an article posted online at the NYTimes.com, David Streitfeld writes of an aging couple who is going throught the process of a short sale. The purpose of the article is to demonstrate how banks are now pushing distressed sellers to sing promissory notes for the difference in the loan amount and the amount the house sells for (or a fraction of the difference). While Mr. Streitfield’s article is well written, I am afraid that it leaves readers with a false perception of reality.
The article makes it sound as if this is the “norm”. He writes:
Reluctantly, banks are agreeing to let some short sales go through. But instead of writing off the unpaid portion of the debt, they want homeowners to sign a note promising to pay some or all of the balance due.
He writes that statement as if it is fact. He leads you to believe that there has been a unilateral decisions to change the way that banks process and negotiate short sales. He then goes on to tell the sad story of the Kelly’s:
This was the situation confronting Mike and Linda Kelly, who needed to sell their house in the foreclosure-plagued Central Valley of California when Mr. Kelly got a new job 75 miles away.
The Kellys owe $300,000 on their house, which has a pool in the back, crepe myrtle bushes in front and, because Mr. Kelly is a ham radio buff, a 40-foot antenna above it. But the best offer they could get gave the bank $220,000.
CitiMortgage said it would approve a sale at that price, but at the last minute told the Kellys they needed to pay $166 a month for the next 20 years, a total of $40,000.
In this case, it appears that the lender has said that they will process the short sale if the Kelly’s split the difference with them and pay that difference back over twenty years. Whether this is fair or not is not something that I care to get into. My brain does not work in terms of fair, because fair simply does not matter. Mr. Streitfeld then unleashes the money making, newspaper selling, mouse clicking quote from the loss mitigator:
“When you are ready to participate in the loss, feel free to call me,” a Citi loss mitigation specialist, April Easter, wrote to them in an e-mail message.
Sensational?
Yes
Sad?
Yes
Alarming?
Yes
Normal?
No.
The idea of banks encourageing promissory notes and filing deficiency judgments may be a new trend or it may not. One instance does not make trend. The Kelly’s are just one of millions going through this same situation. I, for one, am not convinced that their situation indicates the beginning of a new trend.
Mr. Streitfeld provides no statistical data to support this new trend. Later in the article, he softens his position and brings up the crux of the problem:
If they do short sales without trying to extract anything from the sellers, everyone in the country who is upside down could try to wriggle out. The banks and bondholders will take a fresh wave of hits; some might not survive. But if a lender drives too hard a bargain, the owner can default, leaving the bank worse off than if it had taken the short sale.
He further goes on to (accurately) explain the ramifications for short sales and foreclosures:
“Your credit report is going to be equally bad with a short sale as a foreclosure,” said Maxine Sweet, a vice president of the credit bureau Experian.
It is true, however, that people who sign a promissory note may have an easier time buying a new house than people who have gone into foreclosure; guidelines imposed byFannie Mae, the mortgage giant, treat foreclosure as a particular black mark in getting a fresh mortgage.
And then, right on queue, he finishes the story of the Kelly’s. He nailed this part:
As the summer began, Mr. Kelly was getting tired of commuting for several hours every day to his new job. He asked Citi if it would accept half of what it was demanding, or $20,000. Before the lender could answer, their buyer backed out.
Feeling trapped, the Kellys are increasingly angry at Citi and other financial firms. “They damaged our economy and don’t take any of the responsibility, not really,” Mrs. Kelly said. Nevertheless, on Aug. 26, she mailed in the September mortgage payment.
A few days later, Mr. Kelly was abruptly laid off, along with 20 of his colleagues. He landed a new job on Monday but the offer was withdrawn on Wednesday. Too much economic turmoil for us to be adding staff, the company said.
Only one thing gives Mrs. Kelly any satisfaction. “Citi should have taken care of this when they could have,” she said. “Now there’s going to be nothing for them to get.”
In my opinion, that is the true story told in this article. The longer you wait, the worse it gets. There is no holding out for a better offer in a declining market.
source: shortsaleblogger.com
Fort Lauderdale Real Estate Blog and Homes for Sale
Rory Vanucchi
RoryVanucchi@gmail.com
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