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How long will the "short sale" LIE continue?

The sign says the short sale did not work. This happens. It probably happens more often than a successful short sale. The lie continues...a short sale helps a home owner facing foreclosure. How long will the "short sale" lie continue?

REGARDLESS OF THE OUTCOME OF A SHORT SALE.....THE FORMER OWNER (S) WILL BE IN THE SAME FINANCIAL STATUS......THEY HAD A HOME...THEY DID NOT PAY FOR A HOME...THEY LOST A HOME.

IN TENNIS...THEY SAY...GAME....SET.........MATCH.

This site and most of the other sites used by real estate agents have entry after entry full of heart wrenching stories regarding our current market conditions. We share about the plight of people we meet that have run into hard times. We castigate those that we meet that have created their own suffering through greed. We apologize for those that we perceive have been taken advantage of in the past.

Then, we proudly pronounce that we are going to assist the homeowner and work to get the "monkey" off their back. We enter the twilight zone of "the short sale".

The rules and regulations to handle the sale and reach the goal of

getting the property sold vary from state to state. They also vary from lender to lender. It is not a place for the unorganized or impatient.

Our industry, for the most part, is made up of people that enjoy assisting people buy or sell homes. As with any profession, the motivation behind each individual varies. I make the assumption that most agents are committed to helping others because if you are just in real estate for the easy money, you won't last through markets like this one.

You have been sold a bill of goods regarding short sales.

The primary benefactor of your efforts will be the financial institution that holds the mortgage. This fact is hidden behind the tears and fears of the clients we sit with. Selling the home is not going to resolve their problem. Selling the home may reduce the amount of money the financial institution loses but it will not make tommorrow any brighter for the folks relinquishing the deed.

The only other people benefiting from a successful short sale are the participants other than the seller. The lender may only agree to the sale if commissions are reduced. A reduced commission is certainly more than the seller will receive. The agents will earn some money.

The new lender, title company, home inspectors, termite killers, appraisors all stand to benefit from the transaction. Seems like all the usual suspects have their hand in the cookie jar again.

HMMMM....THE SAME PEOPLE THAT BENEFITED FROM THE ACTIONS THAT CREATED THIS MESS, SEEM TO BE BENEFITING FROM THE PREFERED METHOD OF GETTING OUT OF THE MESS.

THE SAME PEOPLE THAT WERE HURT GETTING INTO THIS MESS ARE THE ONES THAT WILL END UP BEING HURT THE WORST GETTING OUT OF THE MESS.

The honest advice for those that can not pay seems to run counter to what we have been told is the moral and ethical manner to advise clients. Get out....pack, move while you control your circumstance, stop sending money to the lender....YOU NEED IT. Of course, if we were really following what is ethical, a great deal of this mess would not have occured or most of the people now in a jam would have gotten there without representation.

AGENTS MADE MONEY REPRESENTING CLIENTS ON THE WAY INTO THIS MESS

AGENTS WILL MAKE MONEY ON THE WAY OUT

THE CONSUMER CAN NOT WIN

If you are convinced that you are helping folks when you list short sales, at least have the decency to admit that you are helping everyone other than the person living in the home. Tell them the truth..their credit is in shambles, they will not be able to buy again for at least three years, every dime they send their current mortgage holder does nothing to assist their position or credit rating. Let them know that when you are asking them to stage the home or put money into the home that they are not going to receive any benefit from that action. Tell them that whether your commission is 1% or 10%, the bank will make the final decision. Tell them that the sales price is nothing more than a headline on the listing and their failure to pay will not be eased by the amount of money the mortgage company receives.

TELL THEM THE TRUTH....YOU CAN'T HELP, BUT YOU CAN MAKE A DOLLAR GETTING THE HOUSE SOLD

Let them get off the roller coaster before the

ride begins. Let them get on with their life while they still have some resources. Let them find another place to unpack and mourn the loss of the dream. Let them have the dignity necessary for rebuilding a life.

Of course, you can always walk away and tell the lenders, that are now left holding bags that they chose, they will have to foreclose on every one of the "short sales". Let them spend the time and money now. If the home does not sell as a short sale.....it will become bank owned property at some point.

Today, agents listing short sales are gambling that they can turn the transaction before the bank forecloses on the property. There are no guarantees. The agent is using the calamity to build business, gain exposure and hopefully cash a check.

They just need to be honest...it is not for the owner, it is not for the bank...it is all about the "benjamins".

Posted by John MacArthur on 08/18/2008 09:47 AM

Comments (21)

short sale, foreclosure greed, lies

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21 Comments on How long will the "short sale" LIE continue?

AUG

2008

Hey John, interesting perspective. Made me think a little bit! Good luck, Aaron

Hi John, I read your entire post and come away with the feeling that you are painting with a too broad brush. Every point you make is true in at least some situations but the premise that what we are doing will in no way help the seller goes too far.

John - some of what you say may be true, but to say that a short sale is not helping or benefiting the home owner is just not true. Damage to their credit rating will be less severe than if they were to be foreclosed on, and they will be eligible to purchase a home again in 2 years rather than 5 per Fannie's posted guidelines. Furthermore, if it is their primary residence they may get relief from the Mortgage Forgiveness Debt Relief Act of 2007, which was was enacted by congress on December 20, 2007.

A short sale may not always work, but when it does everyone benefits, including the Bank/Lender, who stands to lose less than if they were to foreclose on the property, especially in judicial states where it can take 8 months or more to evict a home owner.

John,

If this was all true then how come we don't see the bank willing to work the short sales faster trought the system ? How come it takes them max 5 days to respond to a REO offer and 120 days to a Short Sale offer.

I do not enjoy short sales a bit, I know is a lot of work that might not pay off a penny in the end but the truth is that a short sale situation might not be as bad as foreclosure on one's credit report.

Hi John, Some of what you say I agree with, some I don't. Short sales are better for the homeowner than a foreclosure. Both they lose the home, but they lose less on their credit rating with a short sale.

Once the short sale is through there is much less stress on the homeowner. Stress can kill people.

All the best!

Aaron - thanks for taking the time. I am glad the post gave you pause to think. Thinking is a good thing.

Bill - I understand. I suppose I should use the caveat that ...perception is only reality for the one doing the perceiving. As far as a broad brush.....I will be the first to agree that each situation is different. Generally speaking, I stand by my premise that the only ones benefiting are the folks I mentioned.

Donald - Two years...five years. The majority of people in this situation need to go back to square one. While licking their wounds, they can seek financial planning assistance. They can live within their means while re-establishing a credit rating and saving money to put towards a home in the future. The Debt Relief Act provisions certainly focus on the tax benefits of the amount of money being written off. The Bank/Lender, who stands to lose more should not be the concern of the home owner. The homeowner has to circle the wagons and make sure that they have housing for themselves and their family. Using the argument that the damage to the credit rating is less severe side steps the fact that the failure to pay is a major impact. The focus should be on today. Regardless of whether recovery may occur in two years of five years, the problem right now must be addressed. The problem that exists now took root when the lender accepted the borrower and the risk involved. Staying in the home and trying to bail out the "bank" is a perfect example of throwing good money after bad.

Elena - Just a callous guess on my part, but, if you list the house and you advertise the house and you get people in the house, all on your dime...when it becomes an REO property, the exposure will benefit the bank. If you list the house and folks are coming and going viewing the house, it may be more difficult for the tenants to remove refrigerators, dish washers, washers, dryers, plumbing, copper, windows etc.

If it sells, fine...if not you have been a free watch dog.

Regardless of the outcome.........the seller still has to have a new home. Helping the lender is in the lenders best interest. The argument that you are helping the homeowner is specious at best.

Kevin - We see stress at different points. I think the stress of where will I live tomorrow is greater than the stress that I hurt my credit rating. We are referring to people that can not meet a monthly payment today. The penalty of two years or five years does not even resonate. Focusing on possible results two years or five years down the road is very similar to sharing that home values will certainly go up in the future. The "home prices will keep going up" line is one of the lies that put us in this place in the beginning.

John, There are certainly preforeclosure owners that are not able to handle the stress and time involved in going through the short sale process. In these cases it may be best to just move forward and let the property be foreclosed on. Most of the short sales that I'm dealing with the sellers have already moved. Some before I met them and some after taking my advice. But if they qualify for a short sale AND their broker knows what they are doing then a short sale is a far better option than a foreclosure.

