Ask anyone who does a lot of short sales about what is becoming a troubling trend in the industry and my guess is a majority of them will bring up the fact that the junior lien holder (or the second mortgage) is refusing to cooperate and demanding unreasonable amounts of money for them to agree to a short sale; or some of them even asking for illegal kickbacks in the form of payments made without being disclosed on the HUD1.

What does all of this mean?  Well, the junior liens have been receiving pennies out of the dollar, sometimes getting paid $3,000 on a loan with a balance of $100,000.  Yes, the loss is huge, but the junior lien holder has very little alternative, as a foreclosure means their loan is wiped out.  Hence, the senior loans have been successful in pressuring the juniors to take the lesser of the two evils, pennies or nothing.

Many junior lien holders are not taking this lying down now.  They have figured out they can combat the pressure from the senior liens by refusing to agree to the short sale. They are holding out until they can negotiate better terms.  They are simply saying to the senior lien holders: “if we don’t get a better offer, we won’t let the short sale happen; you will be forced to into foreclosure and your net will be much lower in a foreclosure sale than a short sale.”  They are simply playing a game of chicken.  Remember, if there are two loans in a short sale, both of the lien holders have to agree to permit the sale to proceed.

Or the other tactic is, some junior liens are demanding that the sellers pay them a settlement fee outside of escrow so that it will not show up on the HUD1.  A HUD1 discloses to all parties who is getting paid what.  By making a payment outside of the HUD1, the junior lien holder is getting paid without the senior lien holder finding out.  This is illegal, by the way; mortgage fraud, a Federal Offense from what I am told.

We all understand what the junior lien holder is trying to accomplish, but the problem is that in their game of chicken, the majority of the parties are suffering. We have one party who wants the property; the other party who wants to sell and move on with their lives and get out from under the banks; the senior lien holder who is also taking a huge loss, but because the junior lien holder, who knows they can get nothing if they force the transaction into foreclosure is hell-bent on forcing a foreclosure because they want to get a little bit more: even by illegal means.  They pressure the sellers to such an extent, the sellers are sometimes choosing to accept foreclosure rather than to give into what is being demanded.   Remember, the collective goal right now for the country is to reduce foreclosures, not to encourage it.

Because this problem is becoming more common and have reached critical mass, Barney Frank, the Chairman of the House Financial Services Committee has sent out a petition to the largest banks to voluntarily take action to permit second lien write downs; or else.

The same banks who are junior lien holders are also senior lien holders on other loans, so in the grand scheme of things, they will benefit if they prevent foreclosures.  So what are these guys  doing?  They are hurting their own bottom line and taking everyone else down with them; it makes no sense.

http://www.mercurynews.com/breaking-news/ci_14524392

Unfortunately we set a 30 year record in January 2010: more people are out of jobs than they have in 30 years up  from 12.3% in December 2009, but there seems to be an upswing  as 32,500 people gained employment in the same month.  A mixed message.

Regardless of how we interpret the data, one thing is very clear: there is a direct correlation to reduction in home buying behavior and unemployment. Regardless of what people may say about homes being more affordable now than ever before, if there is no sense of security in employment front, there will be no home purchases!

So what does this mean?  All this effort in providing tax credit incentives is great, but unless and until there is a concerted effort by the State and  Federal Governments to tackle the issue of unemployment and more importantly, to improve this number, there will be no increase in home purchasing activity.

In fact, as long as more people are losing jobs, they will start or continue to fall behind in making their mortgage payments, which will increase  the activities in the distressed properties market, which will result in home prices falling, which then will continue this drag on the economy as industries related to real estate continue to suffer and lay off more employees.  Truly a vicious circle.  Right now, 1 out of 6 home owners is behind in their mortgage payments.

So we all should pressure our politicians in D.C. to stop playing politics and get at the job for which they were elected: improve the economy by creating more jobs.  Everything else is secondary.

Here is a report which should shed some light onto and hopefully steer some homeowners away from some of the scams that are being used out there today.

Unfortunately, until we resolve California’s double digit unemployment rate, we will continue to have a steady flow of  short sales for possibly years to come.

This is an excellent article about the general overview of how short sales are reaching into the mainstream of the real estate industry.

The article, however, leaves a false impression that the REO listings are receiving more money because they close at 99% compared to 91% for short sales. However, there are plausible explanations for the differences in those two closing ratios.

