The Short Sales Conspiracy by Gustavo Blachman
Posted in Real Estate Agent Mastermind Group By GUSTAVO F. BLACHMAN, Thursday, October 2, 2008.Hello Inman News Bloggers and Masterminds.
My name is Gustavo F. Blachman, I am the broker-owner of Terrabella Realty in Miami, Florida. my website is www.goterrabella.com and my email is info@terrabellarealty.com
Here’s my take on the short sale practice:
The downward spiral of real estate prices has no bottom when brokers and sellers are allowed to list properties for sale below what is owed to the lender, affecting the perceived value of all surrounding properties. While short sales are being touted as one of the many solutions or quick fixes, we know that not every client meets the requirements to successfully close a sale through this process. Most lenders only agree to a short sale if the seller can produce compelling documentation of financial hardship that typically includes a handwritten affidavit, financial statements, revision of accuracy of the original loan documents, recent tax returns, bank statements, and pay stubs. These requirements change from one lender to the next. Unfortunately, there is one more thing that must happen for most lenders to even consider a short sale: the borrower must be at least one month late in their obligations. If the loan is in good standing, the loss mitigation departments of most lending institutions will not consider the borrower eligible for a short sale. This encourages large numbers of people to willfully go into default.
Short Sales are simply not the solution for everyone. It is a dangerous idea that preys on people’s hopes, not to mention makes the current mortgage crisis worse. The truth is that most short listings will never get to the closing table. There are just too many factors to take into consideration. The short sales agreement is subject to the lender’s approval. Closings can be subject to marketable title. There could be multiple liens on the property. The offer presented could be too low for the bank’s expectation or below the appraisal/broker’s price opinion. The seller may not qualify for the program. The buyer may lose interest during the process, which can take as long as six months. The area or condo may be blacklisted. There are simply too many uncertainties surrounding this dangerous practice in these unprecedented times.
These short sales also affect the perceived value of our real estate, the appraisals and assessed values, which have further consequences then the immediate sale. If the assessed value is reduced, how is our state budget going to be affected? What about the stability of the country as a whole? Can we really afford to look the other way? I don’t think so, and I am sure there are more issues that will come up once we get started on this project.
Where do we come in? Well, we must get involved or at least try to help on this matter. It is clear that we all share the same passion for our business and love for our country. Not to sound tragic or hopeless, but if we don’t act, we could be witnessing the demise of the American Dream and selling this country short.
I remember when I was studying for my Real Estate license I learned that the licensing of Realtors came about to protect the people. Laws, rules and regulations were created to that effect. Is it possible that we need a new regulation when it comes to this particular subject? Perhaps the Department of Banking & Finance, together with Real Estate Licensing bodies, can come together to set guidelines regulating short sales.
I believe we can make a difference and bring our point of view on this subject to the right people. We must bring the issue to our contacts in the highest level of government – and we must act now. We can discus some of these ideas, but there is much more to do.
As a Broker some of my agents at Terrabella Realty have short sales listings and also work with buyers looking for short sales opportunities; however, I have explained to them my thoughts and opinions on this issue. The solution and ideas to resolve the matter can be achieved.
Sincerely,
Gustavo F. Blachman
Broker – Owner
Terrabella Realty
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Submitted by Tina Merritt on October 2, 2008 - 7:06am.
Bravo! Short sales are not a form of "business" for real estate agents. They are a sad, distressed form of a sale under duress. Consumers need to understand that a short sale is not an easy "out" and that it is a legal transaction which can have many, many side effects. A consumer should never enter into a short sale transaction without the advice of legal counsel.
@tinainvirginia
Submitted by Glenn Ginsburg on October 6, 2008 - 9:54am.
It is true that a "short sale" is not the magic pill many perceive it is. The general public is not fully educated about "short sales" both pro and con.
What is really bad is some real estate agents will suggest the "short sale" as the solution and never mention loan modification or deed-in-lieu of foreclosure.
There should be guidelines developed by the real estate industry and lenders for use with potential "short sales" so that lender decisions can be made faster. After all the lenders have only one of three choices - reject, approve or counter-offer.
Does anyone think lenders should be in some cases more diligent in pursuing final judgements or pursuing where there are recourse clauses within the mortgage?