Seems to me that the foreclosure listing are going to bulk listing brokers who make a modest fee for the opportunity to handle these properties.

The short sale business, if treated like a business, could be a lucrative niche for agents who know what they're doing. Sure, it would help if the mortgage had short sale standards and procedures. However, they don't and we have to deal with it.

If agents treat short sales as a business and lose the idea that they're "helping folks", there would be far fewer so called short sale listings on the market. Do the research and make sure that the seller is cooperating or get out of it.

Taking agents to the poor house while home owners are on the way to foreclosure doesn't make any sense to me.

Perhaps it's the low esteem by which agents are held in the public eye that makes so many believe that they have to "help folks" to redeem our image. I dispute that. The best thing we can do is learn our business, market our services, do a good job for the folks who hire us and make a decent income along the way.

Fact is, if we do our job well, we're entitled to every dime we make. Even on short sales.

At this point, I haven't a clue if my comment even relates to your post.

AUG

2008

John,

Check out this comment from Lenn above.

"Taking agents to the poor house while home owners are on the way to foreclosure doesn't make any sense to me. "

I noticed you are from MD . Your market is not half as bad as it is in AZ, CA,FL, NV and other Western states. We are sales people , no financial planners , not attorneys or accountants. We are here to sell homes . Let's not loose sight of that . We have to do that trough a bust market just like we did trough a boom market. Also the more homes we let go to foreclosure the worse the market will be .... and that hurts everyone . The whole economy. Is thinking like this that got us in this first place. We could not put a stop on the insane lending now we can't put the brakes on the foreclosures. Banks could but they desperately need some fresh thinking and some executives with some smarts and some guts !!!

Forget the fancy degrees and so called "experience" .... bring some people with some common sense to the table.

Sometimes the short sales work, sometimes they don't. Remember this is all new for everyone ( least at this scale ) However it is not wise to just refuse to provide service when needed.

We were all competing to help people buy these homes a few years ago !!!!

Sellers are asking for the short sales. Guess what? They can stay longer in the homes while the process of short sales take effect and they aren't as upset and depressed about it as they see some light at end of tunnel and some hope .

This process all started with the few investors that were advised by "some wise agents "walk away from their investment since it went down in value. 2 to 3 of those in 2007 turned into 20% to 30 % of the entire neighborhood by 2008....

I think we all need to do less advising and more of what we were supposed to do ! SELL HOMES !!!!!

Peace !

Elena - I have the utmost respect for Lenn Harley. We probably agree on many more things than we might disagree.

We both feel that agents deserve every dime they earn.

I happen to be of the opinion that if I sit with a home owner to do a listing appointment that my goal is to deal with the situation honestly. My goal is not to list the house.

If my interview reveals that they are in a "upside down" position, I explain the possible outcomes of several different scenarios. I do advise them that their goal should be to have affordable housing. I might suggest that they speak with their lender regarding reworking their loan. I might suggest that they seek counsel from NACA. I will openly share that if they can not rework the loan, they should not continue paying the mortgage. There is absolutely no concrete advantage to them to do so. I tell them that I will gladly work with them on a short sale if they agree to provide all the necessary documentation. I tell them that I will begin the process, but it would be in their best interest to move as soon as possible.

"Sellers are asking for the short sales. Guess what? They can stay longer in the homes while the process of short sales take effect and they aren't as upset and depressed about it as they see some light at end of tunnel and some hope ."

Now, these are your words. I can only say that the short sale processes that I have worked with do not include any provision regarding extending the length of time a owner can remain in the home. You refer to clients not being as upset or depressed about their situation because they see some light at the end of tunnel and some hope.

The light is the head light of a freight train of bad news that is bearing down on them. It is the bright beam of accountability and accepting responsibility for their actions. The only hope is that they might be able to find an affordable home for rent. I believe that they must circle their personal wagons and find a place to rebuild.

I do not advocate just walking away. I believe that finding suitable housing should take precedent over anything else. I do not believe they do anything for themselves by continuing to pay even one dime to a lender that one way or another will control their current home.

Banks will extend the foreclosure date providing they have an offer on the table to give them time to review and approve or dissaprove the offer .... We are in a Deed of Trust state and the foreclosure process goes very fast here.

I always let people know there might be a way to work something with the bank on the loan and call they tax advisor or attorney first ; however some situations is not going to work as people have lost their jobs due to the weak economy. So those cases is best to aim for short sale.

Like I said, I do not advise people on what to do , unless you are certified to do so you should not either.

You do have the option to tell them you can't do anything for them ..... Not all agents what to deal with this as it is a lot of work ...

Why would you advise people to move so fast ???? What is the benefit of moving so fast ??????

I am not sure what you're trying to express here? makes not sense to me.

I think it is understood that they will have to find a new place to move into that they can afford , a less espensive rental home perhaps. Here is the take. Some might be able to stay in their homes as renters if the home sells to an investor .... that way they can enjoy some of the upgrades and money that they put into the house. Avoiding to move out of the school district etc...

Elena - There is no guarantee that listing a short sale will result in an offer which will extend the foreclosure date. It may happen. It may not. When viewing both possibilities, and I certainly disclose both, the prudent course is to resolve the housing situation.

I am not certified to advise about anything other than real estate. I have every right to offer my opinion. I have a responsibility to explain every possible scenario.

If people are in arrears and they express the fact that they can not pay what is due, much less what is in arrears, they are in a dangerous place financially. Their credit rating is not going to improve any time soon. They have to look at their income as a resource and make a decision how to use that resource.

It if very likely that procuring rental property will require one months rent and a security deposit equal to one months rent. I always point out that they can keep paying a mortgage that is in default or they can set the money aside to procur a rental property. The choice is theirs.

Moving now can be done at their pace and under their control. If they wait for a foreclosure or short sale, they then have less time to find something affordable.

If you had a son or daughter in that situation and the only thing you could do was advise them, would you tell them to stay put and keep paying or would you tell them to stop paying, save the money and find a home they can afford?

Most people stop paying while thye work the short sale !!!!!

So they end up saving some money in case it doesn't work. lenders wont approve a short sale if they are current on the loan.. that is understood.

ok...........so you now agree with my point. get your life in order and then do a short sale.

It is not true to say that lenders won't approve a short sale if the borrower is current. That may certainly be true for some lenders, but not all of them.

As for the rest, a short sale is far less damaging to a homeowner than a foreclosure or a bankruptcy. And finally, you left someone out of the "usual suspects". Many people in the boom made really good money. Money they never dreamed they would make. They received loans they should never have got and then sold before the trouble started. Others equally saw the opportunity but there timing was off. And finally, there were indeed many victims of fraud and bad representation.

AUG

2008

Interesting perspective, I hadn't really thought of it like that before. Thanks for sharing!

NOV

2008

Realtor short-sightedness is one of the reasons why we are in this mess! I've been in a Realtor since 1987 and never have I been more appalled by the behavior of some Realtors!

Short-sales benefit the Realtor more than the homeowner!

FEB

Short-sales only benefit the investor. I had a short-sale and because the bank, who makes you THINK they are the ones who can approve the negotiation, was dragging their feet. I lost my buyers. Futhermore, the bank tells you to go delinquent because that is the only way they will even consider a short-sale. So while you're in negotiation with the bank, even though they can do a thing for you, they start foreclosure proceedings. Go Figure!! The best part about this is the bank can't foreclose because they can't find the ORIGNNAL NOTE. Copies don't count. This is good for us and bad news for them.

MAR

We lost our home in a short sale and speaking from experience, I can tell you that we did not really benefit from it. We are still paying for windows which we put in the house because Countrywide refused to include them in the short sale. Also, we did go into foreclosure because the main breadwinner in our family became critically ill and we lost the income. Of course, the realtor will tell you that it is better to do a short sale than be foreclosed upon but in our case, we are still tied with debt of more than five thousand dollars from the house. I don't know if we have any legal recourse on the windows. Also, something illegal was going on at the original closing of our loan on the house and no one would tell us what they were doing. Our broker said, "it's illegal but it's done all the time." Go figure. Foreclosure or short sale? They both hurt the same. The loss of the dream is devastating, especially since it was no fault of our own but at least we are no longer under all that stress. Countrywide did all kinds of underhanded things to us throughout the course of our loan with them. All I can say is that according to Gods natural law, what comes around goes around and when it comes back around it's much worse.

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