I may not be a proponent of short sales but would at least ask that the seller and listing Realtor tell the buyer that they are dealing with a short sale.  I just wrote about this about one minute after you did.  See above.

It's worth what it is worth.  Many buyers purchased based on interest rate, not value.  Now that rates have gone up, the value has gone down.  It coud be 100 reasons.

1099?  Judgements?  OK.  The other option is keeping a property that you can not afford.  How is that a good thing to suggest?

The reasons people find themselves in these situations are varied - poor mortgage planning, rising interest rates, declining values, etc.  Short sales allow the lender to mitigate loss by avoiding the costs of foreclosure, while allowing the seller to avoid foreclosure.  Admittedly, it's not an ideal situation to be in, but it may be the best option available.

Naturally, as a listing agent you're responsible for generating the highest price possible for a given property, however as Rich pointed out, it's worth what it's worth.  Holding a property for months on end trying to secure a price that's based not on the value of the home, but on what the mortgage balance is really serves no one.  

Thank you all for your comments. This is exactly what I like to see. a healthy difference of opinion. Rich, I disagree that it is worth what it is worth, We all saw prices skyrocket on the back of low interest rates. People paid what they could afford (As we used to say "the monthlies") and we enjoyed the ride. Now we have a duty to these same clients not to see them lose everything and go to jail to boot.

If we do everything we can for them, I believe that most short sales can be avoided and the "market" will appreciate it.

Philip, I'm going to read your post now.

Here in Southwest Florida, and specifically in Cape Coral, the average price per square foot paid for a home has dropped well over 30% in the past 18 months. Most of our short sale listings are new construction homes that were contracted for in 2005 with 95% - 100% financing. There is no way to sell these homes for what is owed and most of the "investors" who had them built never had the resources to carry them past completion. Our city is now sitting on an inventory of 5,000 single family homes with an average of 185 sales per month. Prices have dropped every month, without exception, since November 2005 and they are still going down. Considering the 1099 these people will receive, it pales in comparison to foreclosure or bankruptcy. For those who just CAN'T afford to pay their mortgage, they will have to follow one of these paths and no matter which one they end up traveling, their home will be on the market and priced lower than the competition. For those who simply WON'T pay their mortgage but have the resources to do so, that's a different story. While short sales in large quantities depress the market, for some they are the best option and will usually net the lender more money than one that has to go through the foreclosure process. There is no question that short sales are hurting the real estate market and delaying it's recovery. Lenders could voluntarily refinance some, but aren't usually willing to offer options until the borrower is 60 days past due. Tax reform and lower insurance rates could keep some other heads above water. As far as the highest possible price, it is always in the sellers best interest but is always determined by a ready, willing and able buyer.

Jay, your situation sounds dire. I'm willing to bet though that many if not most of those homeowners would like to be able to keep their home if they could. If the lenders were forced to try to work out these loans rather than foreclose, they could keep their homes. Less homes on the market would exert some stabilizing forces to value. Ultimately, everybody would win. But this takes extra work on the part of the lender. Most would rather "cut their losses" and move on. Part of the problem from the lenders point of view is how non-performing loans are handled on their balance sheet. It is NOT just the dollars lost but the whole loan not performing. Change this accounting practice and maybe the lenders would be more interested in saving the loan.

Thanks for your thoughtful reply.

Bill Roberts

Bill,

First thank you for your comments on my blog post, that allowed me to find your blog.  I have read everything you have written thus far and have gone ahead and subscribed to your blog, because I am certain that there are many more good things to come.

I agree, there really should be a better solution.  Unfortunately I don't think the government will do anything to step in and fix it until it is too late - Kind of like Katrina.

My thought is roll back the interest rates to what they were when the loan was originally written.  Let the lenders carry the burden for their funky product that sucked so many in and made mortgage fraud child's play.  I can't tell you how many times I have heard both Mortgage lenders and Realtors refer to the No Doc / Stated Income loans as "Liars Loans".  My though is every homeowner the prosecute for one of those loans they need to fully investigate both the REALTOR and the loan officer. 

I can suggest this, because I KNOW I never did anything to steer someone into mortgage fraud - then again, I know a lot of good folks who start sweating every time this topic is raised.

But lets face it - the government is not going to step in any time soon, so being an advocate may serve some inner need to be righteous - but I am afraid for both of us, it is for naught.

In the meantime, I have a sick wife to care for and my own sick mortgage that was generated when my wife was earning 6 figures (She is a cancer patient, currently on Hospice care) just a couple of years ago.  If I don't work, not only don;t I eat, but I too will become a victim of the beast.  So, trust me, I understand it from both points of view.

In the meantime we have short sales.  I am not only interested in Short Sales, but every one of my clients is explained fully what their options are.  I have even aligned myself with and been trained by a reputable company that provides loss mitigation services. I have written my own 50 page book on the subject that I give for free to every short sale prospect that I meet - showing them just how they can go about helping themselves with loss mitigation on their own.

As you know, loss mitigation requires money and for whatever reason, people are claiming they don't have any.  I don't get it - you don't pay your mortgage for 3 months and you have no savings?  What am I missing.  Yes, there are those who have had catastrophic events in their life - but come on.

My thought is the people who are in this jam have to take some of the responsibility on themselves.

As far as anyone who took out a "liars loan" - these folks I advise them of the consequences and that their only real alternative is to walk away - and even walking away does not mean that the lenders won't come after them for the fraud.

My guess is there will be a cottage industry starting up - some attorney no doubt, who will start buying the rights to these loans and start conducting their own investigations and pursuing some sort of payment or threatening the legal ramifications of fraud - which could be pretty intimidating.  Think about how easy it would be - they have the IRS form that allows them to pull copies of subsequent tax returns - how can they file taxes on one amount and loan applications with completely different amounts - it is a slam dunk for someone to take the time.  They will end up threatening the poor guy who lost his home and will intimidate him to a stipulated judgment for the loss - with monthly payments that will go on forever.  OUCH

Enough rambling for now - but short sales are here to stay and I will continue to  ethically pursue them.

Now Have a Blessed Day,

John Occhi, Hewet CA REALTOR
Mission Grove Realty
Hemet CA REAL ESTATE

John,

I'm really glad to have met. Soon I hope to be able to meet you in person.

I am also very sorry to hear about your wife. Cancer is so impersonal. It picks on people at random. We need a solution for that as much or more than we need a solution for short sales.

I've got an offer for you: I've written a short book also, as yet unpublished. It's called "How to Buy a Business." I'll be happy to send it to you (a pdf file) and I would really appreciate getting your book.

Back on the subject of other solutions, the federal government requires lenders on FHA loans to try work out first before foreclosure. This seems like a reasonable approach to an unreasonable problem.

As for the prosecutions, after the S&L crisis they went after everybody they could, especially appraisers. There's a history here. There is no reason to think that this time will be different.

And your thought about an unscruppulous lawyer buying up the files, it's just a matter of time. Attorneys of this ilk masquerading as colllection agencies are probably already salivating at the thought. 

More next time.

Have a happy Fourth.

Bill Roberts