Glenn Ginsburg
A Delta Realty
Bonita Springs Florida
Bonita Bay
Submitted by Tom Teece on October 6, 2008 - 11:06am.
Gustavo, great article and comments! I agree that there should be guidelines for distressed sellers to follow. It make it easier for the lenders to minimize their losses, by systemizing their review process of standard paperwork. Third-party verification of the seller's unavoidable hardship should allow lenders to quickly decide which workout is best for both parties. Good news / bad news: There is a set of guidelines from HUD / but each Form in the multi-form process reveals additional seller requirements and never any lender requirements for their cooperation.
Our company's negotiation team deals with the loss mitigation departments at numerous lenders. The slowest part of the process appears to be locating the actual owner of the note for a decision. The loss mitigation departments are typically part of a loan servicing company. The notes have been packaged with others, resold, repackaged, resold... Who can make a decision?
There is public information on short sales, including a summary of all the HUD requirements and FAQ's for Realtors at www.good2gobuyshouses.com
Best regards, Tom
Submitted by Glenn Ginsburg on October 6, 2008 - 1:15pm.
@Gustavo - have you evaluated how Florida Statute 501.1377 can impact your brokerage and its associates?
Glenn Ginsburg
A Delta Realty
Bonita Springs Florida
Submitted by Tom Teece on October 6, 2008 - 7:01pm.
Gustavo and Glenn, It's just my opinion, but I believe the best way to handle the new Florida Statute is to require the distressed seller to complete HUD-approved housing counseling BEFORE offering them a listing agreement. Real estate agents do not need to take on the responsibility and potential liability by implying legal and/or financial advice in providing a short sale listing without proof of counseling. The HUD-approved counseling is free online or over the phone, and available in English and Spanish. The Hope hotline is 1-888-995-HOPE. Their website is www.995hope.org. The online version takes about 45 minutes to complete. By the way, they provide 3rd-party verification of the seller's financial hardship. That goes a long way toward getting a short sale approved.
Best regards, Tom
Submitted by Wenceslao Fernandez Jr, Realtor(r), CDPE(r) on December 6, 2008 - 8:18pm.
As a Realtor and Certified Distressed Property Expert (www.1CDPE.com), I have also taken the time to train and learn this business the best I can.
Unfortunately, things change fast nowadays and it is imperative to stay on top of things and to properly inform sellers.
When I take a listing, I spend from 2-3 hours (and yes, I have spent more time) talking to them and discussing their options with the understanding that the information I provide is in no way substitute for legal or accounting advice.
Once they choose me, they sign all the pertinent forms and releases and are kept in the loop every step of the way.
I have found that the package preparation is as important to the lender as the bottom line. If the property needs work, that should be highlighted with pictures, etc. If not, all market data should either way be provided and will undoubtedly be corroborated by the BPO.
When making offers on distressed property, I even do a market study and include it with my offer to justify my low offer. This indicates the estimated monthly % drop in prices for the area and estimates the offer price at 60 days from the offer date. This way, the buyer knows that the price that is eventualy accepted will still be good for them when closing time comes.
Of course, there are times when approvals take too long and if the buyer is still game, there are other strategies we can pursue.
There are no easy answers today. The spiral we experienced going up which created the bubble, is now going down, creating a different set of problems.
Certainly there must be a solution out there and among all the ideas floating about, the interest buy-down to 4.5% should definitely help get some of the inventory off the shelves.
However, we still need to find a way to stop declining prices and level them off. I believe that the lower interest rates will spur purchasing and reduce inventory levels and improve confidence. Stories will begin to float about those taking advantage of the situation and buying property dirt cheap at rock bottom rates.
Obviously, not everyone will qualify and this will be the main issue to contend with. Ways to finance real estate sales will need to get creative and a new way of selling real estate may once again revert to wrap-arounds and other private instruments.
The problem may then be that regulators force too much regulation on financing thus negating their own efforts.
It is understood that we cannot return to the NINA or SISA days, but care should still be exercised to not tighten things too much.
Sellers & buyers need to understand that this is no longer time to play monopoly. Only serious sellers and serious and able buyers will reign in this market and for the next 12-24 months.
www.MiamiRealEstateKing.com
Certified Distressed Property Expert
Miami-Dade County, Florida.