Along my path in the real estate industry I learn and continue to learn. I know that going above and beyond and being a detailed Realtor Associate® leaves me respected by many. I came into the market at the start of the boom and weathered the storm during the downturn and I am at the point in my career where I am ‘stable'.
I make a good living, I make sure to allot time for me, time for family and I certainly do not take on more than I can handle. I have control issues (which I'm sure many will agree they do as well) as I have my own style and anal retentive ways of being on top of things. In that respect I assure my clients I am not too busy to take care of them.
Every transaction IS NOT THE SAME. I will continue to repeat that line during and after a transaction as I surely continue to learn something, anything....from each client and transaction. I surely will remind myself to not take things so personal as it's the perception of each human being that will sometimes create a negative or positive reaction.
For every action there is a reaction.
Short Sales are a part of our market in Hawaii and more so in some neighborhoods than others.
I surely think in the best interests of my buyers and sellers and make sure to be honest and forthright with the information I give them. If it's beyond my scope then they need to seek legal advice from an attorney.
I have done a few short sales for buyers AND sellers and I don't like the way the lenders/banks know that lives are in their hands and they take every advantage to look like the good guy when indeed they just don't give a hoot. I'd like to see one of them say, "I care about you and will try and help you through this as quickly as possible so you can get on with your lives". Yeah, right....when pigs fly.
It's one thing to know that only some states have a ‘debt forgiveness law' and another for the bank to blame the state on not forgiving the deficiency on a short sale. This was presented to me the other day by a lender.
IS IT NOT A FACT THAT ....THE FORGIVENESS LIES IN THE HANDS OF THE LENDER?
Correct me if I'm wrong please.
They either forgive or not. Hawaii (and MANY OTHER states) do not have debt forgiveness laws. And? The perception of "Hawaii is not a debt forgiveness state" doesn't mean that it was up to Hawaii to forgive the deficiency in the loan through a short sale.
It was... and is the lender that gets to go after the borrower for that deficiency ..... or not.
So, Mr. Lender...don't sit there and act like it's any particular state's fault you didn't forgive the remaining balance....it was your choice all along. How people perceived the statement that ‘a state doesn't have the forgiveness law' can be misconstrued by the seller that it's the state that doesn't allow the debt forgiveness from the lender. Most states just don't have a law that MAKES you forgive the debt.
It's these kinds of things that teach me yet one more lesson.
Others may not be straightforward and forthright ......
And we have to be on our toes when statements are misconstrued.
Sally, we totally agree with you. lien holders seem to do everything they can to put obtacles in the way to not let the deal close.
At the end of the day there is debt forgiveness based on need in every state....Bankruptcy. So if someone has lost the home and really can't pay anything, then they can get out of the deficency that way. BK laws allow you to keep your car, rent a reasonable place and still have $20,000 in the bank per couple (I think in all states, but at least in mine)...so the strategic default people might need to pay something...but that's how it goes.
Sally, yes it is up the lender to decide if they are going to seek a deficiency judgment. I personally think how the lender responds is based on how and who is negotiating the short sale. Many people are not versed and take the lenders response as gospel. It doesn't hurt to push back, escalate to someone who can make decisions, and counter their offers. I do this daily and with much success.
It really helps if you can gain leverage with the lender. I do this by having a RE attorney review the sellers loan docs for any state/federal violations. The lenders do not like dealing with an attorney who is threatening a lawsuit if XYZ demands are not met.
All the best and good luck!
Ryan Smith from Temecula, CA
Karen: That's what I thought...and knew to be true...Not how it was said....that our state doesn't have a debt forgiveness law.....and let the people hearing perceive that it's our state that doesn't ALLOW a debt forgiveness with a short sale.
Edward: Talk about an obstacles....
Good afternoon Sally,
There are times I really wonder what lien holders are thinking in the decisions they make! Solutions..they never seem to want to make simple solutions to the problem!
Sally,
It's very sad how banks care so little about people's lives...even their own clients are treated worse than perfect strangers who walk in off the streets. It's all just about money, not the people who contributed to their wealth to begin with....
Jo
That statement from the lender is just plain obtuse. He must believe that you're too ignorant to understand that, just because they can go after the owner for the deficiency doesn't mean that they must do so.
The lender is clearly obfuscating the fact they they have the power to grant forgiveness of the debt by weaseling through the state's forgiveness law.
It is the lenders who dog these folks who have lost everything to a point where they finally get to bankruptcy court.
If I had my way, most consumers would just go directly to bankruptcy court and leave the lenders there hanging. The lender is going to get the house anyway, why not just liquidate and not go through the agony of foreclosure or short sale.
