The newest “buzzword” in real estate these days is Short Sale.
A short sale occurs when a lender agrees to accept less than the full loan balance from a borrower, in exchange for the sale of a home that is behind on payments and heading for foreclosure.
Why Do Lenders Accept Short Sales?
The reason that a lender accepts a short sale is because they feel that the amount of money will be more and the hassle will be less to them than if they go through a full blown foreclosure.
No, they are not letting you off the hook nor looking out for your best interest. They are making a business decision.
Is A Short Sale A Winning Solution?
For most of the parties involved, a short sale is not a winning situation, but rather, the lessor of two evils.
Because the lender gets less money than promised and the homeowner gets a blemish on their credit history, this process typically works when both parties agree that there is no other way out of this unfortunate situation.
One group that does profit, though, are what I call “short sale sharks”.
This less than noble group make it their job to pressure, frighten, intimidate, and even harass delinquent borrowers into selling their properties for less than they are truley worth, and then reselling them for a big profit.
This part of the real estate business has always been around, but is exploding now with the massive increase of homeowners that are under the strain of mortgage payments that they cannot afford.
The loss of one’s house, via foreclosure or a short sale, is a painful one, but there are smart choices that can be made in these difficult times. One must be cautious with the company that you keep when negotiating a short sale.
A Better Solution For Homeowners In Default
At Virtuosity Unlimited, LLC, we strive to help those that are under duress by giving them sound advice, realistic options, and a path for those to follow that will help to alleviate these pressing problems.
We have a program that will save you the agony of moving out of your house when it is purchased by an investor. You remain as a rentor for a short term and then purchase it back at favorable terms.
To learn more, contact us today at 866-4EXIT-PRO or email us anytime.
A lot of folks didn’t want to talk to me about my thoughts on the coming real estate market. My forecast of this massive mortgage meltdown fell on deaf ears. I tried to warn anyone that would listen to me. Most didn’t.
As a mortgage banking veteran of over 23 years, it was not at all hard to see the problems on the horizon as loans to unqualified borrowers with undocumented assets or income and no money down loans were made.
Neighbors, family, friends, and even professionals in the business laughed and scoffed at my claims.
These same people are NOT laughing anymore!!! As a matter of fact, they are now asking me what will happen and what to do over the next 5 years.
For the record, I will tell you that it’s not close to being over, and here’s what I see.
Housing Crisis Nearing An End?
Though many politicians and Wall Streeters will tell you that the housing and mortgage crisis is nearing an end, one must note that they have been telling us this for some time and have been wrong.
Besides having a “conflict of interest”, they are wrong on one main point.
- The issue is not one of liquidity, but rather, one of solvency.
Pumping money into the system will help alleviate some of the symptoms, but will not solve the problem.
Unfortunately, only time and pain will clean up this mess.
The Economy Over The Next 3 To 5 Years…
Over the next 3 - 5 years, a series of what I call “tsunamis” will hit the global economy and cause far reaching “shockwaves” that will give us the worst economic times in 75 years. (The biggest one is yet to hit.)
- The first wave was the “Subprime” and “Alt A” loans of which all of us are aware of now.
- The next wave, forming as we go to press, involves defaults in credit card and auto loan securities.
This will cause many losses to lenders as the recovery rates on these loans are much lower than on mortgages.
As the US economy slows, followed by the global economy, the loss of jobs and the cut back in consumer spending will weigh heavily on “prime” residential loans putting further upward pressure on the number of foreclosures.
As the number of foreclosures continue to rise and home values fall further than most have anticipated, “home equity” loans will go bad as housing values will not be worth as much as the principle. (The New York Times estimates the outstanding amount of these second mortgages to be $1.1 TRILLION. )
Defaults in commercial loans will rise dramatically as consumers curtail their spending habits.
The timeline for this third wave is sometime in 2009. (In my opinion, this third wave will be the biggest and will cause the most damage.)
Beginning around 2010 and continuing until 2012+, the final waves will hit as the “Option ARMS” reset to much higher payments (and loan balances) to homeowners whose home values have been falling during this entire time period.
The glut of inventory on the housing market will keep the pressure on home prices for years to come.
The drag from the housing debacle will cause a lot of pain at the state and local government levels as jobs are lost (lower income and sales taxes are collected), revenues from the transfer fees of real estate sold, and other sources of money dry up.
