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JimtheRealtor has <a >touched on this before</a>. Either in that post or another on the topic, a lawyer was defending the “investor’s” (intermediate buyer/seller) position. These transactions are not making the housing market healthier. If they are legal they are potentially causing problems for future homeowners.
There was massive mortgage fraud in my home county in SE Fla. It was mentioned in a nytimes article on it. It was fairly common. I would imagine that these types of scams are happening there too. If I were an aspiring DA (or a lawyer for a big bank looking to move up), I would just look at either same day or same week sales. We’ll see where the story is in a year - forgotten or pursued.
This is a messy issue largely because a BPO or appraisal is a person’s opinion. Also, common talk amongst agents is that you need to get a 10% - 15% discount off of standard sales to find buyers willing to get involved with the headaches, delays and often deferred maintenance issues of a short sale.
This usually works out with the bank getting a better recovery then foreclosure often nets, and the buyer sticking out the short sale process (even with a 10% - 15% discount, buyers often walk away in frustration).
Problem is, the above situation sets a framework for agents to start gaming the system and pushing for 20%+ discounts. Now you are getting into territory where a foreclosure would be appropriate (better recovery in a hopefully honest auction on the courthouse steps).
And sometimes things swing the other way: offers I have in on short sales have resulted counters from the bank at 5% - 15% above model match standard sales. Now the buyer is pissed and the all the work and money spent by multiple parties gets flushed. Good times for short sales abound!
I figure I will get flamed for being an evil agent, but I thought I would throw up some of what I have been experiencing with short sales.
The problem JtR highlighted was when there was a buyer willing to pay above what the ‘investor’ was paying the bank. Sort of a pocket listing. This buyer has to wait just as long to close, as the investor is dealing with the bank on the short-sale. There is no reason the final buyer should not be dealing directly with the bank, especially in the two-closings-in-one-day deals. The investor is not providing liquidity in the way that cash buyers at foreclosure do.
The idea that the headaches are worth the discount doesn’t hold, because the final buyer is still waiting the full time.
My opinion changed this morning when I realized who the injured party is: Bank of America/Wells Fargo/JP Morgan type banks. They have trillions in assets. They can handle themselves. If they can’t police the realtors that are handling their short-sales, they don’t really deserve any help.
“My opinion changed this morning when I realized who the injured party is: Bank of America/Wells Fargo/JP Morgan type banks.”
You forgot the taxpayer’s bailouts and savers that now get to live with the Feds ZIRP (I am one and pissed about it).
Also remember the same fools that made these bad loans and got billions of taxpayer bailouts are still running the banks that are making these short sale decisions. From what I can see, they are marginally more effective in cleaning up the mess then when they were creating it.
The only durable solution I can see is requiring a 20% down payment. This way bubbles should not blow to the point we have messes of this size to clean up. Once you have a mess like this, there will be the unscrupulous waiting to take advantage.
Holding money in savings accounts does not deserve a positive return. Had you been invested in bonds, you’d be up around 20% on aggregate over the past 3 years. ZIRP is what you do in the situation we’re in now. The fact that your investment philosophy might be buoyed by a different gov’t action is irrelevant. The current goal of the fed is to get unemployment down.
I’m not thrilled with how the bailouts went, but given the turmoil post-Lehman, imagine if Citi (imo the weakest of the tbtf’s) went down. We may get a Lehman moment again if (when?) Greece finally truly defaults.
“The current goal of the fed is to get unemployment down.”
That is the stated goal, sounds good to the American people.
I am getting the feeling they are just as interested in burning off the huge household and gov debt with moderate inflation and keeping the current banks solvent so they don’t need to mess with the politically connected.
As for my frustration with ZIRP, I have my money in multiple assets classes. I will be OK. They people I really feel sorry for are the elderly with fixed income that is rolling over.
Walter, it is wrong for the taxpayers to be bailing out the banks, but that does not mean that banks should be protected from their own stupidity and bad business decisions.
awgee, I completely agree. My comment was aimed at the Feds objective for printing money and keeping the ZIRP in place.
While I do not agree with the endless bailouts we have seen going all the way back to LTCM, it seems to be the `new normal` that I consider when making investment decisions.
“it seems to be the `new normal` that I consider when making investment decisions.”
Well said. I find it important to separate what is best for the country from what is best for my net worth.
Broken urls for above
http://www.bubbleinfo.com/2011/06/06/more-on-short-sale-fraud/
http://www.bubbleinfo.com/2010/12/02/short-sale-fraud/
thx 4 the info on how this scam works , works . it’s “buedeefil” . now i gotta’ go , i gotta’ have a realtor do a BPO for me on a foreclosure , foreclosure
Question. I am reading more and more anecdotes about MLS and other sale information being different than the true and actual sale price of the home. For example, buyer/seller says home transacted for $175k. But MLS reflects a $225k price. Other people report seeing similarly manipulated numbers when their realtor pulls “comps.”
What to do? When looking at “comps” pulled by a broker or realtor, how does one get behind the numbers to confirm the MLS or the comp sheet is correct? Do you have to pull the actual docs from the town’s recording office?
Anyway, if anyone doubts what I am saying, just do some online research, you’ll find quite a few references to the MLS and other databases being manipulated via bogus sale prices to skew the comps. And don’t get me started on all the other schemes, such as “side letters” and “holdbacks” where brokers/realtors try to hide commission income from lenders, further skewing prices. Buying a home in this market is worse than used car sales.
Just below: “I discovered this neighborhood while looking at another auction property nearby”
are two images that do not appear on Google Chrome.
Try it again. I reinserted the images into the post. That usually fixes it.
However, both the Vegas overhead pic and the comps do appear in the article cited just above.
“Don’t miss this gorgeous home, the only one in the tract, Inside loop, steps to Lakes”
Sorry, I just had to post this description of a recently listed home. The only gorgeous home in the track? LOL! The others are butt ugly.
I should have hyphenated butt and ugly. I guess a life of selling houses is in my future.
A friend of mine just bought a house on a street with two listings. I feel like asking her, “Did you buy the “sophisticated” house, or are you the “Lucky Buyer”?
I remember when the new appraisal rules went into effect on May 1, 2009 there were a lot of really pissed off realtors and mortgage brokers because the skids were no longer greased to their liking:
http://www.usatoday.com/money/economy/housing/2009-07-14-home-appraisals_N.htm
The rules, dubbed the Home Valuation Code of Conduct, are meant to eliminate conflicts of interest that created pressure on real estate appraisers to inflate the value of a property. Lenders, agents and brokers have been known to pressure appraisers to “hit the number” that the homebuyer and seller agreed on so the deal would close and everyone could collect their fees. Inflated appraisals were partly blamed for fueling the housing bubble.
The article had a neat example of a home gone sour due to appraisal in Henderson, NV two years ago.
Mark,
As usual, they threw the baby out with the bathwater. No additional regulation was ever needed than to just enforce that the originators would have to buy back the paper (toilet) that they sold to Fannie & Freddie. Then the banks would have actually wanted correct valuations and not just what “made the deal go”. The mortgage scumbags playing ball only with their favorite “hit the number” appraiser would be found out in a simple review. Problem is that no one and I mean no one, wanted the truth. Not the used house salesmen, not the loan broker, not the wanting homedebtor, not the politician / regulator watching tax collections rise. It was and continues to be a joke.
Irvine Renter,
This recent sale in Irvine smells like fraud to me. http://www.redfin.com/CA/Irvine/10-Figaro-92606/home/4629484 , I don’t see how this house can go for 750k when these typically sell for closer to 900k. What’s the deal here?
It could be fraud, but it could also be a sign of lenders capitulating. I will profile that house for next week.
I see this frequently in Las Vegas. Sometimes lenders simply tire of holding property and let a property go under market to get rid of it. I haven’t seen any let go for 20% under comps in Irvine which does raise suspicion on this one.
Someone could contact the listing agent and ask why this was sold so far below neighborhood comps.
“Listing Provided Courtesy of: Paul Homayoun, Iconic Capital Group, Inc.
Buyer’s agent: Mohamed Hassan, Mohamed Hassan Hassan”
Prolly a bankster looked at the 750k price and in a bout of common sense said, “Whoa! How can a used tract home in the middle of nowhere (Irvine) be worth 750k when $150k would be plenty? Let’s unload this termite-infested crapshack on the market for what we can get.”
This is a good thing. Banks have to deal with lower prices, people with good credit taking over bad loans and reduce their debt/income ratio. Less debt, more cash for everything else.
I don’t think we should be worried about a realtor getting an extra $5K. How about the banks that received billions in bail outs and who don’t use mark to market accounting. They also put huge short positions on CDOs they sell to their own clients. Don’t piss on the little guy.
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Lie about how much money you make on a loan app, get $100,000s of free money.
Lie about how little you make on a short sale app, get $12,000:
http://www.housingwire.com/2011/06/16/citimortgage-paying-borrowers-12000-after-a-short-sale
Let the good times roll!
Why in the world was the government allowed to give out bailouts in the first place? Did it really help, or just put a band-aid on the situation?
In regards to the Vegas property, the whole neighborhood is upside down 50%.
loose another 40%, (less than 20% of original purchase price), easily. I doubt anybody in that Vegas neighborhood is still paying on their original loans.
Rents won’t form a bottom in Vegas. There’s more rentals than people with jobs.
Vegas is screwed. Phoenix has similar problems. How long will rents last when rental vacancy is running 25%.
What happen to the days when the banker just drove out to the property and confirmed the realtors’ valuation? Then the paperwork for the appraiser was started.
Too much work for the new bankers to use the internet with steet view of the property. What are they pay you for? Pay to make bad loans, pay to retain you, pay you to sell below market .....
Also the banks have a list of approved appraiser to use. Smells rotten on all sides.
Another blog post, by Bill@Calculated Risk, discusses your state NAR estimate of May home sales.
Lawler: CAR vs. “Reality,” and the NAR Benchmarking
http://www.calculatedriskblog.com/2011/06/lawler-car-vs-reality-and-nar.html
They KNOW, and admit, the data is suspect, but they keep issuing it.
Another great article, IR. Keep ‘em coming.
Of top 0.1% or earners, 4.7% of them are real estate professions
http://www.washingtonpost.com/business/economy/with-executive-pay-rich-pull-away-from-rest-of-america/2011/06/13/AGKG9jaH_story_2.html
I have to take the opposite position on this one.
The banks are responsible for their decisions and doing their own due diligence. If the bank approves a short sale for less than what they could get, the bank has no one to blame but itself. If the bank is stupid enough to treat a realtor’s opinion as credible or accurate, the bank deserves as bad as it gets.
Arbitrage is an ethical and legal method to make money.
Screw the banks. Let them rot in their own stupidity.
I don’t think quoting a story by LPS Analytics is wise. The company is being sued by shareholders for securities fraud, is being investigated by several state AG’s for foreclosure fraud, and has even been slapped by the Federal Reserve. Their claims about a 62 year backlog serves only one purpose - to justify their foreclosure fraud practices. That is, “See, this is what will happen if you do not allow us to break the law.” Shame on you for perpetuating this lie!