The smoke hasn’t yet cleared from the [tag]mortgage meltdown[/tag]; trouble continues and foreclosures rise. Finger-pointing, the blame-game and failing mortgage companies color the autumn landscape. Rampant
mortgage fraud is suspected and being investigated. Yet a new source of fraud looms on the horizon.
“Short sale” is the buzzword on the street. Realtors talk about it constantly; seminars and workshops abound for attorneys, homeowners, and Realtors.
When a [tag]foreclosure[/tag] looms, a homeowner asks the bank to take less than the balance of the mortgage so the house can be sold on the open market instead of the courthouse steps. A short sale is the negotiated price on a house when the mortgage is in arrears and the bank has no real prospect of achieving a recapture of its total mortgage loss. The mortgagor—the homeowner—negotiates with the bank to take less than is owed on the mortgage.
This saves the bank the trouble of picking up yet another undervalued real property asset, allows the homeowner to walk away from a potential foreclosure somewhat whole, and provides at least some financial recompense to the lender.
Better for the Lender to get some money than none and be stuck with a rapidly depreciating asset.
I’ve heard recently this “[tag]short sale[/tag]” buzzword in nearly 8 out of 10 conversations with Realtors and attorneys. I have heard of, but not attended, seminars, supposedly teaching the “secrets” of negotiating short sales with banks.
I did attend a recent seminar for attorneys dedicated—in the best legalese possible, and thus unintelligible to me, as I’m not an attorney—to foreclosures and the correct legal proceedings attendant with these matters. I attended solely for networking opportunities, of which I will say I was quite successful; but I avoided for the most part sitting through the actual seminar. The phrase “short sale” was included in the seminar invitation, but did not make an appearance during the actual seminar; nor was the process of negotiating same discussed.
I know of a
Last Saturday a Realtor told me about an attorney in
I have participated in at least a half dozen conversations concerning the sale of a home with a negotiated short-pay on the mortgage. Can the potential buyer of such a home ask for a Seller’s concession for part or all of the closing costs? The overwhelming consensus is, “No,” but there are some who think it may be possible.
All of that is just background. The “witches brew” for a new form of [tag]mortgage fraud[/tag] finds its recipe in the short sale process.
Yesterday a Realtor related a story that blew my mind.
He described these short sale seminars in his area—one of them, if I remember correctly, conducted by a local mortgage person (I won’t call this person a “professional.” If you read my blog with any regularity, you’ll know why).
The Realtor went on to tell me how a homeowner came in to his office proposing to negotiate a short sale with the bank, then sell the house to a relative. In this way the homeowner could, in the words of the Realtor, “…cheat the bank out of its money and still keep his house.”
As if the Sub-Prime debacle wasn’t enough of a nightmare, now we have this short sale madness threatening to create even more opportunities for mortgage fraud.
I worry when a single idea takes a stranglehold of the industry—the way 100% [tag]Sub-Prime[/tag] financing and Never-Ending-Equity-Appreciation did in their time. Too many people jump on the bandwagon looking to profit in the basest ways possible.
While the banks and their depositors and the investors on Wall Street who purchase mortgage-backed securities feel the bulk of the pain when things go bad, in the end, it is the hard-working first time home buyer who is dealt the worst hand.
People who have the dream of owning a home will find the loan products, the (real) mortgage professionals, and in fact, the money sorely lacking. Their dreams will become ever more difficult to realize.
And that, at the end of the day, is the worst effect of the entire [tag]mortgage meltdown[/tag]. If people can’t buy homes, so many other areas of the economy are affected.
This new short sale demon lurking in the shadows of the mortgage meltdown will provide more opportunities for fraud, more problems for banks, and more misery for [tag]homeowners[/tag] and [tag]home buyers[/tag].