Do you know about - Short Sale Fraud: Are We Missing the Point?
Austin Recovery! Again, for I know. Ready to share new things that are useful. You and your friends.There has been lots of talk lately about short sale fraud. Understandably an intriguing topic, most of the up-to-date argument centers around a up-to-date Corelogic narrative suggesting one in every two hundred short sales over the United States are "very suspicious."
What I said. It is not outcome that the true about Austin Recovery. You look at this article for information on a person want to know is Austin Recovery.How is Short Sale Fraud: Are We Missing the Point?
Although discouraging we remain in economic turmoil on the housing front and distressing that despicable individuals continue prey upon the misfortunes of others, it's misleading to surely label an investor driven back to back transaction, known as "flopping," as fraud. Though a noble cause, focusing efforts on how to stop bad population from doing bad things is not only a losing battle in this instance it completely ignores the root question of the short sale process and prevents us from looking a relevant and chronic solution.
Phenomenon of the Short Sale
Short sales occur when a homeowner (borrower) attempts to sell his or her home at a price that is less than the full whole owed to the bank (the lender). Most often a short sale occurs as a last ditch exertion by a homeowner proactively trying to avoid a full foreclosure proceeding, which results in losing their home to the bank, being forced to move, and like a bankruptcy, becoming locked out of the financing shop for a duration of seven to ten years.
Banks prefer short sales to foreclosure because they (in theory) settle the outstanding debt faster and result in the bank losing less money in the village of the bad debt. Before the emergence of our current housing crisis, banks reluctantly agreed to a short sale unless the homeowner displayed one of five generally understood "hardships." Those included, loss of job or income, forced relocation (typically due to a job), death of a spouse or wage provider, divorce, or an growth of interest rate that made the monthly mortgage unaffordable.
This all changed after the collapse of Lehman Brothers, and the shifting political winds created amid bank bailouts, job losses, and precipitous drops in home values. American tax payers and politicians demanded something be done to help "Main road America."
The result of this perfect storm included the largest federal infusion of tax payer capital into the banking law since Fdr was in the White House and a myriad of federally mandated programs aimed at helping banks remain solvent (on paper) as they work through bad loans. For Main Street, the programs give unfortunate and honest homeowners relief until they get back on their feet (Hamp) and allow other homeowners a graceful exit from the stress and burden of unsustainable mortgage debt.
Short Sales, once rare, have come to be more prevalent and outnumber both traditional sales and Reo sales in some of our hardest hit markets. For example in Stanislaus County, dubbed the mortgage fraud capital of the country, two of every three home sales occurring last year (ending June 2010) were short sales.
Mechanics of a Short Sale
A short sale does not occur unless the current homeowner decides he or she wants to sell. Further, the homeowner alone decides to whom they will or will not sell the property. This bares repeating; In a short sale the borrower, not the bank, markets and sells their home to a willing buyer.
Banks do not enter into the short sale process until the homeowner finds a convenient buyer for the home, enters a binding contract, and submits the required financial and hardship documents to the lender.
Although reported as a easy transaction, the short sale is anyone but a "straightforward transaction." I tell my clients the short sale surely involves two transactions. One the traditional real estate transaction between the owner of the home and the possible buyer, and two the debt village transaction between the owner of the property and the lender holding the mortgage(s) in default.
With the irregularity Wells Fargo (only applying to securitized loans initiated by Wachovia, Golden West Financial, and World Savings all failed banks previously absorbed by Wells Fargo) a bank will not begin negotiating the debt village quantum of a short sale transaction until a distributor has submitted a valid offer from a ready, willing and able buyer. In other words, they will not discuss accepting less money on the outstanding debt until someone steps up to buy the property. If this does not happen soon enough, the bank will foreclose on the home. This is the crux of the problem.
Most buyers production their housing decisions have real life issues to allege with. Children entering the school year, coordinated moves from one home to the other, obtaining financing for the new purchase all require the buyer to spend money and meet deadlines. In a traditional sale, the buyer makes an offer and the distributor responds within 3-5 company days of receiving the offer. This is not the case in a short sale.
Although the distributor may retort within the same time periods outlined above, neither party is contractually bound to deliver on the deal until the bank decides what price and terms they will accept. To make matters more complicated, most banks can take from 30-60 days (sometimes longer) before responding to an offer. Adding insult to injury, most banks leave minute to no margin for error, all the while reminding sellers and their agents that they may pursue the unpaid debt after the short sale (deficiency judgment), and oh by the way, the clock is ticking, so...
The result of this mess is fewer buyers willing to wait around for a short sale to close unless they have a fancy to do so (translation: cheap enough to wait it out). Other result, buyer agents refuse to expose their buyers to such nonsense or, on the listing side seek innovative and creative ways to preclude their clients from losing the home to foreclosure.
This is key factor in the process. The real estate agent represents and is bound by a fiduciary duty to the distributor of the property. In no way is the real estate broker/agent representing the bank in a short sale transaction, and in no way are the banks looking out for the seller's best interest. It's also prominent to note the seller, with few exceptions outlined in the Hafa program, is expressly prohibited from benefiting financially as the result of a short sale transaction. Therefore the traditional goal of the distributor in a short sale is to avoid a foreclosure; real estate agents are bound by their fiduciary duty to the distributor to work diligently and obediently towards that end.
Motivating Factors of a Short Sale
In light of all this why does anyone exertion to unblemished a short sale? This retort is dissimilar for all parties to the transaction.
Banks and/or lenders are primarily driven by profits or the mitigation of a loss. Simply put they are attempting to derive as much as possible on a bad debt. In a up-to-date narrative at thestreet.com John Gittelsohn writes, "the average loss in vital for prime loans that went into foreclosure was 42 percent, compared with a 33 percent loss for short sales, according to Amherst Securities Group Lp, an Austin, Texas-based company that analyzes home-loan assets." Banks lose less and recover faster by allowing and encouraging sellers to pursue short sales.
Sellers are seeking closure. Arrival to grips with the financial loss or loss of a house home is devastating to every person who faces the situation. However the most excruciating part of this process more often than not is the wait; waiting for the phone calls from creditors, waiting for the mailed letters demanding payment, waiting and wondering if the Sheriff will show up one day and lock them out of the house and throw all their belongings to the front lawn.
Many sellers are motivated to unblemished a short sale to once and for all put an end to the ordeal. Unfortunately the process welcomes them with more waiting; waiting for a real buyer, waiting for the bank to retort to that offer, waiting for the bank to process paperwork, the list goes on.
Of procedure there are other very valid reasons why a borrower would pursue a short sale. For example a short sale is far less devastating to your credit rating compared to a foreclosure. After a short sale, a defaulted homeowner can re-enter the housing shop and derive financing on a new home in two years or less as compared to the seven to ten years they wait after a foreclosure. In a short sale you are proactively advocating for the best possible debt village from the lender, in a foreclosure you are leaving the outcome to chance and the lender will not be kind as they seek to remedy their loss (of procedure this does not begin to address the reasons connected with strategic defaults, Other topic all together).
Buyers too come with their own set of motivations - most clearly seeking a bargain. This is not a bad thing, nor is it surprising; looking a deal is as American as Apple Pie. If you need examples visit a going out of company sale, the wholesale district of your local central company district, or a Ross Dress for Less on a Sunday afternoon. However, as most of these retailers will tell you, there is no brand loyalty in the deal basement. Translation, buyers are fickle and unreliable more often than not in a short sale, and most will leave the transaction in a heartbeat if a good deal comes along, leaving a distributor vulnerable to missing a short sale chance and again facing a foreclosure.
Enter the Investor...
Some Investors are Their Own Worst Enemy
Type "short sale wholesaling" into Google and you'll know what I mean. They shop themselves as ninjas, guru's, money production maniacs, and often times look like house Guy's Al Harrington more than a trusted financial adviser or capable real estate expert. Many of these so called investors gift themselves surrounded by piles or cash, expensive homes or cars and by comparison the virtues of production huge profits with no money and minute effort. In a nutshell they are out for themselves and work at the cost of all other parties to the transaction.
They make promises they cannot keep and recommend outcomes that are unlikely to occur. They proliferate because distressed homeowners are desperate for financial salvation, want to believe anyone that sounds like a solution, and have lost faith in government programs that fall short of anticipation and advantage some while neglecting others. This opportunistic group, gives sound capable real estate investors a bad name.
