Hey Congress, Want to Stimulate the Economy? Let Banks Foreclose Faster!

By
Real Estate Broker/Owner with Four Seasons Properties

Hey Congress, Want to Stimulate the Economy? Let Banks Foreclose Faster!

Stimulus

Sounds Crazy right?   However, here me out for a minute.   First of all, I am not speaking for the families who are trying for loan modifications with their lender or trying for short sales.   I completely believe that banks should do everything possible before foreclosing on anyone and exhaust all options if the homeowner is cooperating and trying to save their home.

However, in many cases the homeowner just simply cannot afford the home any longer and they are not actively engaged in trying to save it through a loan modification or a short sale.   In many of these cases the homeowner moves out and vacates the property or they are simply living their until they are evicted.  Meanwhile the home is not being taken care of which is bringing down the value of the homes around it.   However, the banks are delaying these properties still each month from going to auction...  Why?

Example:  Did you know that less than 5% of the homes scheduled for the foreclosure auction each month in San Diego county are actually sold to 3'rd party investors or back to the banks?   The rest are postponed til some point in the future.   Who know's what that percentage will be now with the new moratoriums and state lawsuits.

Why would selling these homes faster stimulate the economy?

When an Investor buys or a bank sells a foreclosure home there are many, many people who benefit...

Let's use a real world recent example of an investor buying a dilapidated bank owned listed foreclosure for $350,000:  I will run the math below to show stimulus.

Who gets paid on the initial purchase:

 

  • Buyers Agent
  • Listing Agent
  • Loan officer (if loan is involved)                                     
  • Title Officer
  • Escrow Officer
  • Past Due Taxes or back due HOA's get caught up
  • Processors and Agent Assistants

 

 

Who gets paid on the rehabilitation of the property:

 

  • General Contractor(s)
  • Painters
  • Roofers
  • Cabinet Makers
  • Landscapers
  • Landscape suppliers
  • Window Manufacturers
  • Flooring Specialists
  • Supply Companies (such as Home Depot, Lowe's)
  • People who supply the products to Home Depot, Lowe's
  • Appliance Manufacturers
  • Waste Management Rental Trash Trailer 
Who gets paid on the Resale of the Property Once Rehabilitated and Sold:

  • Buyers Agent
  • Listing Agent
  • Loan Officer for new Buyer (if loan is involved)
  • Lender Underwriter and Staff
  • Title Officer
  • Escrow Officer
  • Processors and Agent Assistants
  • Sign Rental Companies
  • Marketing Companies (to market the listing)
  • Investor who took the risk
  • Home Insurance Companies
  • Furniture Companies
I'm sure there are many more potential people.   This is actually a Real World Recent Example of one an investor bought and that we sold recently.

Here were the rough stimulus numbers.

Purchase Price of 350,000

Roughly 7% closing costs to the seller and buyer:  =$24,500 in stimulus to people in the initial purchase category.

Rehabilitation costs of roughly $100,000 paid to the people, supplies, and crews involved in the rehabilitation.

Sale Price after rehab of 550,000

Roughly 8% total closing costs to the seller and buyer: =$44,000 in stimulus to people who get paid once sold again.   Plus whatever profit the investor takes home.

One Real World Recent scenario = $168,500 in Stimulus on one home to a wide range of people, businesses, and trades not to mention the positive effect on the neighborhood for now having a rehabilitated home instead of a dilapidated home bringing down values.

Short term effect of banks foreclosing faster would most likely be downward pressure on home pricing, mid to long term effects would be a stable housing market once again without record numbers of foreclosures and fixed up neighborhoods!

Those are my thoughts...  Would love to hear what you think?   Leave me a comment and tell me...



 

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Comments (16)

P C
Rental Solutions Oahu - Honolulu, HI

You are right- it is all about the money. If they give the distressed homeowners the same deal the new owners get, most people would be able to stay in their home.

Oct 12, 2010 01:39 PM
Cody Haworth
Four Seasons Properties - Carlsbad, CA
Carlsbad Homes for Sale

Thanks for the Comment Andy!  Hopefully this article can help!

Oct 13, 2010 07:25 AM
Victor T. Gurrola
Remax Realty 100 - Diamond Bar, CA
Diamond Bar Real Estate Professional

Does not sound crazy could not agree with you more.

