A Look at WA SB 6337 “Protecting Short Sale Sellers”

A word from The Tim: This post is from long-time Seattle Bubble participant Jillayne Schlicke, real estate educator through her company CE Forward. Jillayne keeps a close watch on legislative issues, and agreed to write up this in-depth analysis of SB 6337 for the readers here. Thanks, Jillayne!


Senate Bill 6337 was recently introduced in the WA State Legislature regarding short sales.

After a short selling homeowner gets the shortfall deficiency waived, the homeowner receives a 1099 in the mail because debt forgiveness is a taxable event. Some people may have to pay taxes on the deficiency, others may not depending on their circumstances. More about that from the IRS here.

When a bank/lender issues a 1099 for debt forgiveness that means the bank also gets to write off the deficiency as a bad debt which may decrease the amount of taxes the bank/lender owes the IRS. Seems fair.

SB 6337 is asking the WA State Legislature to no longer allow a bank to pursue a homeowner for the deficiency on a short sale once the bank issues a 1099. Okay, still seems fair…

Here’s an excerpt from the Realtor Summary Sheet on the issue:

Key Points:

Provide certainty and consumer protections for short sale sellers is critical in the current real estate market. Successful short sales often prevent foreclosures that would harm consumers, tax revenue and economic recovery.

Okay, hold on a minute. Foreclosures are a natural and necessary part of the market cycle. Not everyone is going to be able to hang on to home ownership.  It’s beyond debate that the high home ownership rates we saw at the top of the bubble were not sustainable.  Foreclosed homes will be sold to investors and other home buyers who can afford home ownership using rational underwriting guidelines instead of the insanity of the bubble days. BTW, here’s what default rates look like for loans originated in 10-11 compared w/the bubble.

There are many foreclosure prevention programs available today, including the new changes to the Home Affordable Modification Program. Many homeowners in foreclosure have been in the system 18 months to 2 years without making a payment.  Yes, their credit score will plunge, but they’re also living rent free for 2 years. Seems to me that this might be a sort-of stealth economic shot in the arm, unless they’re using the money to shoot things into their arm.

Regarding tax revenue, there’s no excise tax paid on a trustee deed v. a short sale which is conveyed using a warranty deed, however, after foreclosure there IS excise tax paid when the foreclosed REO home is sold.

Regarding economic recovery, this particular law is not going to help our economy in WA State recover any faster. The banks are foreclosing slowly so as not to crash the market with REOs.  If we really want an economic recovery to happen faster, let the foreclosures commence. We will hit bottom VERY fast and then everyone will be super busy again. But that ain’t gonna happen and I fail to see how this bill could be tied to an economic recovery in our state.

This legislation will protect short sale sellers from mortgage debt collection actions when the short sale seller was issued a 1099-C Form and thus must pay income tax on the discharged debt.

Wait a minute. If a homeowner HAS assets, what’s the lender’s motivation to approve a short sale without the ability to collect the shortfall either at the close of escrow in the form of a new unsecured note, or in the future? Put yourself in the lender’s shoes just for a minute: If you sold a home and took back the paper/held the note, and now the new home buyer wants to sell short, would you just simply “forgive” the difference out of the goodness of your heart? NO. Not if you have a cold black heart like mine. I’d want the person to prove financial hardship first. I’d run the numbers and if it makes sense to take the write off, well then maybe my heart could be convinced to melt just a little, for, say 5 minutes which is enough time to sign the paperwork. If however, your home buyer had assets, why would you want to waive the short fall? If all banks/lenders just give a blanket hall pass on all short sale deficiency then the masses would suddenly sell short. Oh now I get it. Maybe this would motivate more people to….list their home, which means more real estate commissions. Okay, I’m getting it now. Realtors, I love you, but I’m not convinced this is in the best interest of homeowners. There’s more:

Lenders still have the ability to decide whether to reserve the right to collect mortgage debt owed after a short sale, or whether to issue a 1099-C and claim a deduction for tax purposes.

Oh goodie. I’m sure the bankers will thank us for that small token of appreciation.

Go to the 1 hour 9 minute mark (1:09) of this video to hear the six minutes of dialogue from the bill sponsor and the banker and lender who showed up.

One of the possible consequences if this bill is passed is that if banks/lenders are discouraged from pursuing homeowners (with assets) for the short sale deficiency, then it is entirely possible that
banks/lenders will then decide to just foreclose, which is the opposite outcome that the bill’s sponsors desire.

I’d like to hear/see/touch/feel/taste real examples of homeowners who were pursued for the deficiency and see if these are people who are financially destitute or if these are people with assets.

It looks like WA SB 6337 is a copy/paste of a bill that passed in Oregon last summer. Do we have access to stats from Oregon that could show us what happened to short sales/foreclosures after the law went into effect?

If we are serious about “protecting short sale sellers,” let’s require all homeowners  obtain prepaid legal counsel before the short sale is listed. Attorneys would make sure the final paperwork has no deficiency clause and seller’s legal questions can be answered by someone who is a member of the WA State Bar Assoc.

As it is written, SB 6337 has the potential for increasing foreclosures in WA State, and that might be a good thing, depending on your vantage point. Either way, go forth into the conversations surrounding this bill educated on the possible consequences.

  

About Jillayne Schlicke

Jillayne has many years experience in the lending industry and has a unique inside perspective on real estate. She currently provides continuing education for real estate professionals through her company CE Forward.

167 comments:

  1. 1
    Ray Pepper says:

    Short sale your home?

    *Drop your credit the same as a foreclosure?
    *Allow people to enter your home for viewing and cause additional stress on your family unit while letting the bank set the timelines and parameters of your departure?
    *Give the Lender the opportunity to dictate terms of what will and will not be done on YOUR home while you may or may not be faced with additional costs at Escrow to UNLOAD?
    *Be concerned about deficiency judgements?
    *Receive no financial incentive from the Lender to exit your property or moving assistance?
    *Give up ALL the financial incentives of the 2 years + in saving your mortgage payments for relocation(much much much longer if you continue to apply for loan mod after loan mod.)
    *Forget all about the rights of living in a “non-recourse” State.

    Yes, upside down homeowners make a check list and draw your own conclusions of positives and negatives. Any professional that URGES you to initiate a short sale, given the parameters we have now in Feb 2012, should be questioned relentlessly with a scenario like this:

    Agent, please answer this for me based on the following facts…”My mortgage payment is 2356.78. If I stop paying my mortgage today and apply for Loan Modifications, to the best of my ability I understand (due to the back log in the Courts and Lender difficulties) that I will lose my home in 20-40+ months? At a minimum it appears I could religiously save over 45,000 in CASH to a maximum of about 100k? I’m a pretty good saver and ALWAYS made my payments on-time.

    So my question to YOU my entrusted Real Estate Professional: Is it better to be a displaced homeowner with a foreclosure on my credit, having a minimum of 50k in my pocket, or a homeowner who short saled their home with NO CASH saved because we continued to make our payments as agreed?

    ” Please enlighten me with your advice so I can do the best in providing for my family going forward. We MUST as parents do the best to keep food on the table, our children in school, and a roof over our heads during these increasingly difficult times…Please help us with your expertise..”

    Also, real estate professional can you please remind us again this simple question….Why should we short sale our home? We will have no cash saved to buy another in 2 years anyway because its ALL lost on the prior one?. Please help me understand the benefits of us initiating a short sale in the first place..I’m a bit confused…

    Rate this comment: Thumb up 0

  2. 2

    RE: Ray Pepper @ 1

    I Agree

    I’d add to your details the salient fact that anytime the IRS is involved in “what ya owe”, the rules can be changed in the wink of an eye….so, yeah, we read last year’s IRS rules on income tax owed on short sale principle forgiveness [income], which have nothing to do with this year’s rules when you plan your short sale. Hades, I’d call the IRS and/or get a qualified tax accountants’ advice before trusting a real estate attorney to get this right.

    Rate this comment: Thumb up 0

  3. 3

    Jillayne wrote: “Regarding tax revenue, there’s no excise tax paid on a trustee deed v. a short sale which is conveyed using a warranty deed, however, after foreclosure there IS excise tax paid when the foreclosed REO home is sold.”

    Not true if the seller is Fannie, Freddie, the VA, etc. Still a tax free sale.

    Rate this comment: Thumb up 0

  4. 4

    There are actually two bills before the legislature. The Senate Bill addressed here, and HB 2614. As noted, the Senate Bill is patterned after legislation in Oregon. The House Bill is patterned after legislation in California, and like all things out of California, it sucks. It would apply the results Jillayne is concerned about to every short sale, immediately. That would not only dry up short sales, but it could also have adverse consequences for debtors. For example, it might create a non-dischargeable income tax liability (especially after this year when the special tax treatment ends). It would even apply to situations not intended, such as where a business owner has a line of credit secured by their home. If say their home was worth $1.3M, the first mortgage was $1M and the line of credit $500k, there would be no way for the bank to release the $500k deed of trust without waiving the business debt. The owner would be stuck in their home, even if they were not in financial trouble (unless they had other funds to pay off the debt).

    The root of the problem here are IRS regulations. They require the lender to issue a 1099 after 36 months of non-payment. That does not actually release the debt however, and it is an action which can be reversed, so it’s not as unfair as it seems to pursue a debt that that has been subject to a 1099. What really needs to happen is for the IRS to get rid of that regulation. It’s nonsense when the statute of limitations is six years.

    Rate this comment: Thumb up 0

  5. 5

    Jillayne wrote: “If we are serious about “protecting short sale sellers,” let’s require all homeowners obtain prepaid legal counsel before the short sale is listed. Attorneys would make sure the final paperwork has no deficiency clause and seller’s legal questions can be answered by someone who is a member of the WA State Bar Assoc.”

    I wouldn’t go that far. Legal advice, yes. A particular result, no. As noted above, it may actually be better for a debtor to not have the debt discharged. What is needed though is for the debtor to understand whether or not it is discharged. Without attorney representation, they may get the wrong answer on that question as demonstrated in this example:

    http://www.trulia.com/blog/kary_l_krismer/2010/03/short_sales_sellers_need_attorney_representation

    Rate this comment: Thumb up 0

  6. 6

    By softwarengineer @ 2:

    Hades, I’d call the IRS and/or get a qualified tax accountants’ advice before trusting a real estate attorney to get this right.

    Calling the IRS isn’t a good way to get information, especially on a topic like this. In addition to accountants, there are also tax attorneys.

    You may be right on the real estate attorney issue though. I’m basing that on the fact that I once asked a divorce attorney about a tax question involving the amendment of a divorce decree, and they had the wrong answer.

    Rate this comment: Thumb up 0

  7. 7
    David Losh says:

    Short selling a property is subject to a proved hardship.

    There is a lot about a short sale that is policy, and procedure of the banks. It’s just not a good option, any more.

    If this is really your option you should send the property back to the banks, rent some place, and sue the lender. You have to be pro active.

    If you feel you have been swindled by the bank, sue them. Otherwise the conclusion I have come to is to get current, and pay the mortgage.

    Explore bankruptcy, but you need legal help, we all need legal help. Reading articles, and getting advice from comments on the internet is a waste of time. Going to a short sale mill of attorneys is a waste of time.

    It’s a complex issue that will be with us for at least a decade, but short sales, unless you have a proved hardship, have become the next leg of the Real Estate scam.

    Rate this comment: Thumb up 0

  8. 8

    RE: Kary L. Krismer @ 6
    You’re Probably Right Kary

    My point is your regular real esate attorney is not an income tax expert. Actually, I’ve gotten good tax advice from the IRS and their website; its improved over the years….the down is the convoluted nature of their website and the long telephone call wait for support [sometimes a half an hour or so]. Tax accountants I know have been the quickest ways to get new income tax information and a case attorney I had would use them as experts in income tax too.

    The problem with hiring a real estate attorney and an income tax attorney in a nut shell, it costs too much in legal fees, hades ya might as well just pay the short sale income tax, the bill is likely smaller than the two attorney fees?

    Rate this comment: Thumb up 0

  9. 9

    RE: David Losh @ 7

    I Think I Agree With You David

    Its become another reverse mortgage swindle [where you allow them to inspect your house and tell you what needs to be remodeled on your dime or you default and they can foreclose completely], where ya don’t know what ya signed and the rules can change after ya sign too….

    Do what Trump did, get the banks to eat the principle terms ya can’t afford or hand the keys back to ‘em.

    Rate this comment: Thumb up 0

  10. 10

    Judging by the one thumb down on each of my posts, someone here doesn’t want factual information.

    Rate this comment: Thumb up 0

  11. 11

    RE: David Losh @ 7
    Good post David.
    It strikes me that while short sales are neither bad nor good, they are heavily promoted by people who are in line to make some money from it.
    What would I do if I couldn’t make my payments and were in danger of losing my house?
    Probably pursue a deed in lieu of foreclosure, or let it foreclose.
    Some real estate agent will probably get a hold of you and try to convince you to let him or her list your house as a short sale, to ” save your credit”. I’m not saying don’t do it, but just understand that his or her motivation isn’t to try to save your credit, it’s to make a buck.

    Rate this comment: Thumb up 0

  12. 12

    RE: Ira Sacharoff @ 11 – That’s an area where it’s difficult to get good advice. If you go to an agent, they will lean toward short sale. Attorney–bankruptcy.

    This might be an area where a tax attorney might offer the best advice, because the biggest issue might be the tax consequences. They should be familiar with the liability issues in other areas. What they won’t be familiar with is the effect on your credit or ability to get a new loan someday.

    Rate this comment: Thumb up 0

  13. 13

    RE: Kary L. Krismer @ 10

    The Same Blogger Didn’t Like Me Either

    Its probably someone making hay on short sales?

    Rate this comment: Thumb up 0

  14. 14

    One other thing about that House Bill. It would prevent the celebrity short sale. Those earning large dollar amounts who simply need to sell a house for less than what is owed, where there’s no expectation at all of the creditor waiving the debt.

    It’s another situation where some in the legislature want a nanny state where people cannot make their own decisions and everything is subject to a one size fits all rule.