Currently, the city of Vallejo, CA is filing for bankruptcy and will become the “posterchild” for all the defaults that will hit the “muni bond” market, and in my opinion, cause layoffs in the public sector for the first time that anyone can remember. The recession that is coming will be far worse than anyone can imagine or that anyone who knows will admit.
Prepare for the inevitable damage that’s coming.
This is not a good time to be taking risk and listening to people from Wall street that do not have your best interests in mind. They are already going back to their investors to offer them “new” ways to make money, having already lost them a fortune.
At Virtuosity Unlimited, LLC, we strive to give you unconflicted advise, offer wise counsel, and steer you away from the “get rich quick” schemes that have cost many their life savings. We focus on helping investors acquire bulk REO properties, pre-foreclosures, and foreclosure properties in today’s market.
In addition, we are experts in helping homeowners in default navigate the foreclosure process and get out of their situation in a manner that helps them obtain their best possible outcome.
We’re not investors. We work with ethical investors to help match them up to deeply discounted properties around the U.S.
“Distressed property” is by definition a piece of real estate that is under duress or is in some way becomes a nonperforming asset.
There is a timeline and reference point that is indicative to how much stress a piece of property has.
This article addresses this concept of when payments are missed and property owners head down the path towards foreclosure.
Real estate becomes distressed as soon as a payment is missed.
Lenders begin to track this and start watching it more closely. The reason is because when most borrowers miss a payment, they have a very hard time catching up and getting current.
If a customer misses their first payment, it is even more troubling for the lender as most loans do not go delinquent right away, and thus, are cause for more concern. Lenders will try to contact the borrower either by letter or phone.
After the second payment is missed or the loan becomes 60 days past due, then the lender starts reviewing their legal rights. This is when a “notice of default“ usually gets filed indicating that the lender is starting the formal process of foreclosure.
Now, is when the distressed property comes under much more pressure as the lender is beginning to incur costs and the homeowner often stops communicating. Research indicates that most homeowners that go into foreclosure never contact their lender.
The process gets tougher from here as the borrower and lender become adversarial.
From this point, the status of the distressed property may take upwards of 6 months to a year to be resolved either by the lender taking the property back in foreclosure, the borrower selling the house, or a negotiated transfer of the property by all parties.
The usual outcome of this action is that the original owner loses possession of the property and must move.
This can appear to be a great opportunity for investors, but the reality is much different.
The lenders are reluctant to sell the house below market, while the investors want to get the lowest price possible. While there are “great deals” in today’s current environment, location is a major factor.
One may pay 30 to 40 cents on the dollar for a home in Detroit, Cleveland, or Miami, but one must be realistic and have an exit strategy in place. Otherwise, a distressed property can become an “albatross around your neck”. Resolutions and a plan are the key.
At Virtuosity Unlimited, LLC, we provide homeowners and investors with viable solutions to make that distressed property a worthwhile investment once again.
If you are an investor or a property owner in default, we encourage you to contact us so that we may share with you some of our unique programs that keep the owner in the house (which is what banks want) and provides a good return to the investor.
Until next week,
Tully
Next week’s topic: Homeowner’s Options When In Default
As all seasons and conditions occasionally call for change and rotations, so is true of the stock, bond and real estate markets.
Since markets move in cycles, the prudent investor is always searching for the next sector to go into for a profit. Now is a wise time for the savvy to make a move. With the stock market overvalued and poised for a substantial correction, with the bond market yielding in the mid-threes, with real estate values tanking nationwide, and with some predicting that a recession is in the works, opportunity lies elsewhere.
That elsewhere can be found in purchasing REO properties.
As the unwinding of the real estate bubble continues, many great deals can be found in sifting through the REO properties available from lenders. At Virtuosity Unlimited, LLC, we can provide a wide variety of options and solutions to meet these needs. Now is the time to start, continue, or finish the sales in your stock portfolio, and rotate out into purchasing REOs.
Depending on your time horizon, we can help facilitate this transaction for the short-term or long-term investor. As a normal course of business and to diversify your holdings, purchasing REOs now is a great investment choice. For longer time frames, it may even be an appropriate option for IRAs.
The Banking industry, specifically the mortgage lenders, are on the verge of a massive wave of foreclosures dwarfing anything like it in the past 75 years.
But, banks seem to be blind to the fact that they cannot deal with this as they have in the past.
The numbers are so big that most lenders probably hope that the problem will somehow magically go away.
Unfortunately, that only happens in fairytales. The banks that will emerge as the winