah, GA, where he has taken on an electric company in hopes to better himself financially.

I am promised the 3 months back rent, and believe I will get it. So, I'm putting it on the market to sell. I'm praying to get at least what I paid for it, in order to get out $35,000 cash I put into the loan. It's been a good tax shelter for the last 7 years.

This is typical of the way the United States has allowed banks to act. I'm hoping to avoid that process....Wish me Luck.

Thank you, Pacita, for your post...It's has helped me to understand more clearly, what has happened to others. The Huffington Post is great!

Pacita, you've given us lots of food for thought. Isn't Steve Harney the best? I attended a seminar he gave in Petaluma a few months back, and would gladly attend another.

I always thought the lenders lost money on foreclosures because they have higher lawyer fees filing the foreclosure papers? I appreciate the links so I can get educated...congrats on the feature.

Debbie well said, and typical of what is happening. So many homes being empty and vandalized while the banks refuse good solid offers at times.... just upsets me. Crazy world right now!

Thank you for this thought provoking post and all the insightful comments. Most of our foreclosures are VA repos serviced by Bank of America, and they are ruling over them with an iron hand, listing at market value and doing little to no negotiating. They are not a good deal in our market, so consumers need to keep that in mind. As far as working with short sales here, they are taking MONTHS to work out a VA Compromise, where we used to get them done in 30-45 days. I've had the feeling that the banks were delaying to make more money or to force the home owner into foreclosure even with full price offers in hand from well qualified buyers.

Huffington Post is the last place I would look for the truth regarding the mess Barney Frank created.

Pacita...

Kudos for such a well researched post. While I believe there are lenders out there that have no interest in doing short sales or loan mods, there are still many that will make an honest effort to help their clients stay in their homes.

One problem that is often overloked is the pressure from the examiners who tell the banks get that in foreclosure now so you can get it off your books. I have seen it happen in my own state where they want foreclosure started as soon as the borrower is more than 60 days late. There is a lot behind the scenes we are not naturally privy to but I will agree with your well-researched premise that there are a lot of banks whose only interest is foreclosure.

Great post

Pacita - It's a mess for sure. The truth about loan modifications is that they are not working. Most homeowners never qualified for the loan in the first place so how will they qualify now under the guidelines. Loan mods only stall the inevitable. Most Short Sales save the banks money on their bottom life. If it is true that higher incentives are paid on foreclosed loans than for short sales ... Houston ... we have a problem. I don't know what to believe any more ... even from these "experts" at seminars. How valid is any of the information we receive anyway? It's only as good as the source ... need I say more?

Great Post Pacita .... congrats on the Feature!!!

Very nice blog. Excellent information. Love your pictures, and graphics.. This is a real eye opener, that lenders make more off of foreclosures, than short sales.

Look....its deeper than saying the "lenders" .....I do short sales full time for almost 3 years now and behind every mortgage and lender servicing it, is the "Investor". Sometimes that is the lender in porfolio and generally, those I have no problem getting done. But if BOA is serving for a "private" investor, or FNMA or even another lender like WAMU, it is that investor that determines what loss they will take or not. Dont think for a minute that some of them ( investors: private or institutional) arent getting the "assets" covered via the Fed.

Pacita, here is a good one. Ask the bank how much TARP money is allocated to this foreclosure and see what they say!

Micki #16 - You go to the head of the class! Read her comment - #16. You have shattered his glass house.

I think what many of the comments do not get the distnction between the servicer and the lender. The servicer does not actually loan the money. The lender hires the servicer to "manage" the mortgage. That is collect the money, pay the property taxes etc. It is amazing that lenders have created a system whereby a foreclosure will hurt the lender but benefit the servicer.

Hey Pacita--In today's real estate environment, there is no question that short sales are low on the list of servicers. Values are finally going up. The short sale they make today can turn into more money if they just hold on. Additionally, there are some accounting issues which favor delay. Once the short sale is completed, the loss must be recognized on the loan. That is a concept driving the bus, as well.

Elliott Topkins

www.topkinsandbevans.com

Pacita - great post and although it is an eye opener, we have known this is going on for some time. On the other hand, we do get short sales through. I actually just had a case where the bank actually foreclosed however, they decided not to record the Trustee's Deed and are allowing the short sale to go through! And this was Bank of America!

Elliot-

Im sorry, did you say values are going up? Really? Think so?.

Wait till the 2nd or 3rd quarter of 2010 and lets revisit this conversation.

We are all in for a Huge surprise.....

Excellent article with good links to your sources of further information. However, there are a large number of studies that conclude that lenders make 20% to 30% more on a short sale, primarily because their costs are less. They get the money from the current offer instead of waiting for a foreclosure sale. They have to put reserves behind non-performing loans and behind the REO assets they take in, as opposed to the short sale releases those reserves. They do not have the risks of the REO i.e. vandalism, theft, and local governments who see it as an opportunity to give a citation to the bank requiring improvements, nor the costs of the trash out and cash for keys to get the owner or tenant out of the property.

I do lots of short sales (and teach classes to other Realtors) and lots of REO sales. The person who said the Realtors do short sales to make money must have never done one. An REO sale is much easier, much quicker and much more profitable. Realtors do them to save the owners, save the neighborhood, help the buyers and in most cases help the banks make more money. There are situations where the bank will make more in a foreclosure, but not usually. If you want more information on short sales, read my book Create A Short Sale, Your Guide Through the Short Sale Maze that you can find at www.BuyShortSaleBook.com

Thank you for the thought provoking article.

tim@TimBurrell.com

You wrote, "we kinow that lenders turn over the short sale accounts to loan servicing companies who make our lives hell getting short sales approved" and that has been my experience until now.

I have a short sale listing in the Willow Glen area of San Jose and have been working with an incredibly, amazingly wonderful servicing guy named Alex at Bayview Financial (for a loan at Citi). Honest to goodness, this man is extraordinarily pleasant and responsive. When I call he either picks up the phone or he calls me back in a few hours if I've needed to leave a message. He is a great communicator who lets me know what is going on and what to anticipate. I've joked with him that I wish that every time I had a short sale I'd be able to work with him.

If every short sale had someone like Alex from Bayview on it, few would get to foreclosure. I hope his boss will see this and he'll get the kudos he deserves.... Bayview Financial, in my opinion, is unique in the way it's handling short sales and as a company it deserves kudos too. (No, I'm not related to them in any way, shape or form. This is just a general thumbs up, Yelp! style.)