    Rate this comment: Thumb up 0

  15. 15
    ray pepper says:

    RE: David Losh @ 7

    Dave lets be more specific because I find this post giving very poor info that others seem to like. How will you sue the lender? On what basis! What would be your goal? How much do you want the homeowner to spend in an attemt to win a decision? What would be the decision you would consider a win? Who would you engage for this

    Please enlighten me because I find your post more of titillation then any sound reasonable advice!

    Rate this comment: Thumb up 0

  16. 16
    Pegasus says:

    RE: Ira Sacharoff @ 11 – Doing a short sale won’t save your credit but that is a common real estate agent myth given out to get homeowners to list rather than go through foreclosure. There are plenty of information sources out there to disprove the “save your credit” myths but judging by the increasing amount of short sales the agents still seem to be unable to straighten out those myths. I wonder why? :)

    Rate this comment: Thumb up 0

  17. 17

    RE: ray pepper @ 15 – There would be no basis to sue the lender. Just issuing a 1099 does not discharge the debt, and IRS regs required that they issue the 1099. You’d be suing someone for following federal law.

    Rate this comment: Thumb up 0

  18. 18
    Ray pepper says:

    RE: David Losh @ 7 – I find the issue to be very NONCOMPLEX for the competent homeowner who finds themselves in this dilemma. But, of course bad advice from real estate “professionals” and friends always makes it confusing and the truth becomes more obscure.

    However, David I stress to all homeowners NEVER EVER GIVE your home back to the banks as you advised. Force them to take it from you while listening to all offers from the investor that is supposedly holding your note. While you are waiting you save like you never have before and will find in the end your bubble purchase was not near as bad a decision as you thought you made!

    Rate this comment: Thumb up 0

  19. 19

    By Pegasus @ 16:

    Doing a short sale won’t save your credit but that is a common real estate agent myth given out to get homeowners to list rather than go through foreclosure. There are plenty of information sources out there to disprove the “save your credit” myths but judging by the increasing amount of short sales the agents still seem to be unable to straighten out those myths. I wonder why? :)

    It can though affect the ability to get a real estate loan later. Here’s a site from early 2011 which breaks down the differences at that point in time with the major types of loans. I’m not sure that’s current (or even that it was accurate then) and in any case, those rules could change six months from now. I will note though that the site agrees with you about there being no real difference when it comes to credit score.

    http://massrealestatenews.com/buying-a-home-after-short-sale-or-foreclosure/

    Rate this comment: Thumb up 0

  20. 20
    Ray pepper says:

    RE: Kary L. Krismer @ 17 – yaaaa think?????

    So what’s your analysis of Daves advice? So many here seemed to like it. Throwing money at frivolous litigation will result in more losses to homeowners when they in fact have a moment in time to truly move past this and possibly put tremendous cash savings away for a far better time if they choose to EVER buy again.

    Rate this comment: Thumb up 0

  21. 21

    RE: Ray pepper @ 20 – The area is too fact specific for there to be one piece of good advice.

    Rate this comment: Thumb up 0

  22. 22

    Ray, David,

    What are all the possible consequences of a strategic default? We could try to list all of them beginning with being able to live free of a mortgage payment for an uncertain number of months and ending with a very low credit score and an inability to qualify for decent mortgage terms for a number of years.

    But a short sale and surely “strategic default” is a moving target and it is not possible to know all the future consequences of a decision we make today, but with a proposed law, we should help homeowners get as close as possible.

    Not every home owner can live with the kind of uncertainty surrounding a strategic default. Some home owners simply cannot trash their credit score because of a high security clearance or other fiduciary type of job. Some home owners are not going to be able to handle the uncertainty of not knowing a specific eviction date.

    Real estate brokers are not required to know or not able to counsel on all the possible consequences. Granted, some Realtors know quite a lot and others not so much, but brand new licensed brokers are still technically qualified to take these listings, which IMO is not in the best interest of the home owner.

    Home owners need a neutral third party to advise them; someone without a financial interest in the home owner’s final decision.

    People who are financially destitute can apply for free legal aid from The Bar Assoc.

    People who are not financially destitute can pay $100-200 or whatever it costs to hire an attorney for a few hours.

    Rate this comment: Thumb up 0

  23. 23
    Pegasus says:

    RE: Jillayne Schlicke @ 22 – The last thing we need is more people hiring more lawyers. Also someone doing a short sale is going to trash their credit score automatically no matter what job they hold. The proposed law appears to be written by clowns for the clown industry and is being promoted by co-opted legislators for their benefactors. Financial institutions will just unload and write off their losses by selling the loan at a loss to collection agencies that will do anything to make a buck. Some of these loans are already carried at losses on the books. A recovery of the loss through collection activity should just have them restate the loss with the amount recovered. This law as proposed will just make a bigger mess of everything. Anyone that is in true financial trouble is a fool if they pursue a short sale versus a foreclosure. Anyone that is not in financial trouble deserves to pay any deficiencies that arise from a short sale. Who really cares if the financial institutions are able to offset a small portion of their losses or not by writing off the loss? This law will be used to fool the potential short sellers into thinking they are getting some kind of break when they really are not. The large amount of short sales already indicates that many fools are already being taken advantage of. This law would only make that worse.

    Rate this comment: Thumb up 0

  24. 24
    Blurtman says:

    The homeowner should determine in which mortgage backed security resides their mortgage, and then take out multiple CDS on the security. That is what Goldman Sachs is doing, and in some cases, they no longer are long on the security. In fact, folks should buy mutliple homes that they have no intention of paying the mortgage on, and milk the Goldman Sachs money machine for all its worth. What, the average citizen can’t access CDS “insurance”, they are only the bagholder for the paying off the investment banks who did take out such insurance. Oh.

    Rate this comment: Thumb up 0

  25. 25

    Pegasus, regarding everyone who chooses a short sale gets a trashed credit score….not true. Sometimes people are forced to move/sell short due to a forced relocation. They’re paying as agreed, can afford to pay, and need to sell. This person’s credit score will not crash and burn like the person who is sitting there not paying anything for 2 years. Now we have 24 months of missed mortgage payments. That’s gonna hurt.

    Speaking as a former mortgage loan underwriter, if a person can show documentation that they didn’t want to sell short but had to, and made as many payments as possible, I’m going to consider that person a better credit risk that the strategic “f-you-mortgage-company-I’m-gonna-do-a-Donald-Trump-on-you” future mortgage seeker.

    Strategic defaulters may believe today that they will never buy another home but….things change.

    Rate this comment: Thumb up 0

  26. 26

    By Pegasus @ 23:

    The proposed law appears to be written by clowns . . .

    Maybe we should address what it does say:

    If any beneficiary accepts a seller’s written offer for the sale of residential real property for which the sale’s proceeds are insufficient to pay in full the obligation owed to the beneficiary of a deed of trust encumbering the residential real property, and the seller subsequently reports to the internal revenue service that as a consequence of the sale the beneficiary has cancelled all or a portion of the obligation owed by the seller to the beneficiary, the beneficiary or assignee of the beneficiary may not bring an action or otherwise seek payment for the amount previously owed by the seller that was reported to the internal revenue service.

    I would question whether sending a 1099 would qualify as a report that the bank has “cancelled” anything, or that the cancellation was a result of the short sale. Clearly that’s their intent, but I don’t think that’s what they’ll necessarily accomplish when in front of a court.

    Here’s a link to a third party site of the IRS reg which governs sending the 1099.

    http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_Sec._1.6050P-1

    Rate this comment: Thumb up 0

  27. 27

    On the topic of clown drafting, the other bill is worse.

    (b) A beneficiary may not obtain a deficiency judgment on the obligations secured by a deed of trust against any borrower, grantor, or guarantor in any case when, as a consequence of or in conjunction with a sale of owner-occupied residential real property resulting in proceeds that were insufficient to pay the obligation in full:

    (i) The beneficiary reports to the internal revenue service that the beneficiary has canceled all or a portion of the borrower’s obligation and the beneficiary provided the borrower written evidence of the beneficiary’s report to the internal revenue service; or

    (ii) The sale was in accordance with the written consent of the beneficiary.

    http://apps.leg.wa.gov/documents/billdocs/2011-12/Pdf/Bills/House%20Bills/2614.pdf

    Again there’s the cancelled language, but the second part would pick up any short sale, because to clear title you have to get the written consent of the beneficiary. So even if the debtor expressly agreed to still owe the money, this statute would override that.

    To channel Losh, whoever drafted this nonsense (apparently someone in California) doesn’t understand real estate.

    Note it only applies to owner-occupied residential property. What happens if the debtor moves out a month before closing? Do you have to provide for a change of possession a day after closing for it to apply?

    Rate this comment: Thumb up 0

  28. 28
    David Losh says:

    RE: Kary L. Krismer @ 17RE: ray pepper @ 15

    “If you feel you have been swindled by the bank, sue them. Otherwise the conclusion I have come to is to get current, and pay the mortgage.”

    The bank made you a loan, that maybe you can’t afford. Maybe they lent more than the property was worth. That’s the bank’s business. The bank lends on the value of the asset. Even if you can afford to pay $500K for a $200K property, the bank needs to know the value of the property at the time they make the loan. The appraiser ultimately works for the bank. If you are severly underwater that is most likely bank policy of lending more, and more than the value of property. It was a grand scheme to sell mortgage backed securities rather than make home loans.

    Sue the bastards.

    Rate this comment: Thumb up 0

  29. 29

    RE: David Losh @ 28 – I was only addressing the concept of suing the bank for pursuing you after having sent a 1099-C.

    There are many different grounds for suing banks based on the loan itself, and those have existed since well before 2007.

    It’s part of the reason why people should see an attorney if they are in this kind of trouble, and why I’m not going to say one course of action is better than another. There might be truth in lending violations, defects in the note or deed or trust, “marital bankruptcy” under our community property laws, or any number of other things that could change what the debtor should do.

    Rate this comment: Thumb up 0

  30. 30
    Ray pepper says:

    RE: Jillayne Schlicke @ 22 – jillayne as for not knowing when a homeowner should be out to plan accordingly is virtually impossible because of the 120 notice attached to premises, numerous letters sent to residence, field interviews from the bank to verify inhabitance, and not to mention contacts from the lender via phone. The defaulting homeowner will definitely know when their time is up if they do nothing. However, if they choose to be aggressive they can find themselves still in the residence many months post sale.

    Yes we can never tell the future of strategic defaulters or short sale sellers. But, one thing for sure. I’d rather have 50k+ in the bank while looking for my rental with bad credit then having zero in the bank while looking for my rental with bad credit.

    Btw every defaulting homeowner I know who walked are living quite well in their rental or new purchase. What is this you say? You can default and still buy a home ? Yes, Jillayne absolutely and the terms are more surprising then one would think!

    Rate this comment: Thumb up 0

  31. 31
    David Losh says:

    RE: Ray pepper @ 18

    Now for the second part of what I actually said: “Otherwise the conclusion I have come to is to get current, and pay the mortgage.”

    You can’t just walk away. That’s the point here. This is more stupid legislation, after much more stupid legislation.

    There is going to be no getting away from the bank.

    A second thing is you don’t get to keep anything you get from committing fraud. Sitting in you house, and not even trying to make payments is fraud.

    I said years ago that banks will start a process of going after deficiencies, and I think they will.

    Rate this comment: Thumb up 0

  32. 32

    So Ray, who are these lenders making mortgage loans to strategic defaulters?
    Company name, loan terms, down payment required.
    Please and thank you :)

    Rate this comment: Thumb up 0

  33. 33
    Pegasus says:

    RE: Jillayne Schlicke @ 25 – “Pegasus, regarding everyone who chooses a short sale gets a trashed credit score….not true. Sometimes people are forced to move/sell short due to a forced relocation. They’re paying as agreed, can afford to pay, and need to sell. This person’s credit score will not crash and burn like the person who is sitting there not paying anything for 2 years. Now we have 24 months of missed mortgage payments. That’s gonna hurt.”

    I have pointed it out twice already to show you are wrong about the credit scores. Here is a link where FICO is quoted about this myth that you and real estate agents are perpetuating:

    “This is not true — turns out there’s no significant difference in FICO score impact among foreclosures, short sales or deeds in lieu of foreclosure, said Bradley Graham, senior director of scores product management at FICO, which is the trademark credit scoring model created by Fair Isaac Corp. It’s the most widely used scoring system in the country.”

    http://www.washingtonpost.com/business/economy/whats-worse-for-credit-score–foreclosure-short-sale-or-deed-in-lieu/2011/08/30/gIQAbnTaqJ_story.html

    Rate this comment: Thumb up 0

  34. 34
    Ray Pepper says:

    RE: Jillayne Schlicke @ 32

    Jillayne they are Hard Money Lenders..A couple off the top of my head are Fair Play and Eastside Funding. However, don’t get scared by the term “hard money.” Any defaulter who desires to purchase again post Trustee Sale or short sale need 1 thing above all else. CASH…Once you have the cash then it opens up a wide variety of possibilities. The Least expensive are, of course, owner contracts off the NWMLS..If none of those work then utilizing hard money with an “exit strategy” that utilizes a partner investor who has excellent credit or at least “good” credit will put the Buyer into the property. Its just a bit “outside the box” but works for a great many people I know.

    There are ALOT of investors out there that want to “partner up” with someone for a desired goal but everyone I know seems to use a friend, family member, etc to secure their new purchase. ** Cash** is essential..Once you have it then you are golden for a great many purchase opportunities. Without it then you are TOAST with a foreclosure or a short sale..

    Rate this comment: Thumb up 0

  35. 35

    Thanks, Ray. I know some hard money LOs at Eastside and Fairplay. I will ask them for rate/fee/terms and maybe they can swing by here and help us out.

    Rate this comment: Thumb up 0

  36. 36
    Ross says:

    RE: David Losh @ 31 – How will the banks pursue the deficiency of a strategic defaulter when the loan is non-recourse? I’m honestly curious as I thought that the whole point of a non-recourse mortgage is that the bank is taking all of the risk that the property may be worth less than mortgage. Sure, the “owner” is responsible for the debt forgiveness once the exact amount is established but that’s an issue between the IRS and the “owner”.

    Right?

    Rate this comment: Thumb up 0

  37. 37

    Pegasus, thanks for linking to the article again. I have read it many times but it’s always worth sharing because it’s pretty interesting….yet it’s not that simple.

    From the article:

    “Here’s something interesting: The FICO analysis found that the higher your original score, the greater the drop and the longer it will take for your credit to recover to the same level assuming all else held constant. A consumer who started with a 780 score and did a short sale with no deficiency balance could see his score drop to a range of 655 to 675. The FICO scale goes from a low of 300 to a high of 850. A consumer who started with a score of 680 could see a drop to a range of 610 to 630. For the consumer with the original 780 score, it could take seven years to get back to that level. But at 680, it could take just three years.”

    In addition, lenders have software and other system analysis programs to figure out if someone was a strategic defaulter though a human underwriter can do this too. Strategic defaulters show different patterns in their credit history v. a person with a true financial distress event leading up to the short sale or foreclosure.

    My point: Someone who has assets and could pay a short sale deficiency so decides to let the house go back has lots of consequences to consider down the road. Some consequences are known, some are not known.

    If we make it tougher for the banks to collect on a short sale….for people with assets….the bank will just foreclose, which is the opposite of what the bill’s sponsors are intending.

    Rate this comment: Thumb up 0

  38. 38

    Ross if there is a first and a second residential mortgage loan on the home, if the first is foreclosed non-judicially (trustee sale auction) on an owner occupied prop in WA State then the lender cannot pursue the homeowner for its losses UNLESS the lender decides to foreclose judicially.

    That’s not true of a second mortgage. When the first mortgage lender forecloses junior liens (served proper notice) fall off title but the debt survives and turns into a personal note.

    If this bill passes, I see short sales with a first and a second just foreclosing if the second lienholder doesn’t get what they want out of the short sale negotiations.

    Sure the homeowner can then decided to seek advice from a bankruptcy attorney to get rid of the debt owed to the second mortgage lender but now we have a person with a foreclosure AND a bankruptcy on their credit record.

    I know Kary can help expand on the above because he was the one who originally taught me about this.

    And now I don’t want to make that strategic defaulter another mortgage loan for awhile unless that person has lots of money down, has a lot of money to pay in fees and at a rate high enough to be close to usurious.

    Rate this comment: Thumb up 0

  39. 39
    David Losh says:

    RE: Ross @ 36

    Fraud.

    If you sit in your house, or are collecting rent on a rental, without having any intention of paying your mortgage agreement you are committing fraud.

    If you feel you were swindled, sue them. At the very least you need legal counsel before you start making decisions that will impact your family. If you can not afford an attorney then seek legal aid, it at least shows you are trying.

    Rate this comment: Thumb up 0

  40. 40

    Okay, I heard back from one of the hard money guys. Depending on the scenario of the strategic defaulter who now wants to buy again, 20 to 50% down, 4-5 percent loan origination fee and note rate of 12%, APR 13.2%

    Who knows? Maybe WA State will go ahead and raise the usury rate in our state.

    Rate this comment: Thumb up 0

  41. 41
    David Losh says:

    RE: Ray Pepper @ 34

    Alrighty, then let’s get started. Saving cash is a good thing, going to a hard money lender is best left to those who can blow that cash on high risk, especially today.

    People are going to have to start playing the game of Real Estate rather than be gamed by the mortgage system.

    Cash is the goal. To get to cash you buy below what you can afford, and pay it off. Real Estate is a person to person transaction. You make deals to get to cash, if that’s what you want to do.

    There are millions of people in trouble today that can be rescued by blind escrow transactions. That’s why I keep promoting Pinciples Only transactions.

    The rules of the game haven’t changed. The bank is the enemy, and you want them out of your life as quickly as possible.

    Rate this comment: Thumb up 0

  42. 42
    David Losh says:

    RE: Jillayne Schlicke @ 40

    You forgot to ask about the term of the contract. Is it a 30 year amortization, or is there a balloon?

    Rate this comment: Thumb up 0

  43. 43

    David…..9 month balloon!
    Yikes!

    Rate this comment: Thumb up 0

  44. 44
    S-Crow says:

    I know of no circumstance where a defaulting borrower going short sale with $50K or whatever they have in assets saved since choosing to not pay has had an short sale approved. If you have liquid assets a portion or all of it WILL be required to pay down the debt.

    RE: Jillayne Schlicke @ 32 – I’d like to know as well. I know of no lender that will loan money to a strategic defaulting borrower. Ray can say they can get hard money and that’s fine. The hard money loan is due in short order so how are they going to refinance to payoff FairPlay or Eastside Funding?

    S-crow.

    Rate this comment: Thumb up 0

  45. 45

    By Ross @ 36:

    RE: David Losh @ 31 – How will the banks pursue the deficiency of a strategic defaulter when the loan is non-recourse?

    Washington is not a non-recourse state. Washington is an election of remedies state. If the bank pursues and completes a non-judicial foreclosure sale, they cannot pursue a deficiency. Any deficiency which was wiped out would be discharge of indebtedness income, unless subject to an exclusion.

    If the creditor does not do a non-judicial foreclosure they can do a judicial foreclosure, and collect a deficiency, or just sue on the note and get a judgment for the entire amount owing.

    Rate this comment: Thumb up 0

  46. 46

    RE: Jillayne Schlicke @ 38 – I don’t have much to add, except that when you have a second that might only be getting $5,000 out of a short sale, and wouldn’t be non-judicially foreclosing, with this legislation they may be much less likely to agree to a short sale.

    Rate this comment: Thumb up 0

  47. 47

    By David Losh @ 39:

    Fraud.

    If you sit in your house, or are collecting rent on a rental, without having any intention of paying your mortgage agreement you are committing fraud.

    I’m not so sure that’s correct. It didn’t use to be.

    The lender probably has an assignment of rents clause, but until they act to enforce it, I’m not sure there’s anything the lender can do about that. Note though the applicable statutes have probably changed since I litigated this issue.

    Rate this comment: Thumb up 0

  48. 48

    By S-Crow @ 44:

    I know of no circumstance where a defaulting borrower going short sale with $50K or whatever they have in assets saved since choosing to not pay has had an short sale approved. If you have liquid assets a portion or all of it WILL be required to pay down the debt.

    I think the idea is to have that much saved prior to a non-judicial foreclosure. I doubt that occurs all that often either, although it might be possible that they pay down a good portion of their other debt if they’re lucky.

    Rate this comment: Thumb up 0

  49. 49
    David Losh says:

    RE: Kary L. Krismer @ 47

    I lent my copy of the Big Short to a banker. His take on it was that people took advantage of the banking system by taking out loans that they couldn’t or wouldn’t repay.

    My thought from the beginning of the foreclosure mess was that banks would at some point pursue debtors to the full extent of the law.

    It’s nice to seperate out mortgages from all debt, but the fact is if you walk away from a loan, such as a mortgage, the bank will pursue whatever they can to recover that loss.

    Fraud is a criminal activity. I just think some bean counter some place, somewhere will get the idea that the bank has been defrauded by criminal activity. I don’t think you get to keep what you make by criminal activity.

    Rate this comment: Thumb up 0

  50. 50

    RE: David Losh @ 49 – Just to be clear, if you took out the loan either not intending to repay, or knowing you couldn’t repay, that would be fraud in the bankruptcy sense of the term. I was addressing where you simply run into trouble later and have limited funds.

    BTW, you can also run into that fraud issue when you take out a new credit card to pay off an old card, even if you don’t pocket any money.

    Rate this comment: Thumb up 0

  51. 51
    David Losh says:

    RE: Kary L. Krismer @ 50

    Exactly. Banks have a way of looking at things that is in another reality. I’m just saying it sounds nice to say walk away, but you need legal counsel. You need to have a plan, and a better plan is to play by the rules rather than invent new ones.

    Rate this comment: Thumb up 0

  52. 52

    Here’s a link to the WA State RCW 61.34 that provides a definition of equity skimming
    http://apps.leg.wa.gov/rcw/default.aspx?cite=61.34.020

    (1) An “act of equity skimming” occurs when:

    (a)(i) A person purchases a dwelling with the representation that the purchaser will pay for the dwelling by assuming the obligation to make payments on existing mortgages, deeds of trust, or real estate contracts secured by and pertaining to the dwelling, or by representing that such obligation will be assumed; and

    (ii) The person fails to make payments on such mortgages, deeds of trust, or real estate contracts as the payments become due, within two years subsequent to the purchase; and

    (iii) The person diverts value from the dwelling by either (A) applying or authorizing the application of rents from the dwelling for the person’s own benefit or use, or (B) obtaining anything of value from the sale or lease with option to purchase of the dwelling for the person’s own benefit or use, or (C) removing or obtaining appliances, fixtures, furnishings, or parts of such dwellings or appurtenances for the person’s own benefit or use without replacing the removed items with items of equal or greater value; or….
    continues on

    Rate this comment: Thumb up 0

  53. 53

    My second hard money lender LO responded that yes, it’s only a 9 month loan. So Ray, what’s the exit strategy for the folks you know? Thank you!

    Rate this comment: Thumb up 0

  54. 54
    David Losh says:

    RE: Jillayne Schlicke @ 52

    A childhood friend of mine did some time, and was required to pay restitution of rents collected, without making mortgage payments. The law is murky everywhere, but he was prosecuted at the federal level. States had the option to pursue him, but declined so the feds could make the case, in I think 1980?

    There were laws enacted at the time to prevent this type of thing from happening, but I’ve never really looked at them. All I know is that his actions were termed criminal which gave lenders a recourse against him.

    Rate this comment: Thumb up 0

  55. 55
    Pegasus says:

    RE: Jillayne Schlicke @ 37 – Well… stop saying that credit scores will not be trashed for all short sellers. Its is misleading at best. You have FICO saying your statement is garbage. Yes there are different considerations after the fact that may or may not make it possible for some short sellers to obtain legitimate financing in about three years. You can also go to the “mafia” to get financing but with some higher costs and penalties. My point is that all forms of mortgage default impact your credit score almost the same. Quit pretending it does not. The public does not need any more bad advice about getting short sales versus foreclosures. Most short sales are very detrimental to the sellers versus a foreclosure yet the real estate industry is encouraging most troubled borrowers to seek short sales that benefit the wrong people. Wake up and stop being part of the problem.

    Your comment: “If we make it tougher for the banks to collect on a short sale….for people with assets….the bank will just foreclose, which is the opposite of what the bill’s sponsors are intending.” reminds me of “Alice in Wonderland” or “The Matrix” or “White Rabbit”. I fear you have swallowed the wrong medicine.

    Rate this comment: Thumb up 0

  56. 56
    David Losh says:

    RE: Jillayne Schlicke @ 53

    Also in the 1980s James Deal, and John Wagner, attorneys, set up blind escrow trusts, so I’ve heard. That is where two people, Principles in a Real Estate transaction, would agree to transfer property ownership by one party taking over another person’s mortgage payments. http://jamesrobertdeal.com/

    Rate this comment: Thumb up 0

  57. 57

    Hi Pegasus,

    “My point is that all forms of mortgage default impact your credit score almost the same. Quit pretending it does not.”

    Well instead of the news article, let’s just go right to the source.

    http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

    If a short selling homeowner has missed MANY payments, that’s going to effect the FICO algorithm different v. a short selling homeowner who has missed just a few mortgage payments.

    No matter what the credit score outcome, future lenders may judge a short selling home owner more favorably v. foreclosure and home owners need to think about the future and not about just the present.

    Sounds like you have some experience with short sale home owners who would have been better off with a foreclosure.

    I have no vested interest in whether or not this bill passes. I do care that home owners are given an opportunity to learn all the possible consequences of each choice before they make a decision.

    Rate this comment: Thumb up 0

  58. 58
    Pegasus says:

    RE: Jillayne Schlicke @ 57 – You are trying to distort the truth. STOP. Admit that all short sellers get their credit score damaged in a big way contrary to what you and the real estate industry tries to make one believe. I used to think you were one of the “good guys” Sorry. I was mistaken. Retract your misstatements or suffer the consequences.

    Rate this comment: Thumb up 0

  59. 59
    Macro Investor says:

    RE: Blurtman @ 24

    Great comments Blurtman@24 and Ray@1.

    It actually seems like a decent law. The lender knows if the borrower has assets worth pursuing for deficiency. If they did a short sale, it’s because they knew that’s all they could get. This protects poor people with no assets who did a short sale, then find out years later a collection agency is hounding them for the shirt off their back. It’s almost as if the bank is punishing them for the rest of their lives.

    Most people can’t afford attorneys. They don’t know where to find help and they don’t have the ability to read and understand the bank’s contracts. Many were victimized once by deceitful agents and lenders, and later they get kicked again by the taxman and the collection agency.

    Rate this comment: Thumb up 0

  60. 60

    Pegasus I think it’s important not to over simplifying a complex scenario. It’s not black and white. There are many moving parts to an engine. A FICO score is just one moving part in the the mortgage machine.

    People can do their own research all over the FICO website and beyond.

    It sounds like it’s really important for you to get your point out there for SB readers and you’ve done that.

    I have no vested interest in whether people decide on a short sale or a foreclosure. But I do think the bill’s sponsors should consider that if the bill passes, it might motivate some banks to foreclose rather than say yes to a short sale.

    Thank you for participating in the dialogue tonight.

    Rate this comment: Thumb up 0

  61. 61
    Macro Investor says:

    By Pegasus @ 58:

    RE: Jillayne Schlicke @ 57 – You are trying to distort the truth. STOP. Admit that all short sellers get their credit score damaged in a big way contrary to what you and the real estate industry tries to make one believe. I used to think you were one of the “good guys” Sorry. I was mistaken. Retract your misstatements or suffer the consequences.

    Yes, Jillayne… knock it off. Their credit score is damaged either way. Of course a lender can choose to ignore the score and/or use extenuating circumstances. That’s not the same as saying the score is being “saved”. So stop suggesting that.

    Rate this comment: Thumb up 0

  62. 62
    Ray Pepper says:

    RE: Jillayne Schlicke @ 53

    Ok as I mentioned above here is the scenario I see play out quite often..

    Rate is 12% / 3 to 4 points/ 9 month term…..All of these are “negotiable” but the term is usually 9-12 months.

    Before these numerous companies will lend you the funds you must have an “exit strategy.” If your credit score is not above 640 (I believe 620 now) they will NOT lend you the funds UNLESS you “partner up.” Partner up refers to 2 individuals where one may have the cash and the other has the good credit. The home is bought and prior to engaging in the transaction the deal is made between the two parties. Many choose to use a friend or family member. If the person with the cash has nobody they will seek out an investor partner for you that will sell the property to you at a future date at an agreed upon price. Many times the investor partner wants 5k for exp upfront….The investor partner has little risk because its your money that has already been placed down on a greatly reduced priced property…..But, I must say this.. 98% of the time this is done with two (prior friend-family) partners one usually needing the other..

    Seen this done now 3x on properties in Puyallup where these Quadrant type box homes sold in 2007 for 273k and are now 130k. The Buyer is perfectly willing to pay for their investor partner…As I was told on the last one..”Ray, who cares..So I end up owing 150k on a property that was nearly double…” It provides a great option for people who saved ALOT of cash and desire to buy again and cannot secure any sellers to carry a note in a neighborhood they desire to live..

    Rate this comment: Thumb up 0

  63. 63

    Hi Macro Investor,

    Can you show me where I suggested that a short sale would “save” a person’s credit score?

    Thank you.

    Rate this comment: Thumb up 0

  64. 64

    Thanks for getting back to us, Ray. That helps paint a picture for readers.

    Rate this comment: Thumb up 0

  65. 65
    David Losh says:

    RE: Pegasus @ 58

    What consequences?

    Rate this comment: Thumb up 0

  66. 66
    David Losh says:

    RE: Ray Pepper @ 62

    The second person needs to get a loan that they are responsible for. Then the friend of family member is making payments until the loan is amortized?

    So rather than being a cosigner the second party is on the hook while the first party enjoys the property. I would imagine that is also a taxable event that will result in a loss? or profit? The second party will be taking the tax advantage of interest payments they aren’t actually making?

    And then the sales proceeds all go to the mortgage holder? Is that another taxable event?

    Rate this comment: Thumb up 0

  67. 67
    Pegasus says:

    RE: Jillayne Schlicke @ 60 – Retract your false statement about credit scores for short sellers. It is really that simple to do contrary to your diversionary tactics when caught in a falsehood. DO IT. Your statement…” regarding everyone who chooses a short sale gets a trashed credit score….not true” in post number 25 in this string is a lie. You know the truth as presented from FICO. Retract your false statements concerning credit scores and short sales. Quit assisting the con men.

    Rate this comment: Thumb up 0

  68. 68

    Pegasus,

    Did I miss something or have you been designated the keeper of all truth?

    I have met home owners have sold short, with very few missed payments, some with no missed payments who sold short due to a forced relocation, whose credit score did not suffer as you claim. Do I have the ability to go get their credit report and post a link for all to see? No.

    Do you have the ability to get every short sale seller’s credit report and post a link for all to see? No.

    Could the truth be somewhere in between? Quite possibly.

    If you have a story to tell about your own short sale, by all means tell it so we can learn something new. Thanks again for participating in this discussion.

    Rate this comment: Thumb up 0

  69. 69
    Ray Pepper says:

    RE: Jillayne Schlicke @ 68

    U got Pegasus all fired up! Never seen him like this…Maybe he missed a dose? ..Hes more upset then I was with that “Millionnaire Mike” for lying to us about not having a clue what his home was worth and shying away from telling us he is SUNK at LEAST 700k on his lovely venture of home construction!

    Rate this comment: Thumb up 0

  70. 70
    Pegasus says:

    RE: Jillayne Schlicke @ 68 – You are twisting in the wind with your lies. Admit the truth and your false information or suffer the legitimate destruction of your reputation. Maybe you made a mistake, or maybe you are intentionally trying to deceive the public? Which is it? Do you really think that Bradley Graham, senior director of scores product management at FICO is lying versus you? I think the liar is you and a whole lot of other real estate people that keep telling people that a short sale is much better than a foreclosure on their credit report. Stop lying. Are you licensed within Washington State to spread lies or could you lose that license?

    Rate this comment: Thumb up 0

  71. 71
    whatsmyname says:

    HA, NOBODY EXPECTS THE SPANISH INQUISITION.

    Rate this comment: Thumb up 0

  72. 72
    Pegasus says:

    Jillayne gets national attention….hopefully she stops lying about short sales and credit scores……

    Jillayne Schlicke, who teaches REO and short sale training in Washington, said while the bill does take some burden off of homeowners, it would not forge a path to a healthier housing market in the state.

    “This particular law is not going to help our economy in Washington State recover any faster. The banks are foreclosing slowly so as not to crash the market with REOs,” Schlicke said. “If we really want an economic recovery to happen faster, let the foreclosures commence. We will hit bottom very fast.”

    http://www.housingwire.com/2012/01/30/washington-considers-borrower-short-sale-protections

    Rate this comment: Thumb up 0

  73. 73
    Jillayne Schlicke says:

    pegasus, graham is just addressing one piece of the FICO algorithm. I’m addressing another layer. ..How many payments a home owner has missed. The two are connected. The WaPo article doesn’t mention this. Ima go ahead and stake my reputation on it.

    Rate this comment: Thumb up 0

  74. 74
    Scotsman says:

    RE: Ray Pepper @ 69

    “shying away from telling us he is SUNK at LEAST 700k on his lovely venture”

    I guess math isn’t your strong point. That partially explains your own failed investments. It says on his site that the cash spent so far is about $1,144,000. You say he’s $700K upside down?

    I’d like to see you try and buy the house for $450K. You’re losing it Ray(mond).

    Rate this comment: Thumb up 0

  75. 75

    From FICO:

    http://bankinganalyticsblog.fico.com/2011/03/research-looks-at-how-mortgage-delinquencies-affect-scores.html

    So FICO’s study shows that we have many factors effecting a credit score.

    1) the starting credit score before the derogatory event
    2) whether or not a deficiency balance was owed to the lender after a ss or foreclosure
    3) how many payments were missed
    4) how many mortgage loans are involved (e.g. 1st and also a 2nd)
    5) whether or not the home owner is in bankruptcy

    “Please remember that this study used select consumer credit profiles to provide insight into general trends to score impact from various events. Given the wide range of credit profiles that exist, results can vary beyond what’s in the charts above. More importantly, one of the key takeaways from this study is that the impact to score is highly dependent on the starting score – higher scores have farther to fall when negative items appear on their credit report.”-FICO

    A person’s FICO is multi-factorial after a short sale OR foreclosure.
    So I’m right.
    And so is Pegasus!

    Thanks for pushing me on this point!

    “Clearly a loan default is the most severe type of delinquency whether it takes the form of a short sale, foreclosure or deed-in-lieu. That’s why, once the short sale has posted to the credit report, the presence (or absence) of prior delinquency on that loan does not have a significant influence on the score.”-FICO

    Oh no, there goes my reputation. I can feel it crumbling into nothing as I type these very words. Better get back to work tomorrow and start rebuilding my life. Maybe McDonald’s is hiring.

    Rate this comment: Thumb up 0

  76. 76
    Pegasus says:

    RE: Jillayne Schlicke @ 75 – You continue to mislead the public. Now on a national scale. My point is that most short sellers are encouraged to short sell by people in the industry who tell them that a short sale is better for their credit score than a foreclosure. That is a lie and gets many to short sell their home when they should not do so. You are now trying to twist your way out of your blatant lie with deceptive responses. You are part of the problem as you sadly attempt to perpetuate this myth. Hopefully your students will confront you on this as well as the state.

    Rate this comment: Thumb up 0

  77. 77

    By Pegasus @ 58:

    RE: Jillayne Schlicke @ 57 – You are trying to distort the truth. STOP. Admit that all short sellers get their credit score damaged in a big way contrary to what you and the real estate industry tries to make one believe. I used to think you were one of the “good guys” Sorry. I was mistaken. Retract your misstatements or suffer the consequences.

    I don’t understand why you’re focusing on credit scores so much.

    Back when I was doing bankruptcy I wouldn’t talk to clients about how the bankruptcy would affect their credit score, and it wasn’t because their credit score was probably already in the toilet. What they were concerned about was how it would affect what they wanted to do in the future. How would it affect their ability to get a different car? How would it affect their ability to get a credit card? How would it affect their ability to buy a house? The recovery of their credit score is only part of that answer. For example, back then Bank of America would not issue a new “Alaska Airlines” credit card until the person had been out of bankruptcy for 10 years. By 8 years their credit score would have hopefully have fully recovered, but they still would not have been able to get a BOA Alaska Airlines card.

    Rate this comment: Thumb up 0

  78. 78
    David Losh says:

    RE: Pegasus @ 76

    Of course you’re right that a short sale does negatively impact a person’s credit score, it is a walk away.

    Yes Real Estate agents throw out this lie that it is better to short sell than risk foreclosure.

    There are however circumstances for credit repair. You have the right to challenge your credit report.

    One example is a person who signed up for a loan that was a fraud. The terms were outlandish, and she never saw the loan documents, only the places she was to sign as a part of the “loan process.” Another example is an executive with a pharmaceutical company who was promoted, and relocated in 2008. He came here to set up a new territory, and did such a great job he was promoted.

    Credit repair may be easier. Explaining a credit score may be easier, but yes, Real Estate agents aren’t there for that part of the process. Credit repair may be the next big thing for Real estate agents to advertise.

    Rate this comment: Thumb up 0

  79. 79

    By Macro Investor @ 59:

    It actually seems like a decent law. The lender knows if the borrower has assets worth pursuing for deficiency. If they did a short sale, it’s because they knew that’s all they could get. .

    That’s incorrect. It means they knew that was all they were likely to get out of that property, because they are only releasing the deed of trust not the personal liability. If they thought it was all they could get, they would also release the debt.

    Rate this comment: Thumb up 0

  80. 80

    RE: Ray Pepper @ 62 – I don’t think I can judge this from the details you’re giving, but it almost sounds like the type of scheme the distressed property law was trying to make illegal, but avoiding that law by using a new house.

    I don’t think I would be going around touting that as being a good thing. Just because you see something happening doesn’t mean it’s good. It reminds me of a real estate agent recently touting buying property on an unrecorded real estate contract, and bragging how much money he was making setting those things up. I suspect it will probably cost him his license some day, but hey, it’s a great thing, right?

    Rate this comment: Thumb up 0

  81. 81

    RE: S-Crow @ 44

    LOL

    Assets affecting Short Sales??? That’s what matresses are for, its simple, ya keep your savings off your Social Security Number records….ask the rich, they do the same thing.

    Rate this comment: Thumb up 0

  82. 82

    By Jillayne Schlicke @ 68:

    Pegasus,

    Did I miss something or have you been designated the keeper of all truth?

    What you’re missing is Pegasus is an admitted troll.

    http://seattlebubble.com/blog/2012/01/02/the-tims-top-ten-of-twenty-eleven/comment-page-1/#comment-153139

    Now he’s just trying to “push your buttons.”

    Rate this comment: Thumb up 0

  83. 83
    Pegasus says:

    RE: Kary L. Krismer @ 77 – I originally posted that it affects ones credit which encompasses all of the things that you used to tell your bankrupt clients about that would happen or not in their future. Obviously BOA was pulling someone’s credit when they would deny an application for a new “Alaska Airlines” credit card. Jillayne switched my comments to talking about the credit score so I produced the facts concerning credit scores and short sales versus foreclosures. Everyone that I know who has chosen to do a short sale or is considering one is being told by the real estate agents involved that doing a short sale much better for their credit. It simply is not the truth. It is a blatant lie that is even worse than telling someone they better hurry up and buy no matter what the price because they are about to be priced out forever. The common occurrence of this myth indicates that it is a wide spread industry abusive myth being perpetrated upon the unsuspecting public for financial gain. Having an industry “expert” and supposed scholar perpetuate this lie here in a public forum is disgusting.

    Rate this comment: Thumb up 0

  84. 84

    Pegasus wrote:

    Everyone that I know who has chosen to do a short sale or is considering one is being told by the real estate agents involved that doing a short sale much better for their credit. It simply is not the truth.

    If that is exactly what they said, I would say that’s true, because “credit” means the ability to get credit, not your credit score. Again, as the material below which I posted yesterday indicates, I tend to agree with you on the credit score aspect, but Jillayne is probably right to that how bad the default was would also affect things. Assuming that’s true, then a short sale would be better than foreclosure because a foreclosure is going to involve a minimum default of 8 months, where a short sale could be much shorter.

    By Kary L. Krismer @ 19:

    By Pegasus @ 16:
    Doing a short sale won’t save your credit but that is a common real estate agent myth given out to get homeowners to list rather than go through foreclosure. There are plenty of information sources out there to disprove the “save your credit” myths but judging by the increasing amount of short sales the agents still seem to be unable to straighten out those myths. I wonder why? :)

    It can though affect the ability to get a real estate loan later. Here’s a site from early 2011 which breaks down the differences at that point in time with the major types of loans. I’m not sure that’s current (or even that it was accurate then) and in any case, those rules could change six months from now. I will note though that the site agrees with you about there being no real difference when it comes to credit score.

    http://massrealestatenews.com/buying-a-home-after-short-sale-or-foreclosure/

    Rate this comment: Thumb up 0

  85. 85

    RE: Pegasus @ 83 – BTW, I also agree with you that you shouldn’t rely on a real estate agent for that advice, and I said so above somewhere. And I think Jillayne has agreed with that too.

    I think you’re trying to create much more disagreement here than what there actually is.

    Rate this comment: Thumb up 0

  86. 86
    ARDELL says:

    People seem to make this more complicated than it is. It’s common sense that someone with a high score will be impacted by a negative credit reporting more so than someone with a low score.

    Generally speaking, let’s call a short sale a C, a Foreclosure a D and a Bankruptcy an F. I think that is a fairly accurate analogy.

    If an F student gets a “new” D on a test…his score may go up a little.

    If a D student gets a “new” D on a test…his score is unchanged.

    If a C student gets a D on a test, his score goes down a little.

    If a B student gets a D on a test, his score goes down moderately.

    If an A Student gets a D on a test his score goes down a lot and the student is usually traumatized for life because of how hard he worked to get that A in the first place.

    Conversely the F student or D student who gets a D is not seriously emotionally impacted. It’s a big “oh well, shet happens, again.”

    Pretty simple stuff really.

    When a real estate agent walks into someone’s home saying that a short sale will impact the owner’s credit score less than a foreclosure, without knowing what the owner’s current score is, they are just blowing smoke up the owner’s a$$. An attorney can not be more accurate than an agent in that regard, if they don’t know what that particular owner’s credit score IS, and is going to BE, on the day of the short sale, and no one does. Not even Isaac, no matter how “Fair” he tries to be.

    Every missed payment is a ding on someone’s credit. The final event is like the final exam. The missed payments are each a “test” that reduces the score, one by one. Once you are at F, a new missed payment just gets you the same F as the last missed payment. Once you are at F from lots and lots of missed payments, the final “exam” becomes somewhat redundant and just another bad grade on top of a whole slew of bad grades from missed payments.

    At that point there is no difference between a short sale and a foreclosure. An F is an F…anyway you get there.

    Theoretically a “Short Sale” has the “potential” to be less damaging than a “Foreclosure”, especially if you could get short sale approval with NO missed payments. Some hardship situations could result in lien holder approval with no missed payments. A Foreclosure on the other hand can’t happen without missed payments.

    A Deed in Lieu has the potential to be the best of both worlds. But most lenders require that you make a full and honest attempt to sell short for at least 90 days on market, before they will grant you a Deed in Lieu. So the only real difference between a Short Sale and a Deed in Lieu, is simply whether there is a buyer for your house or not. The process of a Deed in Lieu is the same as a Short Sale. The only difference is one has a closing and the other signs off on Title.

    As to “New Legislation” and it’s impact, go watch Burt Lancaster in The Rainmaker. One day the rain will start and another day the rain will stop. Who takes credit by being “the author” of this Bill or that Bill…is just politics.

    Rate this comment: Thumb up 0

  87. 87

    By ARDELL @ 86:

    Generally speaking, let’s call a short sale a C, a Foreclosure a D and a Bankruptcy an F. I think that is a fairly accurate analogy..

    It depends on what you want to do in the future. For home loans I would say a foreclosure is the F, because the foreclosure will still affect you after the foreclosure falls off your credit report. You still will have to fill out the credit application as indicating that you have had a property foreclosed. I’m not sure if the same is true of short sales, but it’s not true of bankruptcies.

    For getting a car lease in the future, a bankruptcy might be worse than a foreclosure.

    Rate this comment: Thumb up 0

  88. 88
    Pegasus says:

    RE: Kary L. Krismer @ 84 – I confronted Jillayne directly over her statement “Pegasus, regarding everyone who chooses a short sale gets a trashed credit score….not true.” I exposed that misstatement with the truth and the facts. Jillayne then started to expound on numerous somewhat tangential but meaningless subjects that had nothing to do with her original false statement. She appears to be taking lessons from you. Next thing is that she will declare that I am a troll when she realizes that she can not extract herself from the web she has woven with her twisted facts. Having you now compare those twisted facts and declare her the winner is so Kary in character. I can’t stop laughing at both of you. Thanks for the grins.

    Rate this comment: Thumb up 0

  89. 89

    By Jillayne Schlicke @ 22:

    Not every home owner can live with the kind of uncertainty surrounding a strategic default. Some home owners simply cannot trash their credit score because of a high security clearance or other fiduciary type of job.

    This is the first time the term “trash” appears in this thread. And I would agree with the statement.

    One of the firms I was with once filed someone into bankruptcy because of their security clearance and what would happen to their job if they didn’t file and remained subject to state court lawsuits and collections.

    Rate this comment: Thumb up 0

  90. 90
    David Losh says:

    RE: ARDELL @ 86

    If only it were that simple, but it’s not. We have millions of people in the same situation, where in the past a short sale was kind of uncommon. Right now, as this legislation is showing, and I think Jillyanne is correct, more people will be pushed toward foreclosure, by the banks.

    The banks, that use the FICO scores to get more interest income, are showing an extreme conflict of interest.

    I don’t think any one, at this point should be short selling a property. We are five years into the game. There need to be more rational solutions. Number one of which is for loan servicers to figure out how to adjust arrears with partial payments over say a three year period, just as a thought.

    Real Estate agents should be more creative in what they bring a seller.

    Rate this comment: Thumb up 0

  91. 91

    By Jillayne Schlicke @ 25:

    Pegasus, regarding everyone who chooses a short sale gets a trashed credit score….not true. Sometimes people are forced to move/sell short due to a forced relocation. They’re paying as agreed, can afford to pay, and need to sell. This person’s credit score will not crash and burn like the person who is sitting there not paying anything for 2 years. Now we have 24 months of missed mortgage payments. That’s gonna hurt. .

    This is the second and last time Jillayne used the term “trash.” And here she is clearly distingushing as against a very long term default.

    You’re right this is reminiscent of some of our arguments. You make up claims about what others have said, and then hit on them repeatedly because you like to “push people’s buttons” in your role as troll.

    Rate this comment: Thumb up 0

  92. 92

    By softwarengineer @ 81:

    RE: S-Crow @ 44

    LOL

    Assets affecting Short Sales??? That’s what matresses are for, its simple, ya keep your savings off your Social Security Number records….ask the rich, they do the same thing.

    They have enough information they should be able to figure that out. Whether they take the time to do that is another matter.

    Rate this comment: Thumb up 0

  93. 93
    ARDELL says:

    RE: David Losh @ 90

    Unless you are suggesting that the “adjustment for partial payments over a three year period” be pure forgiveness vs added to the principal of the note, that option already exists and is called “forbearance”.

    Yes…there are millions of stories in the naked Country…but all options already exist. Applying those options accurately requires great care. We live in a Country of sweeping, broad-brush “remedies” spouted loudly for the political impact of the promises to the masses vs correct application individually of the already existing processes.

    The ONLY people with the incentive to use the greatest degree of care to determine the correct remedy of the existing options are “the interest parties”. themselves. Most every option is clearly spelled out on various websites:

    https://www.efanniemae.com/sf/servicing/pdf/loanworkoutfactsheet.pdf

    All that is needed is that the distressed homeowner be honest as to their actual situation vs trying to “fit” into the one with the best outcome. People read websites like the one above and say “I want option “x” because it leaves me in the better and best long term position” (i.e. Ray’s Remedy) vs being honest as to which one actually applies.

    A lawyer advising that owner will do the same, and often advise how to change their circumstances to fit the best option. Much like a child of wealthy parents who figures out how to qualify for student “aid” by knowing the rules to get to “independent adult” so the family’s high income and asset status is ignored.

    No legislation that sweeps all the mess under the same rug, is going to be of value.

    Rate this comment: Thumb up 0

  94. 94

    By ARDELL @ 93:

    No legislation that sweeps all the mess under the same rug, is going to be of value.

    That’s the problem I have with this. If one short sale is not approved because of this, for someone a short sale is beneficial for, then it has hurt that person.

    The people they are trying to protect are the people who either didn’t understand the consequences of a short sale without having an express release of the debt.

    So you’re hurting some to protect those who didn’t do their due diligence or seek the proper advice. That doesn’t seem like a good trade off.

    What would be better, IMHO, would be just to require a clear disclosure in a short sale approval as to whether or not the debt is released, with a limited out for the seller if the debt is not released.

    This is the distressed property law all over again, where the legislature thinks it understands everyone’s situation, and is limiting the options people can take.

    Rate this comment: Thumb up 0

  95. 95
    mukoh says:

    IMO one of the worst things for the market health in general done by Obaminal is the debt forgiveness act. http://www.irs.gov/individuals/article/0,,id=179414,00.html

    Up to $1m/$2m exclusion of income from debt forgiveness. Sellers area not liable in most instances for the difference lost between loan amount/short sale.

    So lets say you bought a $200k home years ago and with the leverage refied for a cash pull out of $300k additional. That $300k first of all is not taxed, nor when you sell the home for less then what you owe you are not liable for the difference!.

    Now the new more educated agents are tooting the horn of free walk aways from obligations, and debt forgiveness. :)

    Rate this comment: Thumb up 0

  96. 96

    By mukoh @ 95:

    So lets say you bought a $200k home years ago and with the leverage refied for a cash pull out of $300k additional. That $300k first of all is not taxed, nor when you sell the home for less then what you owe you are not liable for the difference!.

    Your example is not really clear, but I don’t think that $300k would be qualified debt for the debt forgiveness.

    Also, keep in mind that in many cases the insolvency exemption would be applicable, so it would not be a different result, just easier to prove with the new act.

    BTW, that act was passed in 2007, before Obama.

    Rate this comment: Thumb up 0

  97. 97
    mukoh says:

    RE: Pegasus @ 88 – From what I know debt forgiveness/short sale either with late payments or in rare instanses without is still reflected in the credit score as a drop. Jill maybe thinks that someone who got away with a short sale with a score of 600 per say, made a great decision vs a foreclosure who got down to 560. WTF difference does it make anyways. Still a wreck. :)
    Short sale or foreclosure, Ray’s scenario is at the least more savvy, if there are no seconds to sit without paying ANYTHING!. A friend of mine built himself a house over the last 12 months for CASH!. While the other home has had no payments for 24 months, and they still have not filed trustee’s notice on the door. He has not a care in the world about his credit score as he doesn’t need it.

    Rate this comment: Thumb up 0

  98. 98
    Ray Pepper says:

    RE: Scotsman @ 74

    Haa..Scotsman U truly R the BIGGEST bonehead we have here at the BUBBLE…

    What do you think he paid for the house and the LOT prior to construction and teardown? Do you think he was given it for FREE and then he initiated his MILL+construction?? Hmmmmmm?? …I will let you find it… but heres a hint………..WELL OVER A MILLION BABY!

    Rate this comment: Thumb up 0

  99. 99
    mukoh says:

    RE: Kary L. Krismer @ 96 – Kary, agreed but he was one of the touters of the great act.

    On the other side not taking a cash out scenario into effect, short selling still is a hands off free act for most people on their personal residences as far as income from debt forgiveness.

    Rate this comment: Thumb up 0

  100. 100
    Ray Pepper says:

    RE: Kary L. Krismer @ 80

    no scheme Kary…This is real estate INVESTING…perfectly LEGAL and performed day after day with partners that both may or may not profit from their shared agreements..

    Rate this comment: Thumb up 0

  101. 101
    ARDELL says:

    RE: Kary L. Krismer @ 87

    I make the assumption Kary, that the Numero Uno “outcome” is that the person needs a place to live…a roof over their head. In most cases that means they have to RENT IMMEDIATELY. Forget long term. What happens as to securing replacement housing immediately after the short sale, foreclosure or bankruptcy, is more important than what happens over the long haul.

    In that case “homeless” is the worst possible outcome. Not everyone can go home to Mommy.

    The three most often used criteria for not being able to secure a rental are:

    1) Eviction in the past
    2) A Felony on your record
    3) A Bankruptcy

    That is why I rate Bankruptcy an F, and worse than a Short Sale or a Foreclosure. This based on fact vs my personal opinion as to better or worse.

    If you are a “Distressed Homeowner”, knowing that you can rent after losing/leaving the “owned home” is most likely your number one priority when deciding which option to take. Can’t own for awhile is never as bad as can’t own OR RENT right now.

    Rate this comment: Thumb up 0

  102. 102

    RE: Ray Pepper @ 100 – Years ago I went to a CLE (attorney clock hour course) where the attorney was describing deposing real estate investors who were involved with illegal schemes. They were more than willing to testify as to what they had done, and were even proud of it, because it’s what they were taught to do by someone who also didn’t have a clue it was illegal.

    And as I mentioned, that one agent more recently was proud of how much money he was making off of unrecorded real estate transactions, and how numerous they were.

    Stated differently, I’m not convinced what you’re describing is legal to do.

    Rate this comment: Thumb up 0

  103. 103

    By ARDELL @ 1:

    The three most often used criteria for not being able to secure a rental are:

    1) Eviction in the past
    2) A Felony on your record
    3) A Bankruptcy

    That is why I rate Bankruptcy an F, and worse than a Short Sale or a Foreclosure. This based on fact vs my personal opinion as to better or worse.

    I’m pretty sure the third one isn’t true, at least at most places, although that could depend on the market at the time. A recent bankruptcy is in many ways an advantage for a landlord. They won’t be held up by a new automatic stay, and their tenant won’t be deciding whether to pay rent or credit cards.

    I’m not sure the second one is even legal, at least in Seattle (there was legislation proposed at one point that would make it illegal to discriminate against felons).

    Rate this comment: Thumb up 0

  104. 104
    Ray Pepper says:

    RE: Kary L. Krismer @ 102

    Kary, I strongly urge you to attend a Vestus, Data Snap, Evergreen, or the many different investment companies that are at The Trustee Sales each week. In fact you can attend their free dinners on Tuesdays.. Partners and investors come and go while entering business relationships that are beneficial to both parties. There are many Attorneys, Investors, Lenders, Title, Escrow, Landlord service Companies, and both buyers and sellers at these meetings. I think when you understand the Trustee Sale Investing process better you will see what is actually going on out there AWAY from the MLS system. It will better round you as an individual to help your Buyers and Sellers.

    Please attend a few before assuming everything is “illegal”. Then after your research please post what is illegal specifically. We all understand risks that are involved when entering any transaction and how the risk rises exponentially when you accept a partner but as for illegality please do your DD first before firing the weapon!

    Rate this comment: Thumb up 0

  105. 105

    By Ray Pepper @ 62:

    <If your credit score is not above 640 (I believe 620 now) they will NOT lend you the funds UNLESS you "partner up." Partner up refers to 2 individuals where one may have the cash and the other has the good credit. The home is bought and prior to engaging in the transaction the deal is made between the two parties. Many choose to use a friend or family member. If the person with the cash has nobody they will seek out an investor partner for you that will sell the property to you at a future date at an agreed upon price. Many times the investor partner wants 5k for exp upfront….The investor partner has little risk because its your money that has already been placed down on a greatly reduced priced property…..But, I must say this.. 98% of the time this is done with two (prior friend-family) partners one usually needing the other..

    As I noted before, I don’t have enough details to reach a conclusion, but the highlighted portion is what seems very suspect. It only applies to people in financial difficulty (those with low credit scores). The “investor” has little risk. The goal is to have a person live in a house by buying it from the “investor” at a prearranged price.

    If you did something like that with a house the buyer was already living in, it would likely be illegal. But without knowing all the details I can’t say.

    Just going to a seminar where they teach you it’s okay is not going to convince me. Read my prior post about what the attorney at the CLE explained. Illegal schemes are often taught. My favorite–periodic automatic pre-determined price reductions on short sales was something taught at clock hour courses.

    Rate this comment: Thumb up 0

  106. 106
    Ray pepper says:

    RE: Kary L. Krismer @ 105 – But Kary do you not want to even get more educated on the product before drawing assumptions? I hardly call them seminars more of a dog snd pony show but they would love your company. They would answer all questions and concerns and the joy is u never have to pay 1 penny. Just free education.

    Because we r in a decade of unrelenting trustee sales it should be required attendance so all agents understand the trustee sale process so they can pass this info on to homeowners that may find themselves in thus dilemma.

    Rate this comment: Thumb up 0

  107. 107

    RE: Ray pepper @ 106 – Not really an area I wish to get into, so no I’m not really interested in attending.

    Rate this comment: Thumb up 0

  108. 108
    Pegasus says:

    Washington Real Estate Agents spreading the word about short sales

    A highlighted statement: “Credit experts will agree that neither a Short Sale nor a Foreclosure is favorable to your credit or credit score, however, the impact of a Foreclosure is much worse.”

    Additional comments from the “#1 Short Seller Team in the NATION”……When there are no late payments on your mortgage, your credit score is generally not affected. It is possible to maintain a high credit score by completing a Short Sale without missing payments on your mortgage and other bills. Please be aware though, that your lender will still report that a Short Sale was done. So, while you may not see your credit score drop if you continue to make payments through the completion of the Short Sale, you’ll still likely have your account marked as “paid in full for less than the full amount” and/or “settled.”

    http://www.sscalculator.com/faqs-view/does-a-short-sale-effect-my-credit/

    Anyone that is not a real estate agent see a problem here?

    “Contrary to what many homeowners believe, a short sale can have the same devastating impact on a credit score as a foreclosure. “If someone is unable to repay their mortgage, regardless of how that turns out, that failure to repay the mortgage is highly predictive of future risk,” says Craig Watts, a spokesman for Fair Isaac, the company that calculates the FICO score, the score most commonly used by lenders. A short sale, a foreclosure and a deed-in-lieu, which lets the borrower transfer the property deed to the lender and walk away from his home, have the same impact on your score because they are all regarded as serious delinquencies. “When an account goes to foreclosure or a short sale, that’s as severe as it can get,” Watts says.”

    http://realestate.msn.com/article.aspx?cp-documentid=20773062

    Rate this comment: Thumb up 0

  109. 109

    By Pegasus @ 8:

    http://www.sscalculator.com/faqs-view/does-a-short-sale-effect-my-credit/

    Anyone that is not a real estate agent see a problem here?

    You mean your selective quotation of a webpage?

    Why didn’t you quote this: “It is difficult to gauge how much damage will be done to your credit score when comparing a Short Sale to Foreclosure.”

    Or this following: “We strongly advise you to work with a Credit and Credit Scoring Expert for more specifics on this topic, and ways in which to improve your credit after the Short Sale is complete.”

    Interestingly though, you also didn’t quote this from the second link, and that seems to directly support what you’re saying:

    The impact on your score will depend on what shape it was in before the short sale or foreclosure. If your credit was good — say you had no late payments before the short sale and your score was in the 700s — your score could drop by 200 points, Watts says. Your score will begin to recover after a year or two, but how soon it gets to its previous level is going to depend on how you handle your credit in the meantime.

    I wonder though, how many people go through foreclosure and end up with a credit score above 500, which would be required to be better than the more than 700 less up to 200 referenced in the quote. I don’t typically deal with credit scores, so I don’t know how low they can go.

    Also, how many short sales are there without a default prior to the sale? Is this just largely an academic debate?

    Rate this comment: Thumb up 0

  110. 110
    Pegasus says:

    RE: Kary L. Krismer @ 109 – One,.. you are a real estate agent…two…. you are twisting trying to justify comments that appear to be false or at best contradictory. My point continues that the short selling process is highly abused and with the most highlighted comment saying emphatically while highlighted in red above all other comments says that ” the impact of a Foreclosure is much worse.” when compared to a short sale is misleading at best and FICO says that is just wrong. It is just part of the industry misleading homeowners. It falls right in line with the industry’s other misleading statements over the years. Surprisingly there is no advised schedule of automatic $10,000 price decreases on listings every two or three weeks and advice on stopping your mortgage payments yet that seems to be common advice given to short sellers these days. Other sites claim that short sellers can often buy a home with FHA financing right after a short sale when the normal requirement is three years and exceptions to that are rarely done. It’s a new feeding frenzy for the real estate industry and unsuspecting short sellers are getting their clocks cleaned but of course they deserve it even if they don’t know any better, right?

    Rate this comment: Thumb up 0

  111. 111
    David Losh says:

    RE: Ray pepper @ 6

    Oooh, oooh, I’ve attended Ray, and Kary is correct. There are many people there engaged in criminal activity. Plenty of idiots are paying up to be involved in one scam or another.

    There is plenty of very bad information in this comment thread.

    Rate this comment: Thumb up 0

  112. 112
    David Losh says:

    RE: Pegasus @ 110

    A short sale is granted for hardship cases. If you have money you are expected to pay the deficiency. The bank collects all you financial information, and determines your eligibility.

    Some agents lie to the bank. Some people pretend to have a hardship. One short sale expert provided a form letter for you to send to the bank.

    That’s fraud.

    In foreclosure you just send the house back, or you wait for the bank to take it back. The foreclosure may also be due to a hardship, but it appears as though you did nothing to communicate with the bank, or ignored them for an extended period.

    The short sale makes it look like you did something for a reason.

    Both are bad, but the next lender is the one to decide.

    I also took exception with Jillayne when she was giving short sale classes. The Real Estate industry should have stayed the heck out of short sales, or left them to people who knew the differences in hardships.

    In my opinion millions of short sales should have been foreclosures. That would have had more of an impact on the Real Estate market, for the better.

    The second part is that people paid premium prices for short sales. Just because properties sold for 30% below peak, or last sales price, that didn’t make them a bargain. Those properties may well be coming back because the Real Estate industry was propping up prices.

    Rate this comment: Thumb up 0

  113. 113

    Pegasus,

    One problem I see with regard to lots of inaccurate information on the web regarding FICO scores and short sales/foreclosures is that there are no dates on some of these media articles.

    FICO published their report in March of 2011.

    Any media article, whether written by traditional media or a licensed real estate broker that was written prior to FICO releasing their report is now out of date.

    Another reason why, IMO, home owners needs a neutral third party to advise them on all the possible consequences of a choice with long term results. A real estate broker is not neutral.

    I see no conspiracy theory that the real estate industry is deliberately motivated to provide out of date information to home owners. Short sales are a moving target and any type of media is going to take advantage of the fear factor and publish information to attract eyeballs.

    What’s your idea for providing accurate information to homeowners who are trying to decide between a short sale and, say, foreclosure?

    Rate this comment: Thumb up 0

  114. 114

    David, I’m definitely not Jilly-anne
    Seriously.
    How long have we been commenting together on SB? Several years now.
    Please just call me Jill if you honestly cannot be bothered.
    Thank you.

    Rate this comment: Thumb up 0

  115. 115
    David Losh says:

    RE: Jillayne Schlicke @ 113

    What decision? You either qualify for a short sale, or you don’t. You then decide if you want to go through the process.

    Rate this comment: Thumb up 0

  116. 116
    David Losh says:

    RE: Jillayne Schlicke @ 14

    Already fixed. That was a long comment, but it was on point.

    I stopped doing short sales in 2008, number one, because of Real Estate agents who had very bad information. I’ve always done short sales, but agents are just massively misinformed. I don’t think your classes helped. Sorry.

    Rate this comment: Thumb up 0

  117. 117

    Thank you, David!

    Regarding the homeowner’s decision, sometimes the homeowner is not in financial distress, has assets yet still wants to sell short for whatever reason. This person may qualify for a short sale but NOT debt forgiveness. Instead of coming to the table with a check for the bank, this person may decide to let the home go into foreclosure, especially if there are no junior liens.

    And people DO want to lie. They lied as the bubble ran up and now they have no problem lying on the way down. They ask all kinds of questions about hiding assets from the lender, etc.

    Home owners need someone neutral to explain all the possible consequences of ss v. walk away. What do you think, David? Thanks.

    Rate this comment: Thumb up 0

  118. 118
    Pegasus says:

    RE: Jillayne Schlicke @ 113 – Simply my suggestion is that most sellers contemplating a short sale or a foreclosure should pick the foreclosure. There are a few rare exceptions to that but in general the public is being bilked by the real estate industry…..AGAIN! Most short sellers are getting bad and misleading advice from real estate agents. Claiming the real estate websites and articles are not updated with current info to excuse the false info is a canard. Shame on YOU. People are being told that a short sale is better for their credit, that they need to stop making mortgage payments to get the banks to go along with the short sale, they need to do large automatic price reductions, etc. etc. They are being lied to in order for the real estate agent to get a commission and the poor rubes are going to pay far more than that commission.

    Rate this comment: Thumb up 0

  119. 119

    Pegasus,

    Thank you.

    You have definitely made your point loud and clear.

    Rate this comment: Thumb up 0

  120. 120
    David Losh says:

    RE: Jillayne Schlicke @ 117

    Wait, I forgot, you must remember Continental Mortgage, now Home Street? maybe they’ve been sold.

    In those days you could actually stand in a loss mitigators office and watch the process. Another buddy of mine worked at WaMu in loss mitigation, up until the end.

    Banks have policies, and procedures for short sales. There is no gray area, there are no new laws that change the way short sales are processed. The file needs to be signed off, for being complete.

    My buddy went over to Chase after the purchase. What stalled the entire process were idiot agents trying to get something over on some one without having a complete file.

    You are making it sound like a decision of a seller. The seller either fits the policies of the bank, or they don’t.

    If the seller fits the policies of the bank yes, the bank can report what ever they like to the credit bureaus. Chase actually sent one of my clients a letter thanking them for their business. Five years later they do have an over 700 FICO.

    Rate this comment: Thumb up 0

  121. 121

    By Pegasus @ 10:

    RE: Kary L. Krismer @ 109 – One,.. you are a real estate agent…two…. you are twisting trying to justify comments that appear to be false or at best contradictory. My point continues that the short selling process is highly abused and with the most highlighted comment saying emphatically while highlighted in red above all other comments says that ” the impact of a Foreclosure is much worse.â�� when compared to a short sale is misleading at best and FICO says that is just wrong.

    I think you’re reading too much into what I said. I was agreeing with much of what you said, but pointing out the site wasn’t as bad as what you were indicating (and that the other site supported what you were saying).

    I have real problems with the implication if not outright claim on the agent’s site that the credit score won’t take any hit if you do a short sale without a default. I don’t know that is false, but it’s highly suspect. I would also question how a real estate agent would know that. I don’t typically know the credit scores of my clients, and I really don’t know their credit scores six months after doing a transaction with them. It’s not something I have direct access to while working with them, and there’s no reason I would know that information afterward.

    On the other hand, I have a hard time with your claim that they are the effect would be the same, and the reason for that is credit score numbers are a black box science. In addition though, it’s apples and oranges because the person going through a foreclosure would tend to have a lower score at the time of the foreclosure because of the 8+ months of being in default. As noted many places, how far you fall with an event is dependent on where you start, with higher scores falling further. What you would have to do is somehow start with two people who were not in default who had the same credit score and then check their scores afterward, where the mortgage was the only thing adverse and their other credit lines were similar. You’d also need both mortgage creditors to report things with similar accuracy. That would be very difficult to do, and once you did that you couldn’t be assured two other similar people would be treated the same way.

    But finally, again I don’t consider the drop in credit score to be all that important. That wouldn’t be the primary reason I would go one route or the other. I would look more at the effect on getting credit in the future, based on current standards.

    Rate this comment: Thumb up 0

  122. 122

    By Pegasus @ 18:

    RE: Jillayne Schlicke @ 113 – Simply my suggestion is that most sellers contemplating a short sale or a foreclosure should pick the foreclosure.

    I might possibly agree with that, but it certainly wouldn’t be based on effect on credit score.

    The biggest advantage of a foreclosure is getting to live rent free for 8+ months. If you need a bankruptcy anyway, you could probably easily stretch that to almost a year, even if the bank is doing everything as quickly as possible. That’s a huge advantage to foreclosure.

    The biggest disadvantage of a short sale is having your house on the market. That is a royal PITA, and given your low chance of having a sale actually close, it makes enduring that PITA a questionable decision. Then, once you get an offer, it may be some time before you know whether or not the bank will waive the deficiency. Again a huge negative, because after all that work you may want to back out.

    But it is all very fact specific to each debtor. If for example the debtor was high income, had relatively little debt but had both a first and a second, and the short sale would pay off $20,000+ of the second loan, then maybe going the short sale route would be better. And I do think it would be better for higher income people in general who do plan on buying again in the future.

    One final point. For years I’ve complained that creditors don’t distinguish between Chapter 7 and Chapter 13 debtors. You have one person who just walks away from their debt, and another who either pays it all or pays for at least 3 years. The latter should clearly be given some sort of advantage in getting future credit, but it’s very seldom that they do. This is another area where some should be given credit for taking action to help with an issue, but in this case they do actually seem to be given that credit–if not with the credit score, with what is important–getting a future loan.

    Rate this comment: Thumb up 0

  123. 123

    By Jillayne Schlicke @ 113:

    Another reason why, IMO, home owners needs a neutral third party to advise them on all the possible consequences of a choice with long term results. A real estate broker is not neutral.

    I think it goes beyond being neutral. People tend to prefer what they are familiar with.

    It’s really hard to find attorneys that are familiar with the implications of short sales, loan modifications and bankruptcy. Someone who does a lot of bankruptcy may think loan modifications are not worthwhile, and visa versa. I attribute that to not being familiar with the other, because they could make money doing either if they were familiar with both.

    Rate this comment: Thumb up 0

  124. 124

    RE: David Losh @ 11 – To be clear, I just indicates suspicion and doubt about such programs. I had not expressed an opinion that they were criminal or illegal in any way, only concern that they might be.

    Rate this comment: Thumb up 0

  125. 125
    The Good Egg says:

    A friend of mine just sent me a link to this and I wish I had become aware of this dialog earlier. I have just spent the last hour reading all of the posts and I am amazed at the amount of misinformation and vile commentary being spread.

    In the end I think many of you are missing the forest for the trees.

    Short sales are not some sort of activity that can be defined in a cookie cutter sense. What has been mostly missing from this dialog is the dynamic of whether the upside homeowner is upside down to just the 1st or both the 1st and 2nd and by how much, whether they can afford the payments and what this upside down homeowner needs to do to take care of their family.

    Forget hardship, don’t over think “strategic default” and stop the moral play that these homeowners entered into a contract and therefore are “morally” responsible to make good on the debt they incurred! That is complete BS!

    For starters I would recommend reading the book titled “Underwater Home” by a well-respected University of Arizona law professor Brent White. He does a far better job of articulating the basis for any homeowners “moral” right to undo a financial contract that is no longer in their best interests than I can.

    http://www.brentwhite.com

    Credit scoring, foreclosure versus short sale, all of these are very complex issues and cannot be defined in black and white terms. My firm helps real estate agents and homeowners negotiate short sales with the banks and I can generally tell you that it isn’t always pretty!

    Please realize that our current state of affairs was built on one massive Ponzi scheme and these “banks” couldn’t have cared less whether any of these loans were in the borrower’s best interest. For that I also defer to more articulate sources and would recommend to anyone who hasn’t already seen it that they check out the Academy award winning documentary “Inside Job”.

    http://www.sonyclassics.com/insidejob/

    If a homeowner finds themselves upside down in their home and whether they can afford the payments or not realizes that they could live in the same property for half the cost they have some hard decisions to make. Nothing in life is simple. All of this requires an individual assessment of multiple dynamics and then a proper course of action.

    The only general benefit that I will hang my hat on (for fear of being chastised in the public square LOL) is that a short sale CAN be a unique opportunity to settle on a large 2nd mortgage whereas simply letting the house go to foreclosure is potentially stupid as it does nothing to clear the subordinate debt and you then end up with a foreclosure on your record and the 2nd still chasing you for the balance.

    My last comment, as I realize I am taking up too much blog space, is that there is also a common misperception about who the “bank” is. Just because you send your mortgage payment to B of A, Wells Fargo, Aurora Loans, etc… doesn’t mean anything as 95% of the time these entities are acting only as “servicers” and the true owner aka “investor” on the loan is probably a Texas pension fund or school district in Norway who unfortunately bought the crap that Wall Street sold them during the bubble.

    These “servicers” are practicing their own brand of fraud 2011-2012 in that they will churn a distressed property for as long as they possibly can as their costs and fees are skimmed off the top by virtually every “Pooling and Servicing Agreement” (PSA) in existence allowing them to perpetrate a new version of the same fraud they created in the bubble!

    When you wonder how their fax machines can eat 7 different submissions of the same short sale package remember this simple truth…

    Rate this comment: Thumb up 0

  126. 126
    Pegasus says:

    RE: The Good Egg @ 125 – Let’s not forget contrary to your obvious bias for personal financial reasons of short sales versus foreclosures with a large second that the remaining second after a foreclosure can also be negotiated successfully especially if the party waves a potential bankruptcy under the noses of the second holders. Its being done every day but make sure you don’t tell anyone. Of course there are some that a bankruptcy is not an option for because of their wealth, occupation or income. In that case they can afford to pay the second off over time as they well could do the same after a short sale. Stop with the smoke and mirrors to justify short sales. A foreclosure currently results in about one to two years of free rent that can be saved to pay a second if needed. Of course if a foreclosure is done there won’t be all those negotiator fees and real estate commissions.

    Rate this comment: Thumb up 0

  127. 127
    David Losh says:

    RE: The Good Egg @ 125

    What the heck? Of course you should be jailed, or in some form of arrest. Your activity, simply based on your extremely misleading comments here, and based on your business model is an out, and out theft.

    Rate this comment: Thumb up 0

  128. 128

    By Pegasus @ 26:

    RE: The Good Egg @ 125 – Let’s not forget contrary to your obvious bias for personal financial reasons of short sales versus foreclosures with a large second that the remaining second after a foreclosure can also be negotiated successfully especially if the party waves a potential bankruptcy under the noses of the second holders. Its being done every day but make sure you don’t tell anyone.

    We’re getting pretty far off track here. This legislation is about trying to help people who did a short sale that still owed the debt afterward. Either because they couldn’t negotiate a release or because they didn’t even know that was an issue. I don’t really see a reason to help the former, and I think there are better ways of helping the latter group.

    Foreclosures are better for some than short sales. This legislation doesn’t do a thing for them, or affect them in any way.

    Rate this comment: Thumb up 0

  129. 129

    Look what I just found! A government entity misleading consumers! ;-)

    Be aware of the impact on your credit score The impact of a short sale on your credit score depends upon a variety of factors, including late or missed payments. A short sale may appear on your credit report as “pre-foreclosure redemption,” “paid in full for less than full balance” or other similar term. It is possible that a short sale will have a different impact on your credit than a foreclosure or deed in lieu of foreclosure (or any other outcome). But, beware that once you miss mortgage payments, your credit rating will be severely impacted.

    http://www.dfi.wa.gov/consumers/education/home/short-sales.htm

    Rate this comment: Thumb up 0

  130. 130

    RE: David Losh @ 27 – Did I miss something in post 125? Perhaps you could set forth what you saw.

    Rate this comment: Thumb up 0

  131. 131
    Pegasus says:

    RE: Kary L. Krismer @ 128 – We keep getting off track because of the disinformation that keeps appearing here about short sales. I think the public would be better served in finding out why this proposed law is really being proposed at all and who is behind it. The proposed law is a mess in progress and I doubt it would go for long without being challenged by those that own contracts that were signed years ago if they choose to. It also will compound the difficulty in closing a short sale as the true owner of the contract maybe in a trust or should have been placed in one and the ownership can be disputed. It may make a mortgage signed in Washington State less attractive to own in the future and make the transaction more costly for consumers. After all most mortgages get sold to investors and pension funds. Will they have to exclude Washington State mortgages from investor pools? I truly believe that the true reason for this law’s proposal is for it to be used to convince more innocent homeowners to do short sales while the true risks and detrimental nature of short sales are glossed over. I don’t think it will do anything for those that have already done one to their own detriment.

    Rate this comment: Thumb up 0

  132. 132
    Pegasus says:

    RE: Kary L. Krismer @ 29 – The key word is “possible”. That allows the writer to say anything and not be responsible for the true intent of the comments.

    Rate this comment: Thumb up 0

  133. 133

    By Pegasus @ 131:

    RE: Kary L. Krismer @ 128 – We keep getting off track because of the disinformation that keeps appearing here about short sales. I think the public would be better served in finding out why this proposed law is really being proposed at all and who is behind it.

    I really think it’s a misguided attempt to deal with a problem that doesn’t exist. Someone thinks that sending a 1099-C indicates the debt was written off. It doesn’t. But because they think that, they think it’s unfair for the banks to pursue the debt after sending the 1099-C.

    The proposed law is a mess in progress and I doubt it would go for long without being challenged by those that own contracts that were signed years ago if they choose to.

    It would be nice if the legislation had retro-activity provisions so that it wouldn’t take as much litigation to figure that out. This is effectively shortening a statute of limitations, so my understanding is it could be retroactive to any past transactions where they would still have time to act (ones less than 3 years old). Whether it’s retroactive at all though is an open question.

    It also will compound the difficulty in closing a short sale as the true owner of the contract maybe in a trust or should have been placed in one and the ownership can be disputed. It may make a mortgage signed in Washington State less attractive to own in the future and make the transaction more costly for consumers. After all most mortgages get sold to investors and pension funds. Will they have to exclude Washington State mortgages from investor pools?

    I think it will make closing a short sale more difficult, but for the obvious reason that the bank won’t want to possibly give something up. I don’t buy arguments anymore that are based on differences in state law and banks’ willingness to make loans. Look at all the different collection rights after foreclosure in the different states. That seems to make no difference at all in the availability of loans. Stated differently, I think those arguments are typically made by banks to get legislation passed, or to prevent legislation from being passed, but in reality I don’t think they care.

    I truly believe that the true reason for this law’s proposal is for it to be used to convince more innocent homeowners to do short sales while the true risks and detrimental nature of short sales are glossed over. I don’t think it will do anything for those that have already done one to their own detriment.

    Possible, but I think it’s just misguided consumer protection legislation.

    Rate this comment: Thumb up 0

  134. 134
    Pegasus says:

    RE: Kary L. Krismer @ 133 – Most consumer protection laws are drafted or influenced by the people the consumer needs to be protected from. As far as mortgages costs varying from state to state because of differences in laws that is normally addressed by pricing. The less protection the mortgage holder gets the less he will pay for the mortgage. That cost will be passed on to the consumer either through a higher interest rate, loan terms or fees. It just not may be readily apparent to the consumer but it is going to be there in one form or another.

    Rate this comment: Thumb up 0

  135. 135

    By Pegasus @ 134:

    That cost will be passed on to the consumer either through a higher interest rate, loan terms or fees. It just not may be readily apparent to the consumer but it is going to be there in one form or another.

    You would think, and so would I, but I’m just not seeing that.

    Have you seen anything suggesting there’s a cost or interest rate difference between states which are pure recourse and the so-called non-recourse states? You would think that difference would be huge, but I’ve never seen anything indicating a difference.

    Oh, and I would agree regulations and consumer protection law usually benefit those regulated. There are some exceptions, however, such as laws requiring carbon monoxide alarms in houses. I’m not fully behind that particular law, but I really doubt it was passed to benefit the manufacturers of such devices, because I don’t think any are made in Washington.

    Rate this comment: Thumb up 0

  136. 136
    Pegasus says:

    RE: Kary L. Krismer @ 35 – You would see the difference in a pool of mortgages that contain mortgages from different states. The value accorded to each mortgage all other things being equal would be different. If the pool were to be privately insured it would definitely affect the cost of that insurance. I suspect after the bankers get publicly lashed some more it won’t be long after that the bankers convince everyone that non-recourse mortgages have to go as they are too costly to handle. It just a bad time to bring it up when your hand has been caught in the cookie jar so many times recently. The fact that we have government entities(tax payers) doing most of the insuring right now makes these differences less noticeable.

    Rate this comment: Thumb up 0

  137. 137
    Robert Smith says:

    RE: Kary L. Krismer @ 30
    David Losh @ 27, I’m wondering the same thing. What exactly in post 125 do you believe qualifies as out and out theft? Strategic default by a consumer? Corporations and banks do it all the time. Hec, even the Mortgage Bankers Associate did the same (see http://www.ritholtz.com/blog/2010/02/mba-walksaway-from-hq/).

    So it’s ok if a “virtual entity” does it but not a consumer who is held to some hire moral standard — held there by the same people the created this nightmare?

    Rate this comment: Thumb up 0

  138. 138
    David Losh says:

    RE: Robert Smith @ 137

    You don’t need that guy to stratigically default. You don’t need that guy for a short sale. As a matter of fact a lot of these guys, by reputation, can hinder your short sale.

    For a short sale the bank, the lender, supplies you with a package they want to see. You fill it out, and send it back. The seller, the Principle, has to do everything.

    These people are looking for free money. There are thousands of these people all talking the same game. The company this guy is promoting is one of the most prolific at advertising to any one, and every one.

    His comment is loaded with bad information, and the web site is ten times worse.

    Rate this comment: Thumb up 0

  139. 139
    Pegasus says:

    RE: David Losh @ 138 – Thank you David for your honest opinion.

    Rate this comment: Thumb up 0

  140. 140
    David Losh says:

    RE: Pegasus @ 139

    You actually did a good job here.

    Rate this comment: Thumb up 0

  141. 141
    Robert Smith says:

    RE: David Losh @ 38RE: David Losh @ 38
    I think you dramatically overestimate the ability of most consumers to help themselves out of this situation. With the banks it’s like loan modifications all over again — it depends on which bank and how whether they are cooperative or out to truly screw the consumer (and some of them really are, like IndyMac – check out http://youtu.be/ssl5yb7FewA ).
    Just because you have the knowledge, background and perseverance to do this yourself doesn’t mean that everyone does. You may not need the services of someone like Nest Financial, but having seen more than a few friends and now one of my nephews go through this — companies like this are serving a niche of customers who are quite grateful for their service and insight.
    I commend you for your knowledge that you apprently feel that everyone should be able to do this on their own — but you’re basing that on your personal knowledge and not what the average consumer knows/understands.

    Rate this comment: Thumb up 0

  142. 142
    David Losh says:

    RE: Robert Smith @ 141

    Oh, but I am basing that on the consumer. I know many people in the short sale, foreclosure mill. They all have the same stories of the guys who are guiding them. Those guys do nothing. They keep coming back with another story about how the consumer needs to do more, so these guys can get paid. They do nothing. They create drama so they can show they are worth the fee.

    No one can negotiate a short sale. It’s numbers, it’s just numbers. The consumer either has a hardship or they don’t. Charging thousands of dollars for nothing seems like theft to me.

    Now why isn’t there a $500 Short Sale? $500 is as much as the process is worth, and that there is generous. It’s filling out paper work at the direction of the consumer, who has a hardship, or they don’t.

    Rate this comment: Thumb up 0

  143. 143

    By David Losh @ 38:

    You don’t need that guy to stratigically default. You don’t need that guy for a short sale. As a matter of fact a lot of these guys, by reputation, can hinder your short sale.

    I would agree on the strategic default, but not on the short sale. You do need a good short sale negotiator in most instances. The exceptions might be that new BOA program or a small local bank.

    That said, a lot of short sale negotiators charge obscene fees. There are also some real estate agents out their illegally (IMHO) offering short sale services to other agents.

    Rate this comment: Thumb up 0

  144. 144
    The Good Egg says:

    I am choosing not to participate in the zero-sum game of flame wars in the Comments section of a blog post.

    For those of you who just can’t resist, I leave you with the words of Barry Ritholtz:

    Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

    (and you know who you are)

    Rate this comment: Thumb up 0

  145. 145
    Pegasus says:

    RE: The Good Egg @ 144 – That’s the kind of post people make when they are exposed and have no reasonable reply other than to dodge the issues and facts with baloney. You poor picked on baby. Whaaaa! Hopefully you now take the time to clean up the trash and disinformation on your own web site that is misleading at best. Nice try but somehow the truth prevails in spite of you. Thanks for previously posting nothing but a self-centered advertising piece that has little to do with reality.

    Rate this comment: Thumb up 0

  146. 146
    Scotsman says:

    Found this chart over on Doctorhousingbubble.com It shows the number of short sales increasing while foreclosure sales fall in selected cities. Hmmm.

    http://www.doctorhousingbubble.com/wp-content/uploads/2012/01/distressed-home-sales.png

    Rate this comment: Thumb up 0

  147. 147

    RE: Scotsman @ 46 – That’s true in Seattle too, although I don’t think January’s numbers are the best example of that.

    Vague reference to statistics from NWMLS sources, but not compiled by or guaranteed by the NWMLS.

    Rate this comment: Thumb up 0

  148. 148
    David Losh says:

    RE: Kary L. Krismer @ 143

    There is no negotiation of a short sale. It’s numbers. It’s the number the lender will accept. If it were a negotiation then all list prices of short sales would be $1. The buyer would make an offer, and the lender would negotiate to a price it will accept. That’s not how it works.

    The lender is asking for a BPO, the list price is set according to sales data, and in that is the number. The lender will either accept or not, based on the circumstances of the hardship.

    Rate this comment: Thumb up 0

  149. 149

    RE: David Losh @ 148 – David, I don’t really want to get into this with you again. You’re probably right that with some banks they’re so slow and inefficient that there’s no negotiation because there’s not enough time to get a second response out of them, but that’s not true of all banks. But there typically is negotiation even if it’s not on price items. It can be on what items are approved to be paid out of the net proceeds, or negotiations between two or more banks as to sharing the proceeds. Maybe you would prefer the term short sale coordinator, because that is also part of what they do.

    If it was that easy to do, escrow companies would be finding a way to do the work and charging extra.

    Rate this comment: Thumb up 0

  150. 150
    David Losh says:

    RE: Kary L. Krismer @ 149

    It is that easy, and yes, escrow could do it, but that would be a burden.

    An agent could coordinate the thing for about $500. It’s stupidly simple process, that starts with the hardship. The seller needs to submit a financial package, including the CMA, that we hope corresponds with the BPO. Verification of the hardship helps.

    It’s a stupidly simple process that the Real Estate industry seized on to make it overly cumbersome to justify fees.

    Rate this comment: Thumb up 0

  151. 151

    By David Losh @ 150:

    RE: Kary L. Krismer @ 149

    It is that easy, and yes, escrow could do it, but that would be a burden.

    An agent could coordinate the thing for about $500..

    Not without committing a licensing violation (RCW 19.146.020(1)(e)), but that leads off into a whole different area of short sale abuse.

    http://apps.leg.wa.gov/rcw/default.aspx?cite=19.146.020

    Being an attorney I could possibly negotiate short sales for a fee (the statute is unclear). I have zero interest in doing that, because it’s a lot more work than what you realize.

    Rate this comment: Thumb up 0

  152. 152
    David Losh says:

    RE: Kary L. Krismer @ 151

    As a flat listing fee of $500.

    The seller, the consumer, contacts the loan servicer, and asks for the hardship package. The consumer fills out tha package, and faxes it back. The file is assigned a number. The first, and foremost question is if the hardship is acceptable. If yes, then the property gets listed.

    The seller, the consumer should make best effort to pay on the mortgage. If that is not possible they should consider foreclosure, or deed in lieu of.

    Now this is where the Real Estate Industry has made a mockery of this process. It’s a short sale at Fair Market Value. It’s a part of over all inventory. The problems are when agents think this is some wind fall for low ball offers.

    If the process is played fair, there are fewer problems. It’s just number, and hardship. Making it more complex than that is unfair to every one.

    Rate this comment: Thumb up 0

  153. 153
    Pegasus says:

    RE: David Losh @ 152 – You are forgetting that most sellers need some help in fabricating…oops..drafting their hardship letter so that the bank will accept it.. They also need someone to tell them to stop making their mortgage payments. Once the sellers do that they can afford to pay those short sale negotiators big bucks. /snark

    Rate this comment: Thumb up 0

  154. 154

    By David Losh @ 152:

    RE: Kary L. Krismer @ 151

    As a flat listing fee of $500.

    That would be illegal under the statute I cited, unless you’re proposing that’s the entire cost of the listing for the listing agent, which would make that quite the deal!

    As I indicated in the post you responded to, you’re getting into a whole different area of short sale issues. Some agents are acting as short sale negotiators for a fee, sometimes nominally being a co-listing agent as a ruse.

    Rate this comment: Thumb up 0

  155. 155

    By Pegasus @ 53:

    RE: David Losh @ 152 – You are forgetting that most sellers need some help in fabricating…oops..drafting their hardship letter so that the bank will accept it.. They also need someone to tell them to stop making their mortgage payments. Once the sellers do that they can afford to pay those short sale negotiators big bucks. /snark

    And that someone cannot be a real estate agent acting solely as a real estate agent (e.g. not also an attorney or licensed loan officer).

    Rate this comment: Thumb up 0

  156. 156

    I’ve had this as an open tab for about 2 days now. Just realized it might be better than citing the statute.

    “Real Estate licensees must be providing real estate brokerage services for the transaction in order to negotiate a short sale on behalf of either party to the transaction. Real Estate licensees may not charge any additional fee above the normal and customary commission to provide short sale negotiation services.”

    http://www.dol.wa.gov/business/realestate/docs/shortsales-licensees.pdf

    Rate this comment: Thumb up 0

  157. 157
    Pegasus says:

    RE: Kary L. Krismer @ 155 – Let’s talk reality. You have agents saying and doing all kinds of things in the short selling process that they have no business doing. Other than a high profile case or two where are the enforcement goons? Rules or laws are no good if they are not enforced or are chosen only to be selectively enforced. its pretty easy to watch an agent lower the price on a schedule and agreed amount of say $10,0000 every few weeks or months. That’s really easy to track. If someone called the short sellers I bet almost everyone would say they were being told that a short sale is so much better than a foreclosure. I would also bet that most of them would say that they were told to stop making their mortgage payments by either the agent or the “negotiator”. I would also bet that most would say that they are being told how to claim a hardship especially when there isn’t really one. Reminds me of the good old “liar loan” days. Of course only the loan applicant was responsible even though everyone was telling them to lie including the agent and the banks certainly knew the chance of repayment was close to zero. /snark

    Rate this comment: Thumb up 0

  158. 158
    David Losh says:

    RE: Kary L. Krismer @ 156RE: Kary L. Krismer @ 154

    Yes, a $500 listing fee. What’s the problem?

    The consumer does the short sale paper work. If they lie, if they are coached to lie, then any “release of deficiency” would be void.

    So the agent has an interview. The agent asks what the hardship is, and determines, by experience, if it is a viable hardship. If not, the agent moves on. If it is a valid hardship the client calls the servicer, and asks for a short sale package. The client fills out the package, with the truth, and faxes it back. The agent, with a letter from the client, calls the Loss Mitigation Department to introduce themselves, and vouches for the validity of the package. The agent does a CMA, then lists the property. The servicer does a BPO, and the agent, and loan servicer can compare notes.

    There is no game here. There is nothing, absolutely nothing distressed about a short sale other than Real Estate agent drama.

    It’s business as usual done by professionals, which there are very few of in Real Estate.

    Rate this comment: Thumb up 0

  159. 159

    RE: David Losh @ 158 – You do realize that the seller is going to want to have an estimated payoff. How do you expect the seller to prepare that?

    Rate this comment: Thumb up 0

  160. 160

    RE: Pegasus @ 57 – Lots of those things are problems. I agree. Part of the problem is short sales are relatively new in this volume, and the system is very slow to respond. It took over a year for agents to realize the liability issues on second mortgages (or even first mortgages). That’s the problem with agents acting as attorneys.

    I still think though you’re focus though is too narrow. There are reasons someone may prefer a short sale to a foreclosure (and visa versa). You seem too set on foreclosure being a better option for everyone, as opposed to some. You should become a state legislator and sponsor bills like the one we’re discussing to force your position on everyone! ;-)

    Rate this comment: Thumb up 0

  161. 161
    David Losh says:

    RE: Kary L. Krismer @ 159

    You are missing the point. You are by passing the hardship aspect and going on like a short sale is some choice to be made, it’s not. The seller either has a hardship, or not. A listing agent can prepare a Net Proceeds.

    It’s just not hard. It’s a simple process. It’s slowed by agents who are trying to force a square peg into a round hole.

    I also suspect that the legislation is in response to the Real Estate Industry wishes rather than reality.

    Rate this comment: Thumb up 0

  162. 162
    Pegasus says:

    RE: Kary L. Krismer @ 160 – Never said a foreclosure was the best or only option for everyone but if we eliminate the misconceptions, distortions and outright lies, I think we would see shorts sales become a very, very small percentage of sales which should be their proper place. We have an industry going out of control again and once again the regulators and the industry will do nothing to stop it. That would be bad for business and if it blows up in the future, which it will, the industry will just blame the sellers. “They should have known better.” “They(sellers) should not have lied on their hardship letters.” “They are deadbeats.” “They signed off on the sale.” “They need to take personal responsibility for their own actions and stop blaming others.”

    Every short sale that I have looked into has been done with the sellers getting a whole bunch of bad information and not one of them so far should have ever been done. Why is that? A simple solution is to contact all of the sellers for the truth. How hard would that be? It’s not being done because it would hurt those that are benefiting off the backs of others through deceit and that might damage revenues. We can’t allow that no matter what it costs in the future to straighten it out.

    Rate this comment: Thumb up 0

  163. 163

    By David Losh @ 61:

    RE: Kary L. Krismer @ 159

    You are missing the point. You are by passing the hardship aspect and going on like a short sale is some choice to be made, it’s not. The seller either has a hardship, or not. A listing agent can prepare a Net Proceeds.

    It’s just not hard. It’s a simple process. It’s slowed by agents who are trying to force a square peg into a round hole.

    I also suspect that the legislation is in response to the Real Estate Industry wishes rather than reality.

    That would be like saying that bankruptcy attorneys are getting in the way of people with debt. That they can just file their own bankruptcies without consequence.

    As to the last sentence, the reason for the legislation is what Pegasus is complaining about. Agents giving misleading and bad information about short sales. Also somewhat about what you’re complaining about, agents taking advantage of the situation.

    Rate this comment: Thumb up 0

  164. 164

    By Pegasus @ 62:

    RE: Kary L. Krismer @ 160 – Never said a foreclosure was the best or only option for everyone but if we eliminate the misconceptions, distortions and outright lies, I think we would see shorts sales become a very, very small percentage of sales which should be their proper place. .

    They are a small percentage of sales. Typically about 7-15%, depending primarily on the volume of other sales. (Percentages from NWMLS sources, but not compiled by or guaranteed by the NWMLS.)

    I agree fewer people should be trying short sales. Part of the blame for that has to be placed directly on the banks not communicating what they’re willing to do. But yes, part of it is due to sellers getting bad advice from agents and others.

    There are too many bankruptcies too, in part due to people getting bad advice from attorneys who file bankruptcies. There are too many medical procedures performed, in part due to patients getting bad advice from doctors. There are lots of examples of that type of thing.

    Rate this comment: Thumb up 0

  165. 165

    Hi Everyone,
    I heard that this law passed late last night.

    Rate this comment: Thumb up 0

  166. 166

    By Jill Schlicke @ 65:

    Hi Everyone,
    I heard that this law passed late last night.

    I don’t know what you mean by that. The bill Tim wrote about didn’t go anywhere. The competing bill I mentioned (2614) passed earlier this month. Perhaps the Governor signed it last night?

    The bill has changed significantly. It’s now just a three year statute of limitations to sue after a short sale. There are also a number of changes to the mediation law which I haven’t had time to review.

    Rate this comment: Thumb up 0

  167. 167

    RE: Jill Schlicke @ 65 – 2614 was signed on the 29th, so that’s apparently what you heard about.

    http://www.governor.wa.gov/billaction/2012/default.asp

    Rate this comment: Thumb up 0

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Please read the rules before posting a comment.