Crazy as this sounds, this "speculator" has his or her place in the current shop and a distributor is still good served by this group "flopping" a short sale compared to going through a unblemished foreclosure. Unfortunately, left unchecked or unregulated, these groups edge out real investors or home-buyers who add value back to a distressed asset through renovation or deliver a once dilapidated property back to the rental shop after intriguing through a distressed sale. Their actions also cause banks and government agencies to take sweeping actions that harm the unabridged housing salvage (eg. Initiating the 90 day no flip rule).
There is no place for fraud, misrepresentation, or lack of compassion. Those acting with such reckless abandon should have no place in a short sale transaction and won't when banks begin expediting the short sale approval process. A faster process will attract good buyers willing to pay more and intent on sticking with the transaction to the end. With the risk of losing a buyer over time mitigated, sellers will also be more willing to continue with a buyer willing to pay more for the property. This will effectively edge out the "floppers" all together.
The Same Goes for Many Real Estate Agents
The sad fact is that for a few hundred bucks, an Internet connection, and a few hours over the weekend any agent can come to be a Certified Hafa Specialist. Equally, by paying a few bucks to the local relationship of Realtors and attending a half day argument any agent can come to be Sfr (Short Sale and Foreclosure Resource) Certified by the National relationship of Realtors. Conspicuously missing from the list of requirements in obtaining these "expert" designations is actual real world application. Yes you read that correctly, you can come to be a certified scholar without completing a particular short sale transaction!
Yet this new shop along with new and innovative technology furnish for a new paradigm for real estate professionals. As Chris Brogan and Julien Smith reference in their book Trust Agents, today's influencers are those who trade in trust, reputation, and relationships. Author Seth Godin describes the vital company leader of today as a Linchpin, the artist who inspires convert by connecting with population in a inevitable way, changing population by connecting with them in a way they want you to connect with them. He goes on to recommend it's all about adding value.
It's no longer good enough to plant your face on the bench at a bus stop, at least nor more than it's about hanging as many for sale signs as possible in a particular neighborhood and waiting for the calls to roll in. It's no longer about conferrence a litany of acronyms to result your name, at least no more so than it is about controlling the flow of facts on the local Mls.
It's time to come to be less of a salesperson, and more of a trusted and capable adviser.
Finding a explication by Shifting the Focus
So what is the point of all this? This is an chance for all of us affected by this housing accident to step up and come to be vital by allowing ourselves to shift the focus from prevention to solution. It's a call to performance for all of us working towards a greater good. One of my minute league coaches taught me that there is a very big incompatibility between playing to win vs. Playing not to lose. I believe the same applies to the current housing crisis.
We've been in prevention mode long enough - preventing the meltdown of the financial crisis, preventing foreclosure for homeowners who are upside down on their mortgage, preventing fraud, preventing strategic defaults...
Bad population do bad things, we're not going to convert that. However, it's a heck of a lot harder for bad population to do those bad things when every person else is actively participating in production things better.
If banks don't want to get short changed on a short sale flop, make it faster and easier for every person to get a short sale completed. The "flop" in and of itself is not illegal and banks do not have the right to force an owner to sell to anyone. They do have the selection to foreclose or allow sellers to settle their debts for less.
If you want to make money as a short sale investor, come to be part of the explication for everyone. Don't turn a buck at the cost of someone else, make your spread by adding value to the transaction.
If the government wants to fairly help Americans settle their mortgage issues, stop unfairly dictating who is and who isn't justified in walking away from their mortgage debt, and once and for all let the shop exact itself. As David Streitfeld of the New York Times alluded to last Saturday, there is a growing sense of exhaustion with mortgage intervention. It was a valiant exertion to save homes and help new buyers enter the market, yet our free shop cheaper seems reluctant to prop up an over-leveraged market.
Finally if you want to come to be a more victorious short sale agent, come to be a Trust Agent, trading on credit and relationships. Know your client, continue to learn and all the time serve your client's best interest in the transaction.
After all, the ultimate fraud prevention is a viable solution.
Bad population do bad things, we're not going to convert that. However, it's a heck of a lot harder for bad population to do those bad things when every person else is actively participating in production things better.
© 2010 Allan S. Glass - Asg Real Estate Inc. ®
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