Your Exceptional Life

If you’ve been coming here for any length of time you’ve heard two things.

1. Business is cyclical
2. If you don’t like the real estate market just wait ten minutes

Well, another ten minutes have passed and we have a new market. In my last post I mentioned how the inventory has been drying up. The inventory disappeared just about the same time everyone figured out that it was a great time to buy a house. All those screaming deals that were being bandied about at cocktail parties were a thing of the past. The market was different again. For the last month, nearly every property on the market has received multiple offers. Not just a little multiple, but multiple as in 30 offers. That’s how tight the inventory had become. I went from handling nearly forty properties to managing 22. What that told me was that market was off by half. At the same time, droves of people who had been standing on the sidelines, tried to get into the game. April was a food fight.

In response to Obama’s election, the lenders went ahead and had a self imposed moratorium on foreclosure starts. At the time I thought this was wise. It was the right thing to do. By doing it they kept the government out of that aspect of their business. To me, that’s the way it should be. We do the right thing and keep our autonomy. So for over ninety days there were a lot less new bank owned properties soiling the market. And the market stabilized. The point of the moratorium was to give banks and borrowers time for workouts. Lots of short sales occurred and lots of loan modifications were completed.

Then ten minutes passed. We’ve been hearing that California had 92,000 homes that were already foreclosed upon that were going to hit the market. We’ve also been hearing they were high end. Judging from my last two weeks, I’d say that’s true. I’m no longer seeing roach infested rat traps. I’m seeing the creme de la creme. And it’s going to be a wild ten minutes.

But that’s not the point of today’s missive. While all this was going on, one bank figured it out. One bank went out and set up an entire division in Northern California to help out borrowers. Two years ago, it would be the last guys I expected, except the new ownership is out doing the right thing. I’ve always hated the Pick-a-payment loan from World Savings. I got talked into one for 20 minutes once. I paid a hefty pre-payment penalty to get out of it. Most weren’t that lucky. It was such a bad package that 60 Minutes did a piece on that very loan. Wachovia, who actually paid money to buy World Savings has been sued over the Pick-a-payment loan. There were millions of them. Wachovia has figured out that they needed to do something. And what they did was smart, innovative and correct.

short sale (of house)

A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. See also deed in lieu (of foreclosure).

(from NOLO.com)

Wachovia figured out that when a property is foreclosed and the bank takes it back, the costs associated with owning and maintaining that property are high. They figured out that the folks who are stuck in these homes need help. And they came up with an innovative way to provide it. Essentially, this is the process. When you contact Wachovia, the first thing they try to do is modify the loan. If the borrower has had a life event such as job loss or catastrophic illness, a loan modification isn’t going to be possible. If it isn’t a workable situation, then they try to save the situation with a short sale. They have an entire division devoted to Loss Mitigation. This division is locally situated and locally managed. I’ve met them, they’re nice people. They will come to your house with your Realtor and meet with you in person and it’s not scary. It’s nice. No drone in another State or country to deal with. Real people. Right here. In your living room. Real solutions. In your living room. Then they stop the foreclosure process and work with your Realtor to assure that your house is sold on a short sale.

Benefits of a short sale over walking away

To me the most important aspect of a short sale to a borrower is that they walk away with their credit somewhat intact and some honor. No sheriff pounding on the door. No coming home to the locks changed. No harassing phone calls. It’s a business transaction and the bank is involved. In the case of Wachovia, the right hand really does know what the left hand is doing. In most cases they can work it out in less than a week and close the short sale in the normal closing parameters. The real drawback is that the lender forgives a portion of the debt and issues you a 1099 for that amount. Currently it is taxed as income but there are rumblings that the Feds may be handling that differently for 2009. There’s no leaving in the middle of the night and no dodging knocks at the front door. The borrower gets their life back. Win/win.

Sometimes the only solution is for the borrower to walk away. Unfortunately, that wrecks credit, so the borrower gets whacked twice. There’s also the possibility of getting a 1099 for the forgiven portion of the debt, although currently it doesn’t seem to be occurring. That could mean a third whacking on a foreclosure. The harassing phone calls don’t stop until the bank actually takes possession of the house. Leaving and not telling the bank doesn’t stop the phone calls. They’re going to offer cash for keys through their real estate agent. Take it, leave with your head held high and start your new life.

Wow! Yeah, wow. If you’re reading this and you’ve found yourself in this position with this loan, please give me a shout. If I can help you, I will, if I can’t, I’ll refer you to someone who can. Isn’t it time you got your exceptional life back?