Kent,

You mentioned Shared Loss Agreement with FDIC and then mentioned the big banks, but when I check this out the Agreement is between FDIC and failed banks. And if you want to see who the failed banks are you can go to http://www.fdic.gov/bank/individual/failed/banklist.html

And a fun one to look at is IndyMac. If your eyes don't glaze over in the first 30 or so pages of their shared loss agreement, you'll be rewarded with their forms for calculations of bottom line in short sales, loan mods and foreclosures.

The government backed programs aren't going to be helping the non-conventional (jumbo) loans that a large portion of homeowners got in the higher priced areas of the country. Homes that sold for $900,000 and are worth $600,000 now. In those instances, if it's not a failed bank and there's no help from Fannie/Freddie - then I'd think a short sale seems like the better route for the lenders.

Almost everyone that, so far, has made a comment needs to read every link that Pacita posted. You will come away with a very different perspective as did Chris.

For banks it is about cash flow. If they foreclose, depending on the state, the banks have to wait up to one year to get clear title. That means the money they loaned on the house is a non-performing asset for an even longer period of time. During this time the bank cannot sell the property.

If the bank does a loan modification they turn a non-performing loan into an "iffy" performing loan. The cash flow is somewhat reduced and the bank is not assured of success in keeping the loan in performing status. This, in many cases just postpones the inevitable.

Short sales in most cases are the best option for the bank. The short sale provides the bank with massive cash flow very quickly, for us usually 90 days or less. That means they can loan that money out immediately (no waiting up to one year for clear title) and create positive, well secured, cash flow.

Only 23% of short sale attempts are successful, according the Huffington Post: FLASHBACK: Huffington Post, June 8, 2009. Short Sales: Banks Blocking Way Out of Foreclosure Crisis. (See Pacita’s post above)

The reason that number seems low is that most Realtor driven attempts, at shorts sales, take more than one buyer to complete a short sale for a seller.

I speak with Realtors all the time who are on their second or third buyer for a given seller. The buyers can’t get financing, after all, the buyer’s letter of approval runs out or the buyer won’t wait the 3 to 6 months. The risk that you run, when you have multiple attempts to complete the short sale, is that the bank no longer believes that you are legitimate.

When I do short sales after two or three previous attempts by a Realtor, I find the bank a lot more skittish and less enthusiastic about whether “this buyer” will complete. It has been another six months or more of having a non-performing asset on their books and foreclosure is starting to look good.

I have had situations where, even with my cash offer, the bank is tired and just forecloses.

Do you want to close more short sales? I can help (or someone like me can). I am a cash buyer. I negotiate the short sale in 90 days or less and relist the property (now free and clear and not a short sale) with you to sell to buyers whose contingency is financing. 99% of my properties sell, retail, in 60 days or less.

You get to do what you do best – manage client relationships and sell property – I do what I do best – short sale negotiations. I close 88% of my short sales (usually bad BPOs keep that number from being closer to 100%) and get you a listing, with no strings attached, to sell. I have done this more than 2000 times in the last 4 year.

As an industry we need to stop worrying about anybody else and worry more about what we can do to help our clients – the sellers who are in deep trouble. Stop worrying about the bank and whether they make money or lose money – it is not our job it is the bank’s job to worry about that.

If we focus on our clients and their needs and we get the job done we can pat ourselves on the back for a job well done and go on to help the next client who needs our help.

Have a great 2010!! It’s been a decade since the turn of the century – WOW!

Hi, all

Usually, I try to respond to each comment....but it's a bit challenging right now.

First, for folks who say I shouldn't refer to Huffington Post...when I researched this information, I included other news sources besides HP.

And my post is mostly asking a lot of questions. Since all my escrows and listings right now are short sales, I am afraid....I am very afraid....

But note that the first link is to the report itself that was mentioned in the article. If you must read just one article/report provided in the post, read that one.

CONSUMERLAW.ORG REPORt ON "Why Servicers Foreclose when They Should Modify And Other Puzzles of Servicer Behavior"

For the record, I too, think Barney Frank should be booted out of office.

Thanks!

I am a Free Market type guy. But we are not in a Free Market right now. The banks are tools of the government and the government is taking over the housing. What is happening in this country is sick. Heads Should Roll. There have been several post on the government starting to rent out foreclosed homes. I suspect this trend will continue. Soon we will all live in Government owned homes and go to government approved doctors.

Patricia - I look forward to reading all the info you provided. Honestly I am not sure what to believe. I think insurance has to be the difference if that is true. There are additional cost to take it to a foreclosure so if they got fair market value the only way that makes sense is insurance or government funding. It is a crazy market and trying to figure it all out and get the right answers gets a little tough sometimes.

Great post Pacita! Very thought provoking. It's always fun trying to figure out what the banks are up to.

I've closed over 450 short sales since 2004 and I am quite aware that, since many CONV loans are backed by Freddie and Fannie and since all FHA and VA loans are backed by the FED, YES, the servicers of the note will oftentimes make more money by foreclosing. But those who are backing the loan (the FED, PMI, other investors) will typically loose more. Since agents are only dealing with servicers, we don't really see the whole picture.

This year I am still getting 95% of my conventional short sales approved and will close over 100 of them by year's end. I believe that while the servicers that we are working with won't loose as much either way, the PMI company or the FED WILL loose MORE in a foreclosure scenario. The servicer of the note is responsible for mitigating any losses on behalf of those backing the note.

Take FHA short sales for example. I'm getting 100% of them approved. Since these loans are government insured, the servicer would likely make more $ by foreclosing. The problem is that the FED doesn't want these properties back. Through a federal mandate (HUD's Mortgagee Letter 2008-43) they have obligated loan servicers to mitigate their (the Fed's) losses.

What a mess we are in! I'll keep watching to see what the banks will do next. It's great to know that we can continue to be successful and continue to serve others no matter market we are thrown!

This is very interesting and answers the question why I have heard, "the bank is going to let the property foreclose." I have heard this a number of times over the past two years on properties I have invested hundreds of hours on. I am going to forword this to my senator for an explanation and the NAR. I just spent 100's of dollars for the NAR to represent me and what are they doing about this?

It all depends on whether or not the loan is a "portfolio loan", meaning that the loan is serviced by the actual bank that issued it and was not sold off to a servicing company or diced up and sold to investors. We had a representative from Wachovia speak at our sales meeting a couple of weeks. Wachovia did an analysis on their portfolio loans and determined they save on average $38,000 by doing a short sale versus a foreclosure. Unfortunately most banks do not service their loans though. Just one more reason to hate the banks. Great post and best of luck to you.

As someone stated earlier there is quite a bit of misinformation in the comments attached to this post. I'll only tackle one. My lenders and title gurus tell me that forclosure, short sale and deed in lieu of foreclosure all impact credit reports the same way. It will take the seller the same amount of time to recover and be eligible for loans.