In your state, it would serve the lenders right.
Ryan: thanks for your insight. Bottom line, I don't. I challenge when it sounds ludicrous....
Dorie: What's simple? :) For something that should be simple is not...
I can honestly say about 50 short sales later, I've never heard of that. I've heard insurance brought in as an arguement, whether there is a hardship or not, the ability to repay or sign a promissory note or not, but never state law. Perhaps because I am not in Hawaii. I've certainly been ignored and that answer or non-answer is my least favorite of ALL.
I have to agree with Lenn....seeking the courts out for remedy as the banks are in a state of mishap and denial not to mention unbridled indifference....The courts are the only thing to stop them now.......
Thank you
Jo-Anne: Oh, I agree with that indeed!
Lenn: Oh, thank you! I thought I was out of my mind...and then started seeing how they threw the statement out and others perceived it as such. It's actually a lender on the mainland ... who stated that... Thanks Lenn...I just knew you'd come in with your outstanding logic!
Kristen: And here I am with just a few under my belt...but I'm not stupid to get conned into that one!
Richie: If only....
Sally,
Ask him to please show you in writing in a State Document proving that it is required that he is not allowed, by law, forgiveness to his debtors. Let him know that as a Realtor it is up to you to DISCLOSE ALL FACTS to the buyers and that it must be in writing. It doesn't hurt for you to say "PROVE IT!" Go get um tigress.
Let us know what happens with this one!
Deb
In some instances, everyone is pointing the finger and laying blame on each other, when in fact it really does boil down to the lien holder to forgive the debt.
Deb: That's a good one...I think I will do that.
Bernadine: YUp....
Woo Hoo Sally...
Seems like there always has to be a power play, doesn't it? Ka Ka Heads :)
"We have all the power and you're screwed". Nannie Nannie Boo Boo :)
TLW...ROAR!
Lol...
I love Lenn's solution. Just imagine that. That would serve them right. Sharks :)
TLW...ROAR!
Celeste, Because every state has different rules regarding foreclosure and short sales, it would be impossible to make a blanket statement, except that I know of NO circumstance that a lender MUST pursue a deficiency.
That said, Lenn and I are on the same page with this. And, not only because it would be a comeuppance for lenders. The fact of the matter is that a bankruptcy is "better" than a foreclosure from a financing perspective. NOTE: I am not dispersing legal advice...,whether or not to short sale, foreclose or file bankruptcy is an individual decision. However, guidelines are not favorable for a foreclosure. And, a Chapter 13 versus a Chapter 7, is a waste of time from the lending guideline perspective. The reason I agree with Lenn is that the sooner the consumer has the tumor removed, the sooner the recovery can begin.
Ryan, I like your approach as long as it really is a Real Estate Attorney reviewing loan documents. I have met any number of "Forensic Auditors" here in CA and they are, for the most part, peddling snake oil. Many of them sold the "toxic" loans, went into the "modification" business and (when the CA State Attorney General cracked down on that scam) then they became "Forensice Auditors".
Sally...
We don't leave it to chance. Our short sales are conditioned on the lender releasing title AND agreeing not to seek a deficiency judgement. Otherwise, it's no deal.
Richard: So what happens after that? Now Fannie Mae (I heard) is not postponing auctions so if you don't get the short sale through within that 60 day time frame to auction then what?
As far as I know,...West Virginia, North Dakota, Montana, Mississippi, Minnesota and California have debt forgiveness laws.... and still, it does not grant the lender the right to use that statement to make like it's the state they reside ..is the one who decided they don't get forgiveness on the short of the loan.
Deborah: And that's what this is about...except that the lender made one statement...and left the unknowings .... with a bitter taste. Not good.
TLW: of course! Yeah...I'd love to imagine that...
Sally- You are confusing what the servicer is willing to do and what the note owner gives authority to the servicer to do in their behalf.
The servicer of the loan is held in contract to their fiduciary who is the note owner and the investors, those that bought stocks in those banks' companies- like teachers unions and pension funds.
The servicer, the entity to which most homeowners pay their mortgage payments to is USUALLY NOT the lender that owns the note.
The note owners have a contract with the servicers. That contract spells out what the servicer can and can not do for their notes.
The homeowner is a customer of the servicer and NOT a client. The servicers ONLY job is to obey their fiduciary to their client- the note owners.
The agreement spells out that the servicer must abide by each states's statutes.
While at the end of the day, with pressure on note owners to not seek deficiencies- it is not likely that most would go after the homeowners they are not usually willing to put that in writing.
Our attorneys have also stated that even if they do state in their letter that they will not pursue a deficiency in a deficiency state that the banks' statutory rights are within the statute and can be argued as such, while on the other hand, you would find it hardpressed to get a judge to rule in favor of a bank these days.
We do have ways around this law though. While they have not been tested in court, our clients have prevailed against collection agencies seeking out those deficiencies on seconds and charged off loans.
I certainly am not one to like banks, nor would ever side with them, and I think they have other motives- but that is another story.
Bankruptcy is the best solution for many homeowners. The deficiency can be placed into bankruptcy. Katerina
Katerina: My whole point was the way the lender of the borrower (seller) stated that Hawaii does not have a debt forgiveness law...therefore, they are responsible for the balance on the short. In plain words, they led them to believe that it's because of Hawaii not having that law.... you see? Bottom line is that the bank would not forgive...therefore...... and yes, they can go after the debt...but the ball was in their court....not any state.
Sally, has your borrower looked into the alternative of filing a BK? Depending on their circumstances, if the lien holder goes after them for the deficency then they can claim they are INSOLVENT with the IRS and avoid having to file BK. Essentially it means that if your net worth it less than what they are trying to come after you for, and most of the time it is then this little law could save them.
I would have your borrower contact their accountant and see if this option is available to them. It is a HUGE saver but many people are not pursuing it.
I think the lenders make this decision if the state doesn't require it. Also, HAFA requires that they waive the deficiency; so, hopefully we'll see more of this.
Oops. I take it pasting from Word doesn't work well on the Active Rain platform? Sorry. Here's the post again:
Whether or not HI has a debt forgiveness law as you call it, I'd take a long hard read of that mortgage (Or trust deed if that's the case in your state) The whole idea of mitigating risk through use of an instrument secured against an asset is that the asset mitigates the risk. That is, the mortgage instrument contains certain agreed upon resolutions in the event of certain things taking place during the term of repayment, such as non-payment for whatever the reason. And the reasons could be many (or any) circumstances that affect the financial health of the borrower.
In a mortgage the lender is given the power of sale to satisfy the repayment in the event of non-payment. That's the major part of the agreement from the lending side. Of course, for over the last 80 years or so, that came with the assumption that barring the borrower "wasting" the property, it would, in such event, probably be worth more money in the future thereby reducing risk even further for the lender. In any event the power of sale means that the lender looks to the collateral for security, not the borrower. Just because the market is now depreciating, doesn't negate the intent of the original agreement. Therefore, I find it difficult to believe that a lender pursuing a deficiency judgment over an agreement that was “expressly invented to grant power of sale” in order to make them whole in the event of default by the borrower, would have an easy time successfully defending that position in court. Debt forgiveness law or not.
Of course, stranger things have happened. The old McDonald's case about failing to warn the customer that the coffee is HOT comes to mind for example.
The point is, if mortgages didn't exist, few homes would ever be built or sold and our entire industry (including the mortgage industry) wouldn't exist either. That's the whole point of mortgages to begin with. If the lender wasn't happy with the powers granted them in agreeing to lend the money, they should have denied the loan at origination. Reneging after the fact seems like a pretty weak point of defense especially when the borrower had zero control of the overall economic conditions that created the collateral being valued at LESS than the amount loaned at the time power of sale was exercised.
I'd pursue that defense before I'd ever resign myself to bankruptcy as a solution.
My $0.02
Carl S
Carl, you bring up the point I try to make over and over -- banks do not lend free money. Money is something that is lent against an asset in order to make money for shareholders or note owners. Katerina rightly brings up that notes are owned by pension funds and insurance funds and teachers unions. A "debt forgiveness" takes money from those people -- not some faceless bank.
Money isn't free, unless we want to become a socialistic state with the government giving and taking on their initiative.
Sally,
I have a short sale currently that has had three offers on the table and it still has not closed yet. I don't understand why it takes so long when someone is offering to purchase it. It will cost the bank more to foreclose than to short sale it. It just blows my mind.
Sally, interesting post. It is alway up to the person who is owed to make the decision to forgive and forget. Banks are all about the money, not human relationships...
Sally,
I read these posts about short sales with interest. It's a fact of life in the US. In Canada, there are very, very few. And certainly, not nearly enough to even be worth mentioning.
Brian
Sally - Very interesting post and comments. I have learned a lot. Thanks.
In response to Leslie's important point. I think it's also important to remind everyone that when a bank creates a loan these days, there's little actual MONEY involved backing the actual loan. In fact, in the recent past, actual money backing the loan has been as little as 4% or less of the face value of the note. That's what passes for "wealth creation" these days and IMHO one of, if not "the," major problem with our current system. There are pluses and minuses to this system of course. A plus is, that it makes more funds available for people to buy real estate. But as we've all now learned, that comes tempered with the reality that there's no "real money" backing the note. The only thing backing the note is the "full faith and credit of the US treasury." This system has now become 40% of our overall GDP which as recently as 1980 was only 8% or so of GDP. IMO, that's unsustainable as an economic system in ANY country.
We're now learning why maintaining the illusion of value of the underlying assets of these loans by guaranteeing the losses of the difference between current "perceived value" vs the "fake" wealth created, may not be such a good idea. IMO, this is what's creating a market in which many homes are selling for a fraction of the cost of the materials required to replace them, which in turn renders the underlying land on which these homes sit as being worth less than zero. I don't know about others, but historically, this just isn't logical.
We would have been far better off had we modified EVERYONE'S mortgage to a historically correct value of about 2-3% appreciation beginning from about 1997 forward and let the reduced payments resulting in more cash to everyone, stimulate the economy from the bottom up instead of the top down. Of course, there's a trade off there. That would mean that retiree's, pension funds, insurance companies, Saudi Oil Sheiks, etc, etc, would have taken the bigger hit on the illusion of value that was created. But IMO these folks contribute far less spending to the overall economy than working citizens who own homes, so it was the lesser of two evils. and many of the citizens backed by the value of these investments also own homes so IMO, ordinary Americans would have taken less of a hit if their homes were not rendered nearly worthless vs. their retirement fund.
And so the arguments continue. Whatever the outcome, hang on to your hats! I, for one, think we're in for a very bumpy ride for quite some time yet . . .
Carl S
Sorry, I have not read all the comments before posting mine. You have the Mortgage Debt Foregiveness Law of 2007 and you have HAFA. But if the lender does not accept the short sale (wholly up to their discretion), than you have nothing--no deal.
Melissa: My point exactly.....the LENDER HAS THE BALL.
Carl: Thank you for your detailed responses. You said........the borrower had zero control of the overall economic conditions that created the collateral being valued at LESS than the amount loaned at the time power of sale was exercised. So...bottom line...again...the lender of the borrower has the control to deny. Like you said....regardless if Hawaii...or any other state has a debt forgiveness law. As far as i've seen...there are only six states.
Sally: Just to clearify, what do you mean by "The lender has the power to deny?" Mortgages are very specific about what "powers" the lender has in the event of default, which was the point of my comment. Do you mean, "The lender has the power to deny making the loan at origination?" (Which is true) or something else?
Carl S
Carl: the forgiveness....
Ha!..... i like the comment above about "banks are all about manking money not relationships! How true.
Sally - And, this is why I use an attorney to handle and negotiate with the bank on behalf of my clients. NY is also an attorney state so it only makes sense for sellers to pay a higher fee and let the attorneys make certain that the buyer IS forgiven for their debt in the end.
Woo Hoo, This post says it like it is. It reminds me of the old expression, "He who has the Gold , makes the rules". We live in unusual times but it is times of stress that determines true character. Certainly no doubt about the conclusion.
William: Yup...he who has the gold makes the rules....That sure is true isn't it? I'm stressed but hanging in there lol...
Carol: BUYER?
Pat...I'm reading all the comments and see so many quotes that ring true in this case.
I have relatives in Alabama who are going through something similar to this. Great post Sally!
Sally - I wonder if these people ever think about Karma and the fact that they are ruining other people's lives..............
Hi Sally - Short sales are further complicated by the fact that so many loans are not owned by the banks that are servicing them. Bank of America, for example, owns only 4 percent of the loans they service. So when you have a short sale with a B of A first and a B of A second, you have to satisfy the protocols of B of A, and then you have to satisfy the protocols of the investors who own the loans. Of course we cannot negotiate directly with the investors, and they are the ones taking the hit on a short sale. Some are more rigid than others, and we don't learn what their protocols are, just that we haven't satisfied them.
Keep up the counteroffers, and eventually, you have a good chance of getting deficiencies waived. I just closed on one that took three buyers, a long time, and a lot of work, and 10 counteroffers with the third buyer, but there is no deficiency, no promissory note and no reservation of right to collect.
I just had to keep fighting until I got what my sellers needed and what the buyers were capable of doing. After all, that is what we're doing here, right?
Sounds like a negotiator just making stuff up, nothing new. I STILL sit here 3 years after this garbage started rolling down hill and shake my head at the shenanigans.