Not Everything Is Bad News!

NOT EVERYTHING IS BAD NEWS

The business section in the New York Times, November 15 "Foreclosures hit a snag for Lenders" by Gretchen Morgenson states that two Federal Judges; one in Ohio and another in Cleveland, ruled against a long standing foreclosure practice that lenders use, of just reclaiming properties from troubled borrowers through the simple process of foreclosure. Both Judges ruled against the foreclosure action in more than 14 cases because the Lenders failed to show proof of ownership on the properties they were foreclosing. The report also states that consumers advocates estimate that this is true in more than 40% of the present foreclosures. The article mentions that because of the complex structure of mortgage securities. it has made harder for borrowers to work out troubled loans because they can not identify who holds the mortgage note, and also because many Lenders do not even know which pool of investors bought the mortgages that ended in foreclosure. As more Federal Judges adhere to stricter rules and ask Lenders to demonstrate proof of ownership, this could be a gift to many borrowers facing foreclosure. Federal Judges believe this situation will make Lenders more willing to work with distressed borrowers.
The same holds true with the proposal of Governor Schwarzenegger asking Lenders to keep borrowers that are not in default, and living in the homes, locked at their present low teaser rates holding off future rate increases; but for how long?- and do you believe that investors will accept to hold interest rates at sometimes 1%, 2%, 3%?. I think this proposal will only put pressure on Lenders and will make them more willing to work with borrowers facing foreclosure but I doubt that they will agree with this solution.
Anyway, I think the above scenarios are only small bandages for the huge problems of foreclosures and short sales that we are facing and will be facing for a while.
I tend to agree and disagree with some of the writings of Active Rain Bloggers. I agree that a massive amount of lenders decided to lend money to people that did not qualify for a loan and had bad credit, in many cases creating the problems that we are facing. The Lenders were at fault. PROFITS. CORPORATE GREED. FRAUD in some instances.
Also, borrowers were at fault. They took loans they could not afford. In California who could blame them? In San Diego, where I live, home prices went sky rocketing. We probably have the third most expensive housing prices in the USA, so if a lender gave you the opportunity to buy a home in an emerging market, with no downpayment and no qualifying, paying less than what you were paying for rent; Why not go for it?
Now, not all stories are bad and heart breaking. I had the opportunity to work with Buyers that were smart enough to take advantage of the market and bought and sold properties one after the other during the years 2000 and 2005. Without putting themselves at risk with adjustable mortgages they were able to accumulate wealth beyond their own expectations. They were smart enough to get out of the market at the right time. They always bought or sold "the last of the good deals".
I believe as Realtors we have the responsability to work with distress borrowers. We can offer them solutions to the huge problems they are facing. We can try to save their credit in "short sales" situations by trying to influence Lenders to give them a break when reporting to credit agencies. Also, by pushing the Senate or the House to speed up the signing of the pending law, allowing the IRS to forget the taxes on forgiven debt on people that will loose everything and are even facing problems paying up the rental security deposits.
Isaac Bensussen
www.besthomesinlajolla.com

SHORTSALES VS FORECLOSURES

During my 30 plus years in the Real Estate profession, I had the opportunity of working in many areas of Real Estate, and learned to enjoy the new challenges that a new Real Estate transaction that I had not tackled before, would bring. So I learned and successfully closed Escrows in apartment complexes, NNN properties, orchards, business opportunities and of course, many homes, condominiums and town homes. With any new experience, I would jump right in and learned the ins and outs on all of them, but I have to confess that there was something that I never really learned and found very difficult to approach. That something was buying foreclosed properties at the steps of a court house, without having seen the properties inside and with the very often, wrong information that foreclosure companies or even trustees that were handling the foreclosure proceedings, were giving to inquiring people like me.
I decided that the business was to risky and complicated to tackle and there were many unanswered questions, and since I did not want to end with a big problem in my hands, I decided that I would never buy a property at the steps of a court house. I thought that the lack of information on the foreclosures bought at these steps was something that I did not have to understand since I was not going to do it; but now, something else is puzzling me.



This new thing is the existing relation between short sales and foreclosures. Because of the huge subprime mortgage problems that are occurring nowadays and that I feel will continue for a year or two, I have encountered some people in trouble that have asked me to help them out with their problems. These unfortunate people have informed me that they can't cover the mortgage payment because their mortgage adjusted to higher rates and they could not afford the payment so they had defaulted in their loans. A lot of these borrowers had good credit and they have asked me if there is a way that they can preserve their good credit by doing a short sale or a deed in lieu of foreclosure, instead of waiting to be foreclosed. Since I did not know the answer I decided to go to some shortsales/ foreclosures seminars with different speakers. After attending a couple of seminars I was not happy with their answers and approaches. They would go from absurd to outrageous. I decided to speak with companies that have done this for a living for a long time, but their answers did not satisfy me either. I concluded that a short sale or a deed in lieu of foreclosure is a voluntary action on the part of a troubled mortgagee that is willing to go through full disclosure of finances and personal lives in order to be accepted for a short sale or a deed in lieu of foreclosure. As for protecting their credit or having to pay federal taxes on the forgiven debt I could not find a definite answer. On their credit ratings, I concluded a short sale could be as bad as a foreclosure. As for the federal taxes they have to pay on the lesser amounts that the Banks are willing to take, there is a bill pending for signature to eliminate these taxes but as far as I know, the bill has not been signed yet.



Personally, I see a big difference between a short sale and a deed in lieu of foreclosure compared to a full foreclosure. I feel a short sale is compromise between borrower and lender to try to resolve a problem by agreeing to go along with all the lender's screening process that is needed for a short sale approval. A foreclosure is more of a hostile act on the part of the borrower.

My question is why Banks seem to treat equally a willing mortgagee that provides them with everything they ask for, and another kind of mortgagee that freezes and does not communicate or is not concerned at all if they get foreclosed?

Lenders and credit agencies should communicate with each other and go easier with willing people that go through short sales and be clear with these troubled consumers when they ask to what degree their credit would be affected with a short sale.

So far, when short sales candidates ask me the question regarding their credit, my answer is
"I don't know for sure".


Isaac Bensussen
www.besthomesinlajolla.com