Because of our internet marketing business and www.sellmyhouse.com website, we get 200-300 clients a day that come to us for help. Most are in a short sale situation. It cracks me up to see advertisements by so called short sale experts who claim 80 and 90% completion results. Over the last several months very few short sale deals get approved, and no where near 80%.

The truth is, there is absolutly nothing we can do about it. Eventually the lawyers will begin suing these banks on behalf of shareholders and that is when they will have to start taking short sales seriously. Reason: a short sale is the lesser of 2 evils...period. The bank will net more money than via a foreclosure. Tell me this....with foreclosures on the rise and the economy still in the doghouse, how do you think these banks are actually posting gigantic profits??? It is a sham. They need additional capital so they have to make it look like everything is ok. Meanwhile the government is telling them to keep foreclosures off of the street to artifically boost up home prices.

It is all an illusion and the stock market will soon show everybody the tur nature of our country's situation. May take until next fall but it will happen. The government doesnt have the money to bail banks out anymore.

Pacita, you have started another one of those.. .but to answer the question of the day is that every loan has many variables and no one really knows what is best. . foreclosure or short sale except the investor.

I knew about this for a while as an REO agent came to our office and told us this information very bluntly. We truly are in the middle of a great party for the banks. Wonder if Obama's entourage is taking a clear look at this or not. There are way too many scams taking place in this industry and it is time we form a political action committee and gather momentum and try to make some changes in the system.If we as a fraternity do not gather together nationwide and create noise for Washington to hear, we will continue to be on the losing end.

Thanks for the information, very eye opening. So sad for our clients, but all we can do is help them in their time of crisis.

This is a very complicated, confusing, near impossible situation to figure out, which is exactly the way they like it! Isn't it funny how the banks always end up on top?

Pacita, If anyone has ever given any thought to the part that FDIC, FHA, Freddie & Fannie play in their respective rolls this information should come as not surprise. What maybe a surprise to some is the recent rules regarding mods, short-sales and foreclosures in no way require banks to fore go pursuing the method that brings them the highest rate of return. TARP funds were not tied to setting aside the FDIC, FHA, etc. safety nets afforded the banks. While these Federal banking/mortgage insurance policies, so to speak, have always been available no one expected them to be tapped in such large numbers. California DRE now requires that DRE controlled Mortgage Brokers/lenders operate in the best interest of the borrower with a disregard to their own self-interest. If something like this comes along effecting FED Chartered banks etc. there could be a real revolution in the way banking is done. One thing for sure I don't believe we've seen the last of the rules effecting the mortgage and real estate crisis,IMHO.

Hi Pacita, As agents, we tend to think of these in " Human Terms " on a more emotional level. Lenders think of them in a more business like way. Explains a lot don't you think ?

Some months ago I read that it is the mortgage servicers who are stalling the loan modifications and short sales.

They get paid (I think) $4,000 to do a loan modification, but when they can take a loan to foreclosure they get a lot more. They can charge fees for each task, every step along the way, plus their monthly servicing fee.

On top of that, many of those loan servicing companies either own or are affiliated with title companies, attorneys, etc. who give them kickbacks for the work they do during the foreclosure and later during the REO sale process.

According to that article, both the consumer and the investor (bank?) get the short end of the deal, while the loan servicer makes out like a bandit.

But, as has been mentioned here, there is SO much going on behind our backs that unless we could get a spy working at a top level position in one of those companies, we'll never know the truth!

Of course, we've also read about bank executives who set up their own side business to buy those loans in foreclosure for pennies on the dollar. Then when they complete the foreclosure and re-sell, they make money even if the market prices have dropped by half.

If you buy a $200,000 mortgage on a house now worth $150,000, but you only pay $50,000 for the note, you're going to make good money even if the value drops to $100,000 while you're going through the process.

I agree with all of you here though - the banks got our tax dollars under the promise to help consumers, and that was a lie. Considering how the government wants to regulate everything else in life, it's too bad they didn't place any regulations on the banks when they handed over those $billions.

We'd be hard pressed to pinpoint the exact actions that caused this mess, but greed was behind it. So... when I hear that a bank is losing money I sure don't waste any sympathy on them.

Hi Pacita, As agents, we tend to think of these in " Human Terms " on a more emotional level. Lenders think of them in a more business like way. Explains a lot don't you think ?

Dd you know that the lender collects on the insurance after the borrowers is in default after two missed payments? Does that mean the loan really isn't in default then?

Did you know that the subservicer and then the Master Servicer are obligated to continue to make the payments to the Trustee if the homeowner is in default?

Did you know that there are many deals and payouts through out the securitzation of the loan that the homeowner was unaware and certainly not disclosed on the HUD-1

Did you know that the lenders took out insurance in the form of credit default swaps (CDS), without regulation that pay as much as 30 times the value of the loan? I said 30 times the loan value!!!

Did you know they also got Mortgage Insurance payouts and TARP funds.

Did you know that if the loan was securitized then the moment the loan closes there is a cloud on title.

As Americans start to figure out what has been stolen from their retirement funds - watch out.

Get informed - check out www.livinglies.wordpress.com

Welcome to the Wild West of Real Estate where new rules are created every day!

The variety of opinions both supporting and disputing your claims, Pacita, just shows that we do not really know what is going on. We operate each day, as agents, with the best knowledge that we can find in an attempt to help our clients and, by the way, eke out a living for ourselves.

These are historic times for our industry. We all are learning a great deal...and not at SleazeBall U!

John Juarez, REALTOR

Windermere Properties of the East Bay

John@CarlMedford.com

510-673-0686

Hi Pacita,

I haven't had time to read all of the comments yet. Though I have LONG suspected that this is the case. I haven't done short sales myself yet because the wave hasn't hit here - but it probably will be - SOON and I'm trying to gain as much insight as I can. I'm basing my suspicions on what I have heard from the few agents who are involved in them. In short - there is no other LOGICAL conclusion. I also have a great deal of respect for Steve Harney who gave a talk for us a couple of weeks ago.

Truth is the Servicers make more money, the Lender is lost and confused lacking leadership.

i must agree with miss zavala, #76, the mixing of apples and oranges is clear here. loan mods are rarely successful...the numbers bear this out, and have since the very first of them. on the other hand, if a lender sees a higher recovery on a default and repo than on a short sale that's their call to make. it might be the exactly wrong business decision for them to make, but let's remember, they made the loan in the first place...most often to folks who had nowhere near the ability to make the payments. let's not give them any credit for being qualified businessmen. fortunately the federal government bailed them out.

there ought to be a law? no thank you! the many we have are not working so well...let's not compound the torment and prolong the torture.

hey marte cliff, want to see something that will make you really mad? cut and paste this or just google penny mac...y'all will want to have a sedative before you read this...

http://dealbook.blogs.nytimes.com/2009/05/22/pennymac-trust-seeks-750-million-in-stock-offering/

it's true...rather than preparing responsive pleadings in their trials for fraud and racketeering, the same crooks that ran america aground as execs at countrywide are now trolling to buy the notes behind the loans THEY made, at 10 cents on the dollar...YOU CAN'T MAKE THIS S**T UP! we are truly through the looking glass.

we are all frustrated with the whole steaming pile of the situation but the piling on of additional regulations is a bad idea. let's just ride this out, vote out every hack that voted for bailout funding and take our chances with ANYONE else.

the lenders are doing just fine...Bush and Obama made sure they got made whole. at our expense.

I am surprised that most of you do not understand that the banks do what is in their best interest, whatever makes them the most money.

Hello Pacita,

Very hot Topic impossible to resist to make a remark!

I was at the REOMAC Conference in Florida (October 17-23, 2009) and the only thing they talked about was Short Sale and loan Modification. They are trying to implement new systems to help consumer with loan mod and if they do not qualify then the lenders will offer an incentive (like cash for keys) to the consumer to cooperate in the short sale process. Lenders are going to be willing to help more in the coming days with Short Sale and Mod. I hope!

Very thought provoking post, Pacita! I have done several foreclosures and am almost to closing on my first short sale...but all have been on the buyer end. In order to try and stay afloat until the regular housing market returns, I think we all need to consider short-sales and foreclosures may be the norm for some time to come.

Pacita,

You have put together some some great resources here. I could spend all day on this post alone going through the links, and reading the comments.

Nice to see that it Is being exposed... We obviously know the biggest abuser who ironically is one of the biggest TARP recipients. Nice collection of articles to validate.

Pacita,

Good post! Is it true some ask? Who knows what the truth really is or if we would be able to handle the truth!:) I do know that I have seen clients get "approved" loan modifications that actually RAISED their payments...some over 50% of their income. Now why would a bank/lender/investor (call them what you want) think that would help someone? Now, knowing that would a homeowner feel warm and cozy about doing a successful short sale? Would a RE agent feel confident that that company would approve a short sale? My answer would be no. In that instance I would not want to spend my time and money on a listing that more than likely would not go through. Contrary to our happy go lucky friend Norm above....I doubt many knowledgable agents would take that listing.

But Norm you are sort of on to something....people do like to make money. Actually people have to make money.... I think it is called survival. I don't consider myself to be taking advantage of anyone to get money though. If I really wanted to make a ton of money by taking advantage of people I think I would probably start selling crack. Pretty sure I would be able to make a better profit AND a lot faster. Of course there is the jail thing.

One more thing. Really tired of hearing how this is about those that should not have got a loan to start. While that is true for some I have clients who have lost jobs, became ill and simply cannot sell their house in this market. And can we really fault those that got loans because the lenders told them they could? Should they have known better? Let me think...if the dentist tells you that your tooth needs a filling and it doesn't should you know better? If the news tells you rice is in short supply so the price is going up should we all know better? I am pretty sure that just about everyone on this blog post (with the few exceptions of those with endless buckets of money) could become a victim of foreclosure if they own a home. Maybe some have. So let's be nice:)

I think Sergio is right. I don't think it's over yet. After all has anyone heard anybody singing?

I don't comment a lot here even though I read almost every featured blog on AR. But I feel compelled to comment in response to Jessica Horton's comment regarding her dismay over 'Realtor's trying to tell the government what to do . . .'

It is my solomn DUTY to tell the government what to do, as the 'government' is SUPPOSED to be working for ME. It is no wonder we are in the horrible state of affairs we are in when people do not understand the role and relationship between WE THE PEOPLE and the people we elect to office to REPRESENT us.

And for gosh sakes, banks are not a private business. Jessica, you scare me.

Don't Realtors pay the NAR and the state associations to do somehting about this? Maybe an idea would be get them behind the truth as this post is true and there is so much more to the whole thing. Get the word out and the best way to do that is have NAR and NAMB behind this. Are they?

People in Kansas, NY and Mass, are having title claim issues from those that were foreclosed on-that all states will face soon based on the TARP and legalities of the way things were put in place.

Just an idea....

Eye-opening indeed. I'm bookmarking this so that I can read both the articles mentioned and the comments. You obviously struck up good conversation.

Wow I only read about 40 comments and I learned so much!!! Great stuff here!

I agree with you. My lender on my rental home in sacramento ca is indymac bank. They didnt offer me a loan modification. I obtained a short sale offer. they would not postpone the sale date. It will be auctioned of on monday. Now they will get a tenant now that will pay them every month because I put them into a 2 yr lease. The csr's were very rude when I talked to them about my situation. A year ago I kept listening to loan modification companies say 'your lender doesnt want to foreclose on you' . that was a bunch of b.s. . That slogan was used just to get the loan modification companies more business.

to find out what is going on in the Sacramento real estate market, please go to www.rocklinsacramento.blogspot.com

I haven't been able to read everything here - but I guess I have a couple of points I would like to make.

TO JESSICA:

Ummm....YES! I should be able to tell the banks what to do. They are being propped up with MY MONEY. They lost the privilige of "doing their own thing" like any other business when we the American people put billions of dollars in their vaults! Unfortunately the methuglicans were too stupid or too corrupt to attach strings to the money. Well, when I fork over that kind of money to any entity - there are STRINGS! Lots of them - as well there should be.

LOAN MODIFICATIONS vs. SHORT SALES:

I think they are two different issues. However, one of the reasons the loan modifications haven't worked is very often homeowners get a modification that has them paying MORE per month. Some are self-employed so they could pay but their reported income doesn't stack up. These need to be done on an individual basis. The banks simply don't care to be bothered. But read above....I have a right and the American PEOPLE have the right to FORCE THEM TO BOTHER. They took the money - those are the strings. If they don't like it - give us the money back - with interest if you please.

Short Sales are another matter. I think Katerina has the right idea. The short sale has to be for enough money for the transaction to be worthwhile. Many buyers see a short sale, start doing a jig hoping they can steal a house. HELLO? Do you really think a BANK is going to let you steal from them??? However - once again - They banks were hanging by a thread and they took taxpayer money. If a short- sale is doable then they should be FORCED to do it.

At the end of the day, I am in a good deal of dispair. It was the free-market cowboy syndrome of people like Jessica that got us into this mess. It allowed and encouraged corruption to enter every nook and cranny of our government structure. We are back to the Tamany Hall days of the Robber Baron era. Corruption abounded until everything collapsed in on itself during the Great Depression. We averted another Great Depression by the skin of our teeth last year. But the banks and Wall St. are back to the same-old, same-old in less than a year. Stunning and very disappointing.