1.  Short Sales generally have to start off at market price and require systematic price reductions which must be justified to the lenders for them to agree to the sale. Because buyers want deals but the lenders want to start with market price, price reductions are inevitably built in to the process.  Whereas in a REO, the bank and its accountants have pre-determined their bottom-line net price, which is typically below market rate.  Because they are dealing with bottom-line net prices, the banks will rarely agree to accept prices that are far off their list price, if at all.  By contrast, there is a bit more latitude in negotiating price in a short sale.

2.  In addition to having to start off at market price, comparable short sales generally list at a higher price point because owners typically live there and take better care of their homes where their family still resides; compare that to an REO where the owners often destroy many components of the house during the eviction process.  Short sales show better so are also more popular because they are closer to move-in condition that REOs.

So despite the impression that short sale properties receive less money, the reality is that short sale properties, sell at higher price points for comparable properties, yet close at a lower ratio relative to list/sold price because of the lenders demands to list at or near market price.

I suppose these were often the emotional responses of perfectly rational homeowners having irrational responses upon learning that their lenders would force their family out of their homes and try to sell their homes at auctions.   I imagine I would not react in such drastic ways; but who knows how one would react unless one were in the other person’s shoes?

Well, here is a homeowner’s reaction to a foreclosure notice………

Steve Mun/Susan Merani | Keller Williams Realty | 650-605-3188 18570 Aspesi Dr, Saratoga, CA Saratoga Gem in a tranquil neighborhood with friendly neighbors. 4BR/2+1BA Single Family House offered at $899,000 Year Built 1958 Sq Footage 1,889 Bedrooms 4 Bathrooms 2 full, 1 partial Floors 1 Parking 2 Car garage Lot Size 8,125 sqft HOA/Maint $0 per month DESCRIPTION Elegant Home in Saratoga which is centrally located for easy commute, yet secluded from street noise. Many upgrades, including: refinished hardwood floors, dual pane windows, skylights, and full house insulation, newer 20 year life roof, screened gutters, furnace, water heater, dishwasher, and professional grade gas stove top. Gorgeous large rear yard with pool, patio, and deck. Everything that a family requires. see additional photos below PROPERTY FEATURES - Central heat - Fireplace - High/Vaulted ceiling - Walk-in closet - Hardwood floor - Tile floor - Family room - Living room - Breakfast nook - Dishwasher - Refrigerator - Stove/Oven - Laundry area – inside - Balcony, Deck, or Patio - Yard - Swimming pool ADDITIONAL PHOTOS Photo 1 Photo 2 Photo 3 Photo 4 Photo 1 Photo 2 Photo 3 Photo 1 Photo 2 Photo 1 Photo 2 Photo 3 Photo 1 Photo 2 Photo 1 Photo 2 Contact info: Steve Mun/Susan Merani Keller Williams Realty DRE#:01358433 650-605-3188 For sale by agent/broker Equal Opportunity Housing Posted: Feb 16, 2010, 3:08pm PST

]]> http://www.sanjoseshortsaleagent.com/2010/02/16/home-for-sale-18570-aspesi-dr-saratoga-ca-95070/feed/ 0 http://www.sanjoseshortsaleagent.com/2010/02/13/foreclosing-on-a-property-the-bank-did-not-own/ http://www.sanjoseshortsaleagent.com/2010/02/13/foreclosing-on-a-property-the-bank-did-not-own/#comments Sun, 14 Feb 2010 05:21:22 +0000 admin http://www.sanjoseshortsaleagent.com/?p=597

Now I’ve heard everything.  Can you imagine a lender accidentally foreclosing on your home and throwing all of your belongings out on the streets?  Imagine how embarrassing and shocking that would be for you if you paid for your home in cash and owed nothing on it.   Imagine further that you informed the bank’s agent and said agent repeatedly informed the bank that they had the wrong house.  The bank foreclosed on the property it did not own anyway.

Well  it sounds unbelieveable, but leave it to Bank of America to foreclose on a house it did not hold a note on.

http://www.tampabay.com/news/business/realestate/bank-of-america-forecloses-on-house-that-couple-had-paid-cash-for/1072632

You may have heard that a “strategic default” can be an appropriate and even beneficial reaction to an upside-down mortgage or impending foreclosure. While this idea is widespread, the truth is that default is never an easy road to choose, and rarely ever strategic.

Unfortunately, the ramifications of a “strategic default” are rarely explained, leaving many homeowners stranded on an island of misinformation. To assist you, I’ve prepared a free report outlining the myths and misrepresentations of strategic defaults.

Fill out your information below for this free report. Don’t hesitate. Get the facts today!