Oct 15, 2010 09:32 AM
Victor T. Gurrola
Remax Realty 100 - Diamond Bar, CA
Diamond Bar Real Estate Professional

Actually if they made Short Sales a 60 day transaction that would stimulate the economy, I employ three staff memeber because of the short sale process.

Oct 15, 2010 09:39 AM
J. Philip Faranda
Howard Hanna Rand Realty - Yorktown Heights, NY
Associate Broker / Office Manager

Substitute "Short sales" for foreclosures and I'll agree. Other than that I think you have a very flawed (and incredibly insensitive) argument. 

Your assumptions on work needed on the homes is specious. Not every foreclosure is a fixer upper, and banks will net far more if they accept a short sale rather than jumping through the hoops and expenses of repossessing and managing an REO. 

Most foreclosures are market value minus repairs. Since I could build a home for $200,000, the idea that a $350,000 REO (based on your one anecdotal example) is going to become a $550,000 is a hell of a stretch. 

Why not let people dispense with the home with dignity and get the bank the most they can via a short sale rather than expediting their being booted out? These are homes to these people, many of whom did nothing wrong other than to lose their job, and not just cold assets.

Oct 15, 2010 09:57 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist
Interesting take, but it seems we're headed in a different direction right now ?
Oct 15, 2010 10:04 AM
Cody Haworth
Four Seasons Properties - Carlsbad, CA
Carlsbad Homes for Sale

Phillip,

 

Thanks for your response.  I don't think you read the first part of my post where I clearly started off by stating I am not talking about the people who are actively working to save their home by actively trying to do a modification or short sale.   So I'm not sure where my argument was insensitive.   I agree with you that a short sale would be a better situation for the banks and for the current home owner in many cases and I would encourage the lenders to expedite that slow process if possible, however there are multitudes of situations where people have simply walked away and are not pursuing a short sale or a foreclosure.   Most homes that foreclose were never even listed for sale which makes it tough to do a short sale.  It would be better to bring those properties to market sooner so that investors or general home buyers could buy them.

The example I gave was an actual example here in San Diego County and I could give you many more. Sure you could build a home for 200,000 these days, but depends on where it sits.

However it appears at the end of the day the process will be brought to a halt with all the lawsuits and the problems will be delayed out many more days ahead.

 

Thanks for your thoughts...

 

 

Oct 15, 2010 10:15 AM
Ryan Case
SCA Real Estate - Anaheim, CA
877-828-0710

You are right, stopping the foreclosures is going to hurt the economy in a lot of ways

Oct 15, 2010 05:33 PM
Fernando Herboso - Associate Broker MD, & VA
Maxus Realty Group of Samson Properties - Clarksburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

Cody:

Yes you are right. . let them foreclose and you and I will make more money . . . like a few years ago 

but . .

What  about my family member and she is a widow. .. she confessed to me that she got a modification 5 months ago. .she was paying a partial payment and the bank has now told her that if she does not pay $15,000 she does not have , they will foreclose on two weeks.. .she complained. . .she was paying what she was told. . . they say they know nothing about that . .she will be foreclosed unless she forks the money. .I will be in the phone come on Monday. .

 

What about my client #38. .two kids divorced and we had a good offer contract in a short sale. . she called me frantically one day. .the locks were changed on her house.. .I called the bank. ."I though you said that you were postponing the foreclosure until you make a decision on that good offer. .. Mr Lender?

"Oh. .that is another department . . sorry, we don't know nothing about that. .

 

What about possible client #41

Older couple . .they had $160,000 equity on their home before the s*** hit the fan. ."Mr and Mrs, I think we will need to do a short sale. . . and let the bank pay the commissions. ." "But, that is all our savings,. .our retirement money!.. where we would go?"  Your house is not worth what you owe and you better off doing a short sale. . sorry. .

 

and finally, a Realtor I befriended at a class. .

"Fernando, you do short sales, can I ask you a question?.

"sure.."

"Is my parents, they moved to Florida a few years back. . they purchased a home for $350,000 and now is only worth $100,000. . they are asking me for advice. .what should  I tell them. .

Me: " Are they in hardship?"

She: Yes, they are, they have a small social security check and a little pension that pays very little. ."

Me: If they have a hardship and obviously, they can't afford it anymore. . tell them that a short sale maybe a good option to  get out from the hole they are in. . 

She: . . .  but Fernando, they paid CASH for their house!!!. . they put all their savings in that  house!

Me: Swallow hard, looked down and a silent response. . 

 

Yes, I agree these foreclosures birthed out of these lenders greed is creating havoc in our commission checks. .but. .I rather dig holes and earn a living before I see families suffer because you do not want these families to have due diligence , respect and protection of existing laws.. .

 

I can't agree to that. . 

Oct 15, 2010 06:22 PM
Simon Mills
Mills Realty - Toluca Lake, CA

If the banks foreclose faster the negative effect would be a flood or properties to market and a major crash of prices.  I'm not saying that would be a bad thing as it would get us to the bottom much quicker, but can the economy really take another 30%-40% decline in value?

Oct 15, 2010 07:29 PM
Brian Bean
The Dream Big Team at Better Homes and Gardens Real Estate Champions - Riverside, CA
Homeowner Advocate, Dream Big Team, S.Calif

Foreclose faster ... or slower? Than what?

How about they follow the procedures that are in place, stipulated in the contract and the laws of the state in which the home sits. Foreclosing without the proper authority is never acceptable, and if a home has a title issue because of selling and reselling and reselling a mortgage on the secondary market, then it needs to be cleared before any auction.

Oct 16, 2010 02:38 AM
J. Philip Faranda
Howard Hanna Rand Realty - Yorktown Heights, NY
Associate Broker / Office Manager

Cody- thanks for the clarification. That caveat does make a big difference. My apologies for painting with too broad a brush.  

Oct 16, 2010 07:55 PM
Cody Haworth
Four Seasons Properties - Carlsbad, CA
Carlsbad Homes for Sale

Hi Philip,

 

Thank you for the nice follow up.  I actually agree with your points and I agree with your latest blog post (even though you seemed to hammer me a bit in your post).  I do think the banks are treating home owners who are working on modifications and short sales very unfairly in many, many cases.   I deal with homeowners like this all the time and it's very upsetting when the lender is giving them the run around, when they are trying hard to work with their lenders.   I actually have a good friend of mine who has been trying to do a modification with his lender for over a year now, after all the back and forth, they just decided to decline it and schedule it for auction.   I believe the banks should follow the processes and laws in place and do everything they can to work with homeowners who are trying to save their homes through modifications or do short sales.  At the end of the day, I'm on the homeowners side, not the banks.   Maybe I should have been more clear in my post.

I was merely writing about situations where the homeowners or investors who owned these properties have walked away from the home and aren't communicating with their lenders on trying to do a short sale or modifications.  In these cases, bringing these homes back at the foreclosure auctions would help stimulate in some cases.  I would think most people would probably agree with me in these instances.

The instances you outline in your latest post, I agree with!  

Thank you for the follow up.

 

 

Oct 16, 2010 08:23 PM
Not a real person
San Diego, CA

I’m not sure I understand what Congress has to do with bank foreclosures.

Nov 06, 2010 03:36 PM
Jim Frimmer
HomeSmart Realty West - San Diego, CA
Realtor & CDPE, Mission Valley specialist

Congratulations on that little gold star! They are valuable, although you can’t cash them in for dough. Well, maybe playdough. J♪♫♫♪

Nov 10, 2010 11:22 AM
Michael-Edward Cruz
Pacific Sotheby's International Realty - Newport Coast, CA
Michael-Edward Cruz - Newport Coast & Bay Front

I know what you are trying to say.

For example right now we have so many homes that are in limbo. Some of them are vacant homes that homeowners have abandoned. I know of one in Oceanside, where the homeowner simply abandoned the home and left the neighbors to witness the horrors as they saw teenagers use the home as a party hub for weeks! The kids eventually burned the home to the ground, about 18 months has passed and the home JUST got filed with a Notice of Default. So the home sites there burned for all to admire.

There is no short sale or loan mod here. At least I don't think there is. So It just seems that the inventory keeps growing and growing like a tsunami gathering strength. I am not smart enough to know what the real answer should be, an endless flood of properties drowning the market or one major wave. There may be no 'good' solution.

Thank you for sharing your opinion.

Nov 19, 2010 02:30 PM