All ---

I have closed on short sales, so I know it can done. I have two more closing next week, and I'm keeping my fingers crossed on the rest. All my short sales are at fair market value.

These are sellers who have attempted to get their loans modified, but got nowhere, so they are trying to leave with what little dignity they have by doing the short sale.

The specter of a short sale not getting a buyer willing to spend months (4-5 months!) waiting for approval is what haunts me because these are the properties that are going to be foreclosed.

In my little island town, so far in 2009 ---- 20% of our sales are distressed properties, with 7% being short sales, and 13% foreclosures. That 7% offers a glimmer of hope.

As for the foreclosed properties --- NEARLY ALL of them were at one time offered as short sales but were not approved, and hence, they were foreclosed.

I was qietly reading and minding my business...until this last email by Ruthmarie...

Now I have to say something. There is so many things wrong with what you said I dont know where to start.

Now I say this with the utmost respect: If you dont like free market "cowboys" like Jessica and ME then move to a facist state like Cuba or Venazuela. Then you can punch in and punch out every day, pick up your scrap of meat and bread from the Govt and be satisfied.

Stupid investors eventually pay for their own sins. Then they fall by the way side. The good ones bring value to the table for someone else. They dont bring Shame to the Game. Unfortunately, many Realtors I know, can't say that.

I have "stole" plenty of houses from these idiot banks and have made lots of money and have passed those great deals to other while getting the homeowner off the hook. Though I am a broker of 20+ years, I do not do the standard "realtor" way of doing a short therefore I DO make money. But at the end of MY day, I have helped a lot of homeowners NOT go into bankruptcy, got them off the hook finacially and have removed a non performing asset from the inventory of realtors and the banks alike.

So before you start saying how its the "cowboys" who have gotten us into this, I can show you how it was the REALTORS who went along. ANd I can show you how it will be investors and COWBOYS like me who might save it from being worse.

I have learned the game and used the rules against them. Stop blaming the game if you wont read the rule book.

Lastly, I am surprised to hear this from someone who works at a Keller Williams organization....read his book SHIFT ( or read it again). I think Gary Keller likes cowboys like me....

Thanks for brining this to our attention. I am going to spend some time reading through the links and then do some googling on my own. Scary!

I am assuming that as long as they can rely on the PMI they have something to fall back on.

Makes you wonder. There has to be a reason for the long delays and paperwork failures.

I don't get it. Most of my peers seem to wave the flag of capitalism and then they seem upset here to find out that the banks are making money. If you suggest government involvement to correct any of the imbalance in the system and they start calling those ideas and people "socialist" - because name calling really seems help them make a point. Then, my fellow real estate agents send preprinted messages prepared by the lobbyists of the NAR to their congressman or woman a demand for a tax credit for people who were going to buy a house anyway.

Talk to anyone about health care and they will provide you with their own horror story about a proceedure that was denied or their inability to afford health care insurance for themselves and their family. Go to a health care center where over 95% of the patients are getting care from Medicare and Medicade, but they don't want the government to "get involved" in the health care system. My only comment, based on these observations is:

we are living in the schizophrenic world. I guess that is due to some great liberal conspiracy that the news media created. Maybe the Huffingtion Press?

The insanity of these banks are not a surprise. They are in the business of making money. Good eye opening post. Thank you

Mahalo for providing such great information. I have always felt that something like this was going on. I have had too many short sale listings that we can not get the bank to accept the offer, they foreclose 3 - 6 weeks later and at the sale/auction the bank buys it for far less that the offers I had submitted. Most recent one the offer for $575,000 was rejected, BOA said they needed to see an offer for $625,000....buyer walked, went to auction 27 days later for $480,000 no bids.....then listed as REO for $539,000 only 23 days after the auction. Closed 45 days later for 519,000. You can only say the banks don't know what their right hand is doing so long before you have to conclude they know exactly what they are doing, we just don't know.

And to the guy that had such a cynical attitude to agent that do handle short sale, you have NO IDEA how much work goes into these and most you never get paid as they get foreclosed on long before offers are accepted.

Again Mahalo for your post and all the links

i am a free market cowboy. someday i hope to operate in a free market...as of today we have govt interference in every aspect of the market. it disturbs me that we have folks asking for more. great idea...more "help" from the brainiacs who got us where we are.

ruthmarie...the banks that took TARP funds should have an obligation to the taxpayerS...BUT THE FOOLS WHO FORMULATED THE PLAN DID NOT MAKE SUCH OBLIGATIONS PART OF THE DEAL. THIS IS WHAT HAPPENS WHEN BUREAUCRATS TRY TO PLAY BUSINESSMAN...THEY GET CHEWED UP AND EXCRETED OUT BY REAL BUSINESSMEN WHO TOSS THEM AROUND LIKE RAGDOLLS. that the banks are enjoying the boxcars of money we GAVE them should surprise no one. do you think that the banks and investment houses were in on the formulation of the programs? ya think?

the story plays out over and over again...the cure is worse than the disease.

and in the end, any ten of us could make a massive improvement to the whole mess that we are discussing...but that would just create another federal bureau that might never go away...or worse, morph into a Czar level position and then we'll have even greater corruption of the market.

here is the definition of socialist from dictionary.com

so⋅cial⋅ism /ˈsoʊʃəˌlɪzəm/ –noun 1. a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole. 2. procedure or practice in accordance with this theory. 3. (in Marxist theory) the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles.

Pacita - This post is chalk full of information, including all the great comments. A lot of points have been made that I never considered before. Thanks for sharing a great post.

Thanks for the informative post... Guess I'll be busy reading all of the links tomorrow. Never crossed my mind that they were actually making money by not agreeing to short sales...

I AGREE. There are a lot of great comments on this post. Minnesota has a long redemption time so I think that helps offering the short sale to banks...but if it goes to long it is probably cheaper to foreclose.

Ruthmarie:

No mam. A free market didn't get us into this mess (because we don't have one). The Govt sticking their nose into free markets and telling banks what to do, how to do it and who to loan money to is what got us into this mess. Buying votes with Govt entitlement and socialistic practices is what got us into this mess.

This country was built on the backs of good and strong men and women who saddled up on their horses and went out and made things happen. They took risks and when they paid off they made fortunes.

Other people have been wanting their money ever since...

You just remember how you feel about banks making money when the Government starts telling you what you can can cannot charge on Short Sales and Foreclosures. It's coming -- It's hard to stop Socialism once it starts...

Wow... some very entertaining comments on here. It's obvious that some people do not know the difference between servicers and the actual holders (investors) of the note.

Some servicers are behaving like they don't care what happens to a short sale.... or even worse... their actions suggest they would rather send it over to their REO department to handle the sale themselves.

(I'm not going to mention names but anybody with any real experience doing multiple short sales knows what bank / servicer I am talking about.)

For anybody commenting on this article and throwing flames where it is obvious you know nothing from the comment you posted... you need to read over the consumerlaw.org link that Pacinta provides to help you understand what servicers are.... and where they make a lot of money in jacked up fees.

Maybe then... (if you take the time to actually read) you'll understand what this post is all about and why the practice is such a travesty considering the circumstances taking place.

Jerri:

It's your solemn duty to vote for well qualified officials, not to have the NAR help ram a bailout down the America's throat (Realtors telling the govt what to do). It's your solemn duty to defend the land, not to steal money from tax payers so that you can have an $8,000 tax credit to make your job "easier" (Realtors telling the govt what to do).

Trade organizations like the NAR can only pass benefits for some by taking from or at the expense of others...

"And for gosh sakes, banks are not a private business. Jessica, you scare me."

The only thing that should scare you is your lack of understanding if you don't think that banks are private business...

In the early 1900's, it was big oil that dominated our country. Our leadership at the time recognized how bad this kind of power was for the country and broke up big oil. Sadly, today's elected officials lack the vision and wisdom of earlier eras. We had the opportunity to break up the big banks and instead we deemed them "too big to fail." Now we have bigger, more powerful banks that are seemingly omnipotent.

It is going to take a revolution from you and I to fix this. Sadly most Americans don't understand the big picture. Too many have been snookered by the cry of Socialism and Tea Parties. IMHO, these issues are simply side shows to keep all of us off the scent and allow untethered greed.

There is nothing wrong with profit, Capitalism brings on innovation, untethered Capitalism destroys lives. There is something wrong with a society that values profit over the human condition. Both should be part of the equation.

History will not be kind to this period of American History.

The articles never state it definitively about they get more. I'm certain it's on a case by case basis, as usual the answer is it depends.

NOV

Boy, I only got throught 1/2 of the comments. Personally, I do not believe they make for money on foreclosures, but they act like it just to leverage themselves when they are negotiating with us.

I tend to think there is some truth in these articles just by the actions we see the banks taking. If they made money on loan mods I think we would see more of them happening. Great post, thanks.

Hi Pacita. Thanks for all the links, that should keep me busy for a while.

Aloha & best wishes.

I think this is the problem with the situation, as usual, is that there are no absolutes -- The rules keep changing, and it's bank by bank, so even when you can determine one bank's parameters for the day, they're constantly changing, and the next bank's are not the same anyway. Lots of good information!

I spend several hours every week, mostly on hold, working on my small group of short sales. Those articles you were so kind as to provide links to are very informative, I now know why. I also agree with you that the best way for me to help my clients and will continue to "work" short sales.

Thank you for this post;

Mike Warfel

Wow - Lots of comments - My thought is that banks are making maoney (Just not as they would like to) Never heard of a bonk losing money - Just bailed out.

Bonner

Pacita, thank you for all this valuable information. No wonder we are seeing more bank owned properties.

This is no shocker I have been blogging about this and commenting on this when members are so frustrated when their short sales fall apart other members have blogged about it as well I am SHOCKED to read some of the comments on how many members are unaware of this practice. I hope that everyone reblogs this there should not be a Realtor this late in the game shocked that this is going on ,,,, we are suppose to be on the pulse of the market and this is news???? This is why I am so frustrated the propaganda the banks spew on we are here to help. The more people that know since so many do not and especially the public. To keep this raping of our money our taxes from going on Wall st. is still doing biz as usual just really good at. The sheep really are being protected by the wolves.

And most of the delays we thought were caused by over-worked lenders...now it makes sense.

There are a lot of comments here that seem to believe that what is best for the consumer is best for the banks. Not so, they'll go with whichever way makes them the most money. While it may appear that the bank lost money in a deal which produced a foreclosure and sale rather than a short sale at a higher end price, that may not be so once the bank has used all of its write downs, insurance, etc.

Hello, all

Thanks for your comments and the many re-blogs.

Perhaps I am naive in thnking that the banks are trying to help our distressed property owners. After all, we have some success with short sales and loan modifications.

My biggest frustration are about the length of time it takes just to get an answer from the lender for either the loan modifcation or short sale application, the many times we've had to send and re-send paperwork, they want us to fax the documents (which could be 30-50 pages long), the refusal of one lender to cooperate with the other. In the case of short sales, unless the buyer is willing to hang in there for 4 months or longer, the longer the short sale is in limbo, the closer it gets to foreclosure.

I always assume the best, and not the worst. That's why this is a shock to me. And from the gasps in the room during that seminar, and from many comments on this post, I am not alone.

How can I give up on short sales when I have buyers and sellers who need help?

I've been wanting to read this blog for a while. I suppose this explains a lot. I know people who have been waiting for months to get short sales approved with no luck.

Pacita -

This is all very interesting, but I feel the study is also a bit flawed. There is a comment that "Investors Seldom Can or Do Influence the Servicer's Actions on Loan Modifications." In my experience that is not true. Many of the largest financial institutions that are servicing the loans are also the Trust Administrators and Trustees for the asset pools (CLOs) underlying the individual loans. It is an inherent conflict of interest for one side (the servicer) to negotiate a modification or forebearance which could adversely affect the interests of the beneficiaries of the Trust. Having worked as an auditor and operational risk consultant to MBS hedge funds and CLO and CDO pools, I have hands on experience with this. Also, I am a former CFO of a hedge fund manager that dealt with some of these products and their derivatives.

That said, does there need to be greater oversight into the process? Yes. The MHA program, although well intended, does not have enough "teeth" to get lenders to approve short sales. Banking regulations need to be tighter to restrict capital ratios for non-performing assets (loans) and OREO (other real estate owned) by banks. Auditors also need to carefully analyze loan loss reserves under a "reasonably estimateable and probable" scenario.

The system is broken that is for sure. I just cringe however, when I see the newspapers picking up on something and then not reporting the full story. It confuses and already confused public!

Thanks for sharing this post.

p.s. Melissa #76 - you are spot on!

After getting through about half of the comments, I only saw one comment that specifically addressed one important point, even though Pacita referred specifically to "loan servicing companies" in the original post. The loan servicer and the lender are typically not the same entities. The loan servicer is essentially the loan payment collector for the lender. The loan servicer may make more money on a foreclosure than a short sale, but the lender (the owner of the note) typically loses more money. The loan servicer is supposed to be acting as a fiduciary to the lender, but often times isn't. A major key to a successful short sale is to get the PROPER information to the lender through the loan servicer, even if the loan servicer doesn't want to cooperate. The loan servicer is required to send all short sale proposals to the lender/secondary market investor.

