March Rant-Where There's a Will...There's a Won't...

In the words of the immortal Sam Kinison, comic, commentator and Rebel, "OH...OH...OOOOOHHHHHHHH!!!"

That's what I said when I came across the latest tactic that some lenders are engaging in when it comes to messing up the short sale process. We've talked about the stalling, the poor customer service, the incorrect (to put it kindly) information, the ridiculous no-resale requirments, etc etc that are experienced by anybody trying to navigate the short sale environment. I'm not going to bore you with any of that again (but, I reserve the right, not to bore you, but to, um... GET YOU FIRED UP AGAIN about it a later date...), so let's move on to the latest bit of chicanery afoot in California and particularly in San Francsico Bay Area short sales.

Let's turn our attention to the folks in the #2 position...the SECOND mortgage holder...

For those of you who are NOT real estate investors but who bought homes in the past 5 years in the Bay Area, you know that having a second mortgage was practically de riguer in order to get into anything. So, of course, as a homeowner falls farther and farther behind on payments, it's not just the primary mortgage but the second that is growing more and more past due. Nothing new there...

So, a short sales expert comes along, and negotiates a deal-the homeowner gets out from under the house, the primary mortgage holder gets some cash (more than they would get at auction, and the place is off their books)...again, nothing new here. Now, the SECOND mortgage holder is often given a token sum depending on the primary lender; I generally see about $3k being approved and given to this #2 spot.

BUT NOW...

Many second mortgage holders are refusing to OK the short sale unless the soon-to-be former owner of the house signs a personal promissory note for the amount of the second mortgage, or for some huge lump-sum amount "today" in lieu of a larger amount spread out over time.

So what? Why shouldn't they hold out for more?

BECAUSE IF THE PLACE GOES TO AUCTION THEY GET NOTHING!!!!

That's why.

The whole point of a short sale (from a bank's perspective) is to avoid the low return and hassle of a repo. The banks work with investors like me and my team BECAUSE they will make more money that way (it ain't because they appreciate my or Sam's humour, I can tell you THAT fer nuthin!).

So, the lender in the #2 position refuses to OK a short sale and turns up their nose at the $1K-$3K that I commonly see going their way, unless the owner signs a new note for the $35k or $75K or whatever they owe...a note that is now UNSECURED, with interest that is now non-tax deductible, and rates that are often variable.

So the owner, who couldn't make the payments in the first place but at least has a roof over their heads that they are willing to give up if they can get out of debt, understandably says NO WAY! This means the property will probably go to auction and the lenders will make much, much less, the owner's credit is destroyed, nobody wins.

Get that?? It's worth repeating...

NOBODY WINS when a bank puts up roadblocks to a decent short sale offer.

Ok, I think that'll do for now. It's so simple, even a BANKER should be able to understand it!

Stay Rebellious!!
--Larry