Sunday, July 15, 2012

Short Sale Soapbox

It has been a while since I have been on my soapbox but a recent conversation revealed a dark side that I was unaware of.  I will do my best to recount the gist and welcome any corrections others might provide regarding my facts.

I have often spoke of the underhanded and in my opinion diabolical plan against the American public regarding the bubble created in the housing market.  professional financial experts created mortgage products that were promoted to the population which enticed and allowed people to obtain loans far and above their ability to pay and with terms that almost certainly would result in a high level of defaults.  Short term gains were put above long term economic prudence and many trusting and unsuspecting people lost their jobs, homes, retirement funds,and confidence in both the financial systems and politicians for good reason.  The perpetrators of this pillage of the American people have now moved on to foreign investors to work the same plan.  (Just in case you were unclear of my opinion).

Throughout this blog I have attempted to try and expose this only to find out that the underdog in the story is often just as guilty of the greed and lack of righteous behaviour as the financial industries. 

 When I first heard of the short sale my understanding was that the person who had obtained a mortgage and later found that the value of the home had dropped far below the loan amount who petition the bank to reassess the value and allow the home to be resold for that amount.  This would enable the borrower to sell for a lower amount than what they negotiated the loan for.  This made sense to me because having worked in banking most funds are all on paper and not real money and at times adjustments need to be made for accuracy.  Simple example:  I get an appraisal on a ring that says it is worth $1,000,  You agree to make payments to me for that amount over a period of months.  You later find the ring is really only worth $500.  You come back to me and say that you want it adjusted to the real value of $500 or you are going to give me back the ring.  I all along knew or should have known what the real value was so I know choose the new repayment amount or decide to take back the ring and resell it to someone else. That is really all that happened in the housing market yet on a vastly larger scale. This was the basic concept of the short sale and was designed to bring things into balance in a way that should be fair to both parties.

Wikipedia defines a short sale in the following manner:
"A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens' full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.[1] Any unpaid balance owed to the creditors is known as a deficiency.[2][3] Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties.
A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower. While credit is also typically damaged much less than from a foreclosure, both often result in a negative credit report against the property owner.

Most creditors require the borrower to prove they have an economic or financial hardship preventing them from being able to pay the deficiency.[4]
Creditors holding liens against real estate can include primary mortgages, junior lien holders—such as second mortgages, home equity lines of credit (HELOC) lenders, home owners association HOA (special assessment liens)—all of whom will need to approve individual applications for a short sale, should they be asked to take less than what is owed."

In our housing search for a friend I had the opportunity to ask all my questions of a very knowledgeable informed agent.  In our search in a search reveals that almost 90% of the houses listed show a status of "contingent",  which indicates that a transaction is at some stage of being processed and is waiting for inspections, financing, title clarifications, etc.  Another site we visit further breaks down those that are "Active"  by showing those which are "Short Sales".

When I asked for further information on this category I was told that it is not even worth bothering with these.  Homeowners have applied for short sales and the homes were locked in a holding pattern awaiting foreclosure and it may take years for them to be available.

My puzzled look must have appeared for she explained that many homeowners have applied for this status and a requirement is that they list the home with an agent to qualify.  Then, they proceed to quit making payments, refuse to allow showings, and continue to live in the house for free until they are legally removed from it.  This may take from six months to six years. Often they quit maintaining the home and go even further and trash it.  When the day finally comes that they must leave they leave whatever they want behind including garbage, damage, and sometimes stripping appliances, fixtures, cabinets, and other vandalism.  My stomach turns as I think of this behavior for I actually have known people that have done such things but didn't realize that this was a common practice. 

Two Wrongs don't make a Right.

Remember our mothers telling us this during the battle with our brothers and sisters? Apparently the actions of countless numbers of those who have gotten short sales is the equivalent.  Yes, I find and have spoken about the actions of the financial industry as being deplorable.  Because of this many have lost much and I grieve with them and hope that this blog and other tools will assist in making the decisions that are needed to keep going.  There is a time where one must walk away but it is important that we maintain the dignity of our actions or else we are no better than those who have wronged us whether it be an industry or an individual.  This is indeed difficult but again as our mother's used to teach us:

Cheaters never prosper.

Our actions will find us out now or in the future for we will reap what we sow.

Other related posts:
Keep your Integrity
Animal Farm 2011 Version


Crunchy Sews said...

Recently I bought a short sale property. From what I gather (I never met the sellers) this was a divorce situation. The home was left in perfect condition, spotless to the point where nothing needed to be cleaned or painted prior to move in if we didn't want to. There was some wear and tear on the carpets but that was evident at the showing and we plan to replace those anyway.

I think the opinion of Realtors can vary widely. My own experience was such that the first Realtor told us he would not show us any Short Sales for reasons similar to what you were told. The second Realtor - from the same office! - said he would show us anything in the MLS regardless of what type of sale it was.

We saw foreclosures that were stripped and damaged, short sales that folks were still living in or that were vacant and some regular sales both occupied and not.

While I do believe in paying your bills, and always have to the best of my ability, I can say that the short sale experience, for me as the buyer, went just fine.

Carol Schultz said...

Thanks for your comment. Glad it worked the way it was designed to and bring benefit to both parties involved.