Also, those of you who mentioned that loan modifications don't work, I disagree. The attorney I work with who does many loan modifications only had one loan modification fall through last year, and that was because the borrower didn't have a reasonable financial hardship (they could afford to make the payments without the loan modification). The important thing to understand is that most loan modification requests are denied the first time, but you have to go back and try again (and sometimes a third time) to get an approval. Anyone without the proper experience should not be negotiating loan modifications.

Pacita,

We are all pawns in a scheme that has many layers that is so hard to follow and that conforms to noone's standard or set of rules. There must be a virtuoso orchestrating the whole economy and sub-economies to their benefit. Somehow it is all interconnected.

Here's my sob story short sales listing.

A brother and sister bought a house for their extended family for $600K in 2006.

In 2008 they suffered loss of income and tried a loan modification. They were rejected.

So we tried a short sale. I listed it for $525K, and promptly received an offer of $525K

The lender didn't want to accept or approve the short sale. Turns out that they have sold the note to Deutsche Bank who didn't want to do a short sale. They could have told me this from the very beginning when I submitted my authorization and short sale package.

They foreclose for $375K. Then they listed it as a bank-owned property for --- guess what --- $525K.

By that time, prices took a dive. And after nearly a year of multiple price reductions, they finally sell in 2009 for $407K, or $113K LESS than what they could have gotten a year ago!

NOV

Wow Pacita, I had no idea. I wonder how much this affects our day-to-day transactions.

UPDATE: In Las Vegas, one of the hardest hit in terms of property values, a headline caught my eye:

Banks seeing advantages of home short sales

Excerpts:

"The reason banks are increasingly interested in signing off on short sales is economic: The median price of homes sold through foreclosure is $116,900, compared with $150,000 for homes sold through short sales," Well, DUH!

"It says that when you foreclose on a property and throw the owner out, the house sits vacant and sometimes the owner trashes it on the way out, the lawn dies and the homeowners association fees don't get paid."

"The bad news, he says, is that thousands of bank employees who have been specializing in loan modifications will have to be trained to handle short sales, which will slow the process." --- even slower than it is now?

Very enlightening post!

I'm bookmarking this so I can read up on all the links and get more info. Thanks for the post!

A study of MERS, Mortgage Electronic Registration System, shows how much they are able to bury.

Pacita, thank you for doing all the research to put this post together. This well documents what we have read and heard other places.

NOV

Quote # 1 - from Norm's post (#11):

"The whole short sale scene is a big scam being foisted off on innocent, ignorant and desperate sellers. The only people making out OK on short sales are the Realtors who do them"... "They are taking advantage of people who are ina very vulnerable mental state with their "I can help you" pitch. Bull! They're just trying to help themselves to whatever they can get out of the misfortunes of someone else"

Quote # 2 - from Norm's website (http://www.mishortsales.net/)

"My name is Norm Werner"... "I’ve been a Realtor for 7 years and have dealt with foreclosures and short sales mainly in the last 2 years, as the market declined. I’ve been trained on how to deal with the banks on both short sales and foreclosures. I know what you need to do and what I need to do to negotiate an agreement with the bank and then to sell your house."...

Norm, I propose you post Quote #1 directly to the front page of your website mentioned above.

"Certified Sleaze Ball Specialist"? (this too is a quote from Norm's post - his words, not mine...)

Chris Mackey...cracking me up! Talk about callin a guy out on the carpet...very nice!

I'm sure folks are checking each other's profile. Sometimes I wonder if things are said in jest and somehow it comes across as serious bantering.

Just listened to Steve Harney webinar this morning. More stuff coming that may ease some of our short sale woes.

In my opinion, we have to be on the ball with short sales --- because there's another wave of them. Me, personally, all my current and soon-to-be listings are short sales, and so are my buyers. I am paddling like a crazy duck. Truly hoping the tides turn in favor of short sales versus foreclosures. That way, we help our clients, we help the neighborhood, and we make money!

Pacita...

You're holding your own just fine. Please know I've read every single comment as they come through my email. If I thought you needed my help, I'd help. You're doing great. I'm proud of you :)

TLW...ROAR!

NOV

here is the truth...Banks take our hard earned money ...the taxes we pay ....the govt calls it TARP and pays unbelievable bonus to bank execs and then the banks turn around and screw the American homeowner buy taking his home away...and the homeowner would not be in this mess it the bank had not agreed to loan the homeowner money on a home that the bank new he could not afford...thats called no verified loans

Wow. You stirred up quite a firestorm with this one!

Jeff Burnham, Rosen & Co. West, Las Vegas, NV

Wow. You stirred up quite a firestorm with this one!

Jeff Burnham, Rosen & Co. West, Las Vegas, NV

NOV

Good info and just what I thought. I would love to be a fly on the wall in some of these companies as they receive contracts from us. It's all feels like a game and they have all the right cards and already know the end play.

Wow, when will all of this mess ever end? Pacita, thank you for the article links and a very informative blog. Yes, there should be a law, and I so feel for home owners - this shouldn't be happening. On a postive note, I have seen alot of short sales finally going through in my area - who knows...maybe it's different views from different lenders regarding what they think is best.

Carolyn Hawkins, Realtor Associate - Allison James Estates and Homes, Inc. Lake Suzy, Fl.

NOV

#11 Norm

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.

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??

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 for a short sale to be approved is hardly 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

I am speaking for myself:

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.

Pacita,

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!

P.S. In all the years of doing short sales almost exclusively, we only lost 3 of them. One because the client's attorney insisted they let it go to foreclosure, the other was due to the bank's unwillingness to do anything other than foreclose, and the third because the client gave up and simply disappeared...

Pacita, well said in your last comment. I agree.

Mark, you seem to be giving a lot of credit to someone who calls Realtors that specialize in short sales "sleaze-balls", but has his own website promoting his short sales services as a Realtor. I don't think that referring back to Norm's post in agreement did much for your own credibility.

