Tim's Atlanta Real Estate Blog: September 2009

Is The FDIC Killing Short Sales?

As some of you already know, I blogged recently about being interviewed recently by our local NBC news affiliate.  To read the blog, click here.  Basically, IndyMac Bank (now OneWest Bank), is holding one of my clients hostage, demanding a $75k promissory note, or they will proceed to foreclosure.  For the life of me, I couldn't figure out why they were doing this.  The BPO came in at the contract price of $275k, with a net to IndyMac of $241k.  What advantage could there possibly be for them to proceed to foreclosure?

Yesterday, I figured it out.  You see, IndyMac was taken over by the FDIC and sold to OneWest Bank in March/2009.  Guess who the investors are behind OneWest?  George Soros, Michael Dell, Steve Mnuchin (former Goldman Sachs executive), and John Paulson (hedge-fund billionaire).  

Now, listen to the deal they got from the FDIC....

Basically, they purchased all current residential mortgages at 70% of par value (70% of the outstanding loan amounts).  They purchased all current HELOCS at 58% of Par Value!!!

Next, in order to "sweeten the pot", the FDIC stepped in and guaranteed the following:  For any residential mortgages where OneWest experiences a loss, the FDIC will step in and cover anywhere from 80%-95% of the loss.  The loss is calculated using the ORIGINAL LOAN BALANCE, not the amount that OneWest paid for the loan.  Let's use my clients situation as an example:

Loan Amount is $478,000, plus 6 months of missed payments, for a grand total of $485,200

OneWest pays $334,600 for the loan

We have an all cash offer of $241,000, net to OneWest.

So, let's do the math, shall we?  The net loss, according to the FDIC formula is the ORIGINAL LOAN AMOUNT minus the amount of the offer.  In this case, $485,200-$241,000, or $244,200.  Next, the FDIC, according to their Loss Share Agreement, writes a check to OneWest for 80% of the so-called "net loss".  So, in this case, OneWest gets a check from Uncle Sam for $195,360 (.80 X $244,200).

Add the $195,360 to the sales price of $241,000, and you get a grand total of $436,360.  Remember, OneWest paid $334,600 for the loan.  So, OneWest puts $101,760 in their pocket, thanks to the FDIC.  Folks, that is over $100k of our hard-earned tax dollars!

So, you ask...Why does this program hurt short sales?  Because, our brilliant government offers this SAME PROGRAM FOR FORECLOSURES!  The only difference is, the government picks up 80% of the tab on all of the extra costs associated with a foreclosure (BPO's, upkeep, utilities/maintenance, legal fees, etc.)

So, If I'm OneWest, why would I want to waste my time negotiating through a Short Sale, when I can make the same amount of money (if not more) by just letting it go to foreclosure?  And we wonder why nobody can get a Loan Modification?  Why would OneWest approve a loan modification for this guy, when they can foreclose and make over $100k?  And, to add injury to insult, they have held this loan for 6 months!  Not a bad ROI, huh?

What infuriates me the most is that in my particular case mentioned above, they have the guts to hold my client hostage for a $75k promissory note, after they are already making more than $100k on the sale!!! This is his primary residence, 1st Position loan, and OneWest has NO RECOURSE!  Imagine if they could make $100k, then get a deficiency judgement!  Talk about making some big bucks!

Can you say "GREED"?

The scary thing is that over 50 banks have Shared Loss Agreements in place with the FDIC.  Some of them include:  Bank of America (go figure), CitiMortgage, Wells Fargo, etc.  

This entire agreement between the FDIC and OneWest can be found here, on the FDIC website.  It's all there, for the world to see!  They have it all layed out.  All of the formulas, worksheets, etc.  

Now, it's up to us to bring it to the attention of our elected officials and the media.  Enough is Enough!

UPDATE 9/18/09:  I JUST READ AN AWESOME ARTICLE ON THIS, THAT GOES INTO WAY MORE DETAIL THAN MY BLOG ABOVE.  TAKE THE TIME TO READ IT WHEN YOU GET A CHANCE! CLICK HERE TO READ IT.

Wait, it gets better...The FDIC just announced that it needs to start borrowing money from the U.S. Treasure in order to replenish it's deposit insurance fund (the same fund being used to pay all of these banks in the Loss Share Agreements).  Go Figure!  Click Here to read it.

 

 

 

Short Sale Strategies- Getting The Facts Straight For Sellers With Money- Case In Point

Let me set the record straight with who can get a short sale approved and who can not.

The main answer to the question is that is all depends on the lender and their policies regarding approving short sales.

Most lenders would rather have a short sale approved then foreclose on yet another property even if there is no financial hardship.
There are some lenders who will only approve short sales for financial hardships and others who will approve short sales if the terms are right for just about anybody.
Before taking on short sales you need to find out the policies of each of the short sale lenders that you will come into contact with.

It is simply NOT true when agents tell you that your clients without financial hardships can not do a short sale. In fact, just the mere fact that an agent is making a judgment call like that without knowing or trying is doing a disservice to a seller. It depends on how hard you want to fight for your sellers.

There are a lot of blogs out there where agents who say they know how to do short sales are not stating the facts correctly.

Just because your seller does not have a financial hardship does not mean they will not get approved for a short sale.

First let's get clear on what a short sale is since even after the last several years of short sales being prominent here in Florida, many states are just now beginning to experience short sales in their respective markets. A short sale is when a seller's property is worth less and will only sell for less than what the seller owes to his lender. So the seller is going to have to ask his lender to accept less than a full pay off of what he borrowed from his lender. It is up to his lender to say yes or no or yes with conditions.

A short sale is a short pay off of a loan, nothing more, nothing less. There are many terms and conditions that can be attached to a short pay off.

So now that we all understand what a short sale actually is we can look at some different possible outcomes for a wealthy seller, an investor or a non financial hardship case. There are also many cases where the seller may appear not to have any hardship but after you ask some probing questions you may discover hardships that the seller may not think of. I will write a short sale strategy post on this process.

One other thing I want to get really straight right now is that we do list and sell short sale listings and we have clients from all different financial backgrounds and situations. So the cases I will expand upon are real but I can not disclose the names to protect the identity of clients' financials. I want to make it very clear that these are true cases. I am not making this stuff up. I am not teaching out of some real estate book. I am not out in left field. I am in my own back yard, my own field of short sales. So if you want to listen to agents who don't do short sales but tell you how to do them, that is your decision. We are in the trenches. We carry a lot of listings and we close a lot of short sales.

When you first do your intake evaluation with a potential short sale client you must make certain things very clear and you must assess the client's situation. Financial hardships are relative and you can create a good case if you know the right questions to ask.

When we have clients who have money in their bank accounts or who own several to many other properties we will not take their short sale listing unless they agree to participate in the terms of the short sale. The usual way that a short sale lender treats a short sale is that the more financially strong the homeowner is, the more the lender is going to want them to contribute with a cash contribution towards the short fall and/or a promissory note.

We have closed on short sales where there is not a financial hardship for the homeowner but that something else changed in their lives. We just closed one that Broker Bryant referred to us where the sellers have great credit, they own and live in a home in another state and they no longer wanted their rental here.

They had tenants in the rental who were paying the mortgage. Their lender turned down our first short sale offer because the sellers were current on their mortgage on the rental which is the property they wanted to do the short sale on. So then they stopped paying their mortgage.

We received another offer.  You should have seen the bank statements and what they used their money for.  They were also paying off their credit card debt. They kept the rental money too. The first lien holder let them off free and clear through our negotiations with them. The second lien holder asked for a $30,000 promissory note which we negotiated down to $13,000 with payment of $110 per month and ZERO interest. This was a great offer for these sellers and they understood going into this deal that they would be required to participate in some way.

It was not our job to judge their motives or whether they were 'worthy' of a short sale approval or not. Our job was to negotiate the best possible outcome for them based on their own set of circumstances.

We never take their initial offer as fact. Everything is negotiable.

Nearly every situation where there is not a hardship case the seller is going to be adding cash or signing a note. If the sellers do not want to take part in that then we don't take the listing. There are many ways around this situation which we won't go into now- suffice it to say- you got to pay if you want to play.

On our financial hardship cases, we always get our sellers off without any payment plan or cash contributions even when there is PMI involved, which I will post on later- how to deal with PMI companies.

We have another listing where the seller owes over 2.6 Million dollars ( not disclosing exact #s). We just got approval on the short sale to close in the $600,000's. The buyer is going to pay all cash. The lender wants a $25,000 cash contribution. The buyer and seller are going to pay that contribution to the short sale lender.

Case in point- Seller has over 1 million dollars in his bank account and has some joint accounts. He was going to pay to play then changed his mind. We have been through several buyers because the lender wants a cash contribution from the seller of $50,000 but the seller does not want to take that out of his bank account. He owns several other properties and is not late on any mortgage payment except this one. This is not sitting too well with his lender. They feel he is getting off too easy. We negotiate back, saying, what does it matter, still better than a foreclosure.  Now we finally found a buyer who is going to contribute a large hunk of this and the seller now will finally contribute to make the short sale happen. We will get this closed.

Case in point- Seller owns many properties around the country. They want to short sale their rental here in Florida. They make very good money. We will only accept their short sale listing if they agree to contribute to the short sale financially.  We know their lender and they will be able to do the short sale. The seller agrees to participate financially if that is a condition. Knowing this lender- they most likely will require a contribution. The seller understands this and will participate. Investors can get short sales approved. We have one investor where we have listed and sold 4 of his properties  so far as short sales and all were approved. By the way, all of his were Countrywide loans.

Case in point- Doctors and attorneys. We list and negotiate short sales for attorneys' personal and investment properties. We have already listed and closed short sales for 2 attorneys and are in negotiations on short sales for 3 other attorneys right now.  The attorneys look great on credit and paper. It is all about selling their story. They all understand that based on their occupations alone they are going to be scrutinized and expected to play ball with cash to close or promissory notes.  Many attorneys have taken a hit in income depending on what their specialty is. So although they may be able to pay a mortgage payment of $3500 a month; they no longer can make payments of $7,500 a month. If the lenders are not going to approve their loan modification which has been the case for each of our attorney clients their best option may be to try to get a short sale approved, cut their losses and move on with their lives and businesses.

The biggest obstacle is getting your short sale file to the upper management in these cases because employees at these servicers are looking at the occupation of 'attorney' or 'doctor' and instantly judge them to be some rich people who are much better off than they are. Diligence is key here.

Hopefully this clears up some misconceptions as to who may get approved for a short sale. Please remember this is based on Florida stats, Florida laws and the way the lenders treat properties in Florida which is going to be much different than in Arizona or other trust deed states. The only constant is that rules and policies change in regards to short sales often.

For more information about Florida Short Sales- click here.

        

 

 

To  view Florida Short Sales- Click here. We know Palm Beach County Short Sales and Port St Lucie Florida Short Sales and will help you get your home Sold if you need to Sell your home and help you buy your home in Palm Beach County Florida : Call us today.

 

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Short Sale Strategies- Getting The Facts Straight- Case In Point! -was first published on South- Florida-Luxury-Living.com.

Copyright © 2009 By Katerina Gasset, All Rights Reserved.*Short Sale Strategies- Getting The Facts Straight- Case In Point!.*