You know me as an off-the-cuff, kinda crazy, lovably rascally rebel.
All true.
But I’d like to turn on my serious side for a minute. I think it’s important, sometimes, to get kinda serious, maybe even (gasp!) fairly rational in my arguments. And NOW is that time. You’ve heard me rant about the misinformation, logic-gaps, and rumor that exist out there in the world of real estate brokers and agents. A few weeks ago I wrote a bit about the DRE’s recent letter about short sales.
Well, I’ve been re-reading it, and I have more to say.
As a reminder, this is the California Department of Real Estate’s “Short Sale fraud Warning to Licensees”, co-authored by the DRE’s Senior Counsel and Senior Deputy Commissioner. You can get the text here.
Wow. Is it any wonder that most real estate agents won’t touch a short sale listing? Hell, even most of the brokers under whose license they work don’t really understand the ins and outs of the short sale process. Is it so much easier to present an example of a brew of multiple fraudulent or illegal practices than to give licensees a more specific list of the things that must be present than to throw together a concoction of practices that are questionable, fraudulent or illegal? I suppose it is.
So what is it that has me so wound up? Let’s start with one of my favorites, “Is a Real Estate License Required to Represent the Parties to a Short Sale?” And the DRE’s answer, “YES, with some extremely narrow and limited exceptions and exemptions.” They spend six paragraphs explaining their answer. In those six paragraphs, they devote all of one sentence to say that it is ok for the buyer to negotiate on his own behalf. Is this an attempt to drive all of this activity into the hands of licensees, or is it just an attempt to minimize the significance of the buyer in this transaction? As an investor, when I back up and look at a transaction at the simplest level, there are only two parties, the seller and the buyer. The real estate agents come in second, as those who are responsible for looking after the interests of their clients. And, by the way, insinuating that the listing agent somehow owes a duty to the lender is, in my mind, VERY dangerous ground.
As an investor, I insist on negotiating with the lender myself. And why not? It makes no sense to me to leave that in the hands of either the seller or their agent, neither of whom have my interests in mind. And yes, I am always represented by a licensed real estate agent in these transactions, one who understands them. But I talked about this last time, so I won’t keep beating away at that point.
There’s plenty more to tick me off in the letter.
There’s what appears to be a “tip of the hat” to the poor lenders. Yes, the same people who hold out a hand in the form of a short sale but make it so difficult and inefficient that most buyers lose interest before an approval is obtained. Why is it that only an estimated 20-25% of short sale approvals actually close? These are the same "poor" lenders whose collection tactics manage to milk the last dollar of savings from people on fixed incomes, knowing that they will never be able to resume a normal payment. They know this because they already have their financial information. And the best one of all? Some of these poor lenders are actually talked into believing that the property in question has a much lower value that it actually does. This type of “fraud” really has to stop. To suggest that all offers should be sent to the lender is absolutely ridiculous. It seems to me that once I enter into a contract with the seller, continuing to accept offers to pass on to the lender is a blatant violation of California law.
The “fraud” here really is that the authors actually know something about the short sale process. The lenders choose their own method for determining the value of a property, whether it be through BPO’s or appraisals.
I have a message about the lenders:
Stop trying to make like they’re the underdogs here, so easily duped!!
THEY ARE READY TO TAKE YOUR HOME FROM YOU. In the end, their only concern is that a short sale will result in less of a loss than a foreclosure. IT’S A BUSINESS! They really don’t give a tinker’s damn about the people making their home there.
And don’t get me started about the references to the listing agent’s responsibility to the lender. Assuming the listing agent is in compliance with the B & P Code, that agent is there to affect the best outcome for the homeowner. The lender isn’t mentioned anywhere in the contract. In the case of a short sale, the homeowner has elected to sell their home rather than have it taken away from them. It is the lender’s choice to offer that option and it is done on their terms, not the agent’s, homeowner’s or buyer’s.
As an investor, I regularly negotiate with a lender for a short sale price and flip it for a profit. I don’t allow anyone else to negotiate for me, certainly not the seller or their agent. Before I engage, I make it quite clear that my intention is to sell it for a profit and that neither the seller nor the listing agent will be paying a fee. It’s my money, after all, that’s being spent. And while the DRE is busy looking for fraud being perpetrated by investors, they turn a blind eye to the common practice of lenders demanding promissory notes to approve short sales. When this is routinely done, even in the case of a non-recourse loan, knowing that they can “hold up” the homeowner whose only other choice is foreclosure, THIS is unethical. But I somehow doubt that the DRE is going to scrutinize this practice, perpetrated by their friends the lenders. And while nothing will justify fraudulent practices, the inference that the practice of short sale flipping is harmful to the community completely ignores the negative impact that the sea of foreclosures we see is far more damaging, to the homeowner and the community.
The federal government continues to implement ineffective programs to assist those who find themselves facing foreclosure. In the meantime, the lenders continue, unencumbered, with their predatory practices. It’s time we start insisting that our state representative do something about these practices.
I, for one, intend to speak with both my state senator and assembly representative to enact legislation that prevents these practices and makes the LENDERS accountable when they violate them. The practices of making a short sale contingent upon the signing of a promissory note for a portion of the balance, or what amounts to deed restrictions limiting the resale of the property have got to stop. Is anyone in Sacramento paying any attention to what the lenders are doing???
Come on, people!
Wheeew. I think that got my blood pressure up!!
Stay rebellious!!
-Larry
PS-I'll be taking a week off next week, but stay tuned for all kinds of cool changes, here at the Real Estate Rebel and at our investor websites!!