NOV

I see some passion and if you read my e-mail I stated that in general but not towards all realtors. YOu maybe the exceptions. Yes I do advertise them, no I do not get many but do not turn them down when I get them. I have an inside knowledge of the banks inner working from experience in that field and I know what the bank is trying to achieve in total from end to finish of the default process. My contention that realtors are greedy is that they call for legislation of the short sale process, this will cause more harm than good. The realtors main reason for legislation is to make the transactions happen. The bank has a criteria by which it makes happen. I have much compassion for those in trouble. I have done more to keep people in the property than short sell. I will post a letter from one who I saved from sheriff sale the day before it happened as his and his wife's testimony. To further this I helped the husband get involved in church, drove him from the mission center in Milwaukee to Lake Geneva where he received counseling for his addiction. That is an hour drive one way. The problem is what I say is taken personal because of pride and protection. Most agents tell me that this business is all about perception, mine is all about reality. My word is backed by action. Again I am not going to state not all agents are this way but the current market agents are financially suffering and I am seeing more cut throat actions. As for me advertising short sales I do because I can you will not I do not place expert in that ad but compared to seminar school trained agents I am an expert as I was on the decision making side working in the bank.

As for the specialty of short sale I have been to a few seminars on this and the main focus is how to identify the candidate and how to get the listing, not how to make the transaction work. The banks they need us, but they need a qualified us. Selling someone elses short sale listing is a nightmare. You put an offer in most do not repsond, you ask the agent who does respond if they have sent off the loss mitigation package and most do not even know what is in it. This is most and not all. Yes short sales take a lot of time but that is because someone on our end does not have the process down.

The original article here is about banks making more money by foreclosing at that is not true. The servicers make more money by foreclosing, if you get to the lender not the one holding paper you will get to the true decision maker who is ulitmately taking the loss and will be willing to short sell. As for those who have fallen to tragedy because of the foreclosure, lost husband, job, disabled... Yes I feel bad for them. The banking system is made up of investors, maybe you, maybe your parents, sisters and brothers or the family members of those losing the home. The bank has a duty to keep the ship afloat and we should not ask government to regulate more than necessary. The more regulation, the more taxation. The more legistlation the lower the profit if any left and you, your parents, family members and friends, who are the investors, depositors and so forth will lose. Why because the realtors are calling for legislation of a process they are not knowledgeable.

Again, show me you are the expert, stop looking to blame the banks.

What Norm has stated I have seen where the distressed is taken advantage of. Why not do the short sales for free? I help the distressed maintain their homes for free, it takes as much work to do a re-write, a forebearance. Since I have been in this business both as loan officer and realtor I have given away a lot of free advice. I do so to my benefit as I receive many referrals and I gain trust. I can not count on the referrals but the golden rule must work. No I do not think you should do the short sale for free. I stand by my statement of greed as when I sat as a loan officer I had many agents ask me to do things that I did not believe is ethical to get a loan through. This is what caused me to become and agent. I am going to give blame to the agents for aiding the foreclosure crisis as willing accomplices. I am tired of hearing agents blame someone else, the appraiser, the lender...

We have a duty to push the sales price but we also have a duty to safe guard the public trust so there has to be a balance and this past heated market was not just the banks, the blame can be spread all around. The realtors want the tax incetive pushed to purchase, they want the banks regulated, they also cheered when the 0 down, non verification loans were happening. Now they cry when the out of balance market has led to distress and the lending programs have disappeared. Shoot the lending guidelines today are not as strict as when I started back in 1993. Also I am not calling the agents sleazy are as fewer the than the best.

Greed is not bad for an economy to work but greed unchecked is allowing those to operate out of norms and my belief from experience is many going into the short sale field are looking for the easy way to shore up their income loss due to current market conditions. They are doing so without the quality needed. Greed unchecked got us here in this current distressed market. When I was an asset manager for the bank I attended the REO conferences having the name tag on my short made me that of celebrity status with every agent at the conference wanting my attention, every agent offering a kngdom in return for their services. Nothing short of bribery, gifts, and such. I felt like a politician in front of the lobbyists. Pure disgust, pure greed. Short sales are for those who can not get the work directly from the bank so they go to the distressed seller as saviour. Sorry if I offend, this is my challenge to my profession and my fellow professionals. If you are one who does the job required then great. This is good news for me as a real estate agent as you are bringing credibility to our profession.

Jason,

My specialty was VA and FHA I had no room for lending irresponsibly. In the nine years I activey originated loans I only originated 5 FNMA loans, that was before the flex programs, the pay option arms... I put my focus on real estate with free giving free financial planning to set first time buyers on the path to home ownership. My practice speciatly at that time was first time home buyers, it was 7 years before I had my first listing. I am a conservative and I believe in responsibility. No I am not running for office I feel I can do more service on the outside. Lastly, I stated banks do not make more by foreclosing. The author of this artlicle I believe has it wrong, I did not read the links she has placed but the servicers make the money off foreclosures not short sales. The actual lender loses, the serviers have no incentive to sell short, they just service as trustee.

Mark --- perhaps you should post a blog about your thoughts on this subject matter.

Re what you said, "The author of this artlicle I believe has it wrong, I did not read the links she has placed but the servicers make the money off foreclosures not short sales..."

If you will please re-read my blog, you will see that I didn't STATE or make claims but rather posted a lot of questions asking if this is true, if we are working for naught, etc.

And I still think generalizations are dangerous as you are sure to offend hard-working, honest realtors who should not be lumped in with some you perceive as anything but.

Pacita,

Right off the start in my comments I stated I am not trying to characterize as a whole. What more can be said. Your post started with servicers which is correct it is not in their best interest to represent their clients the lenders. They profit by servicing through the foreclosure. The articles you posted links to which I did not read because they are mostly about banks and lenders. The banks those with the money lose when foreclosure happens. Your last statement there oughta be a law is the crux of my point. There ought not be a law but the lenders oughta do what is in their best interest. Do you have a bank account? Do you have 401k, IRA, Mutual funds? A law means more regulation which requires more taxation on our end and on the end of those who have these accounts with banks will see less revenue for their deposits and investments.

I know there are good hard working, honest and ethical agents but why is that the real estate industry as a profession is ranked in the low part of consumer confidence?

Mark

Ever hear of colloquial expressions? "There oughta be a law!" is one such expression. If you had clicked on that linked expression, it would have taken you to writing.com's site, and specifically to this link http://www.writing.com/main/handler/item_id/1061132-There-Ought-To-Be-A-Law

Please click on the links and then you will know or see the rest of the story....

I look forward to your post inviting others to comment.

This blog does not allow anonymous comments

Pacita Dimacali - e-PRO, SRES, CDPE, MBA East Bay, North CA real estate

Alameda, CA

More about me…

Gallagher & Lindsey

Address: 2424 Central Avenue, Alameda, CA, 94501

Office Phone: (510) 748-1148

Cell Phone: (510) 205-2992

Email Me

Alameda Real Estate - Trulia

Alameda Homes For Sale Get this Widget

Oakland Homes For Sale Get this Widget

Links

Archives

Find CA real estate agents and Alameda real estate on ActiveRain.

Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.