All Forum Posts by: Benjamin Cowles

@Benjamin Cowles

I think the short answer is just because a lot is owed on a house compared to what it is worth, don't overlook them.  The bank may very well sell it a great price.  Happy  bidding;)

The short sale requires the cooperation of the borrower.....because the borrower is the owner.  The borrower/owner may or may not be willing or able to cooperate.  The borrower/owner may be dead.  The borrower/owner could have a ton of other debt issues that can't be settled so foreclosure might be the only way to extinguish them.  There might be title issues that can't be resolved without a foreclosure.  Short sales are so far from a slam dunk.  Ask any agent who works them.  It's a numbers game as to how many actually close.  And as pointed out above, the only person who gets paid is the agent.

Banks don't think like we do or even like business people.  What makes sense to us from a business perspective is not something they will do.  

Bankers are bureaucrats, and their whole focus is protecting their bureaucracy and looking good to their superiors for having done that.  They actually get penalized for good business decisions and rewarded for bad ones just as long as they conform to the rules.

For example, I know of bankers who got huge bonuses before the collapse that approved loans that the numbers told them would default because they were rewarded for just writing loans, not writing good ones. 

That's how nonsensical the banking world is, and because it is nonsensical, that's the reason very few short sales work out.

@Kris, you're watching too many late night television shows if you conclude "Bail Out Money" is why a bank does or doesn't do anything. That urban legend has long been debunked. First, not all banks got TARP money. Second, those that got TARP money had to pay it back with interest. Third, TARP has nothing to do with foreclosure sales. Fourth, banks don't "Buy it back" at the steps (They credit bid). Fifth, they lost the difference between what they lent and what it sells for 3rd party, or through REO if it reverts back so yes, they do suffer losses. Massive losses that made many banks go under. Sixth, "pressure"? Pressure in the past that doesn't exist today? Pressure from who?

While banks may well be silly, there are as many silly investors that don't seem to want to learn how banks actually work or how the foreclosure process works. Not saying that's the case here, just that there are a couple of silly investors out there without a clue.

Back to the OP's question. @Ben, underwater doesn't matter to anyone in the situation other than a potential agent trying to sell it (If a sale is the objective). Being underwater doesn't matter to the borrower although strangely, I get "I'm underwater" as a reason for their default every day. 99% of all borrowers that buy a car are underwater the minute the brake lights hit the curb when they purchase. They owe more than it's worth. 100% of borrowers that purchase on credit and don't pay it off within 30 days are underwater when they bought that TV for $1,000 at 29% interest. Borrowers that finance a home purchase or refinance may be underwater if they go through an economic meltdown like we all did in 2008 but at the end of the day and all things being equal, that doesn't matter. You still have the home, you still make the payment, you still get the tax write off, the bank doesn't foreclose. All is good.

When all is NOT good and you lose your job, lose a spouse or co borrower, have a catastrophic medical condition with massive bills, being underwater still doesn't matter. What matters is you usually will get behind on your payments and in the absence of intervention, will go into foreclosure and, (Wait for it...) being underwater won't matter!

So now your in deep doodoo and the bank intends to foreclose. They don't care if you're underwater or not. You haven't made your payment. "Wait" you say. "I'll sell the property" you say, and find out you are underwater. The bank doesn't care if you are underwater but, because you are underwater, a potential sale will require a short sale so, you go through the exact same hoops that you would go through for a loan modification to determine if the bank will agree to participate in a short sale. The only difference between a short sale and a regular sale is the short sale addendum (For the most part). Buyer doesn't care, borrower doesn't care, bank doesn't care. The agent cares because they want to close the short sale and get paid but no one else cares if its underwater. Buyer isn't going to pay more than fair market. Bank isn't going to get anything more than fair market. Seller MIGHT be subject to a deficiency if the state they are in allows it but at least they are out of it and at the end of the day, they don't care if its underwater.

Does the bank want a short sale over a foreclosure sale? Only if the bank's financial model says its in their best interest to do a short sale. What's in their best interest is a reduction in loss and/or maximum recovery so, whichever path leads to the greatest recovery and the least loss, that's the path they will go. The issue we find common is that the buyer wants to pay as little as possible and will utilize the agent to facilitate that. The agent is going to try to come up with data to support their purchase price offer if that offer is below the minimum net proceeds of the bank. If the agent is any good, they will succeed. If they suck, they won't. It's as simple as that.

If there is equity, there is no short sale. If there is equity and the borrower defaults and the lender starts foreclosure, only a full payoff prior to the foreclosure sale will stop the foreclosure.

I haven't seen any rhyme or reason with these silly banks.  I don't think the SS dept. even communicates w with the 4closure dept.   You never know what the opening bid will be at the steps.  The short sale may stay in SS status for months, and then the bank can sell the loan to another bank and You'll have to start over.  I'm doing one right now.  I think the banks don't care because they got that bail out money.  The bank just buys it back at the steps and keeps the bail out money, they don't lose anything.  No pressure for them to sell the asset like in the past...

Short sales (underwater property) are not wholesaling friendly, and a wholesaler is likely to just screw around the seller, wasting 3-4 months.  Investors/wholesalers look for equity, as clipping off a piece of that equity is how they make money.

This question is in the wrong forum and thus are getting the wrong answers.

Theres a notes forum.  Search on originating notes dodd frank compliant.  The DF act compliance requirements is only in play when a borrower will be the homes occupant (owner occupant).  Lending your funds to investors, is just as above said, any title office can draw up the mortgage and note and you are free to set any terms.  If an owner occupant borrower you must follow Dodd Frank's limitations.

If you are lending to an occupant... stop ... go read up on dodd frank compliance.  Yes you will need among other things a LMLO.  I find mine by calling the title offices and asking for a referal for a LMLO.  Mortgage brokers / banks etc can not originate your mortgage.  It has to be an independant LMLO and the closing attorneys/title offices will know who those are.

I pay $695 since my notes are small, but have heard of 1% of the loan as their fee.  

Quiz the LMLO about their role re Dodd Frank, see what they say. Do they collect full doc and calc DTI or do they push that off onto you the lender (forcing you to get their full doc is not DF compliant). You the lender supply the DTI you need. DF's suggested 43% is just a suggestion, but a safe one.

Go read the dodd frank compliance threads in the note forums.  It's do able.

This site has an ebook on amazon:  http://sellerfinanceconsultants.com/

They have some tutorials.  Their LMLO fee is on the high side but they know what they are doing.

If you hold paper a seller and your buyer is a primary resident, just plan on leaving the money there for 5 years. We have a deal we did that is yielding 31 percent with arbitrage involved. The first thing to pay attention to will be owner occupied or not. Get an attorney involved as the penalties for violating Dodd Frank are severe.

Depends.  If you're buying with cash, and the pay off is less than your price, you can do it in a few days.  If it's a short sale, and you can't get the sale date delayed, 4 months or so.