Friday, October 2, 2009

One In Four

Do me a favor. Go outside and stand across the street from your home. Weather is nice should not be too strenuous. Now look at your house and the three other ones adjacent to yours. Got that picture? OK, now think about this. One of those three neighbors next to you is a financially distressed property. They are in some phase of Lis Pendens. They are headed to foreclosure. Perhaps you, yourself are one of them. Takeaway message is that there are a lot of people hurting out there.

Statistics are that 1 in 4 are in trouble. They have somewhere in their past had a mortgage broker or banking official sign them up for an interest only loan, an adjustable rate mortgage or refinanced them at 125% loan to value (ltv). Your house was worth $200,000. Some mortgage company, perhaps by e-mail, said to you we are going to refinance you at 125% LTV. Going to give you a great rate and send you a $50k check to do with whatever you want. It just sounded too good to pass up. You did it and now the value of your house has eroded to $125k. You owe $250k on a house worth half that much. What are you going to do? You cannot refinance. You have no equity. You cannot sell it because people can buy houses all around you for $100 to 150k.

Now throw in the loss of a job. You put in a call to your lender. What can we do? Can we sell it short? Well we will assign a mitigator of some kind to your case and see what shakes out. In the mean time send us all your recent bank statements, three years of tax returns and find a Realtor who will work for 1% because no way are we, the bank, paying them the going rate for commission. And, oh by the way, whatever loss we take on the sale of your house you are going to sign a note for at 12% interest.

Now put yourself on the other side of this scenario. You are a buyer. You have a little money and a decent job and credit rating. You may even have a loan commitment letter from the lender. You are licking your chops to go buy a foreclosed property and/or a short sale. You find one. You have a Realtor who has asked you to sign an agreement that you will pay thier side of the commission when and if the bank refuses to pay them. You find a property you love. You sign a contract offer and your Realtor delivers it to the Sellers agent who in turn delivers it to the lender. Then the dance begins. The other Realtor puts in a call to the lender asking them to consider the offer. 1-2-3-4-5-6 weeks go by the lender has not returned anyone's call. Why? Because they are inundated with similar requests. Oh they have also cut their staff to the bone. You forgot that the recession was all across the board. Six weeks has turned into 6 months. You have tired of the dance, however, you signed a legitimate contract that binds you to the will of the lender.

Short sale turns into Long-Long sale. It is most likely going to cost you extra money because, guess what, the bank ain't gonna repair ANYTHING. Your Realtor gets out of the business because all they are doing is spending money driving you around, paying MLS fees and all the other operational costs. The bank is probably going to refuse to pay them their commission anyway. They have to find a job waiting tables, driving a cab, something that can provide them some cash flow. So you are left on your own trying to figure out this nightmare you have started.

Choose your battles wisely. Affiliate with a Realtor who has the experience and staying power you need. These are troubled times we operate in. Is it going to get better soon? Who knows that it is not going to get worse? The Feds cannot bail us out ad infinitim. You might want to reconsider chasing the foreclosure or short sale. There is a lot of risk associated with the bulk of them.

Visit me on the web at

No comments: