How much do you know about your SHORT SALE?

OK... How much do you know about your short sale? If you have been selling any real estate lately, you know that short sales are common in every area and state of the market. From what the people who know are saying, we need to get used to short sales.

I was in a meeting today with a senior VP for Bank of America. The meeting was pretty generic in nature in that much of the content was the company line on the general short sale subjects. One topic discussed hits home on a variety of levels.

That topic was investor approvals. From the Realtor standpoint, we think how hard can it be? Get an offer, approve it, close it. I didn't know this but any loan could have multiple investors. It is not uncommon for a loan originator to sell different components of the loan to specialty investors.

The VP spoke of a scenerio of a first loan with 4 investors and a second loan with 3 investors. All different. All with a stake in the loan. Each has to agree on a settlement for a short sale to be approved. This explains why it takes so long in many cases to get an approval. It also explains why in many cases approval is not agreed to by the investors.

If you read my last blog, it spoke to the IndyMac/FDIC "arrangement" for shared loss in REO properties and how the investors have monetary incentives to foreclose instead of modify or agree to a short sale.

The question I had for the VP was.. "What is the obligation of the bank to disclose who the individual investors are in a short sale transaction to the borrower/agents/buyer?" The borrower has never been told who these investors are for the most part. Maybe some are in bankruptcy. Maybe some are in a situation where they don't want to report a loss in a particular quarter. Maybe some want the property because of some sweetheart deal with the FDIC.

The reply was... "A listing agent should have access to that information."

Ok, that doesn't really answer the question. I was asking what the disclosure threshold is on the bank's part. You know... Truth in Lending, all that. The question went unanswered.

Ok, what is my threshold for disclosure about individual investors to my clients? What is the threshold for the Seller's disclosure to the Buyer? What is the threshold for the Buyer's agent to the Buyer? Do we say... "The transaction isn't really a transaction until the bank approves it... well not really the bank... well yes, the bank, and... oh yeah... there are a couple, three investors who have to approve it too... But that is just for the first... the second... you get the idea..."

I asked my broker to check with legal. They hate me.

I wish I had the answers. I am wondering about the clients who come back to us at some point in the future and say... "You never told me about that... here is my attorney's name and number."

I don't want to make this into anything more than it is... So, what do you think? Let me know.

How much do you know about your short sale?

You can contact me via my website at www.bigmark.net You will find all kinds of interesting content there. Including the best search engine for civilians in the business. Search any listing in the MLS, even commercial listings and REO's.

Is the FDIC Killing Short Sales?

If you have the time, check out this article about short sales and see if it's affecting any of your transactions.

Is the FDIC Killing Short Sales
by Alexis McGee on October 21, 2009

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!

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.

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).

How about that? Let me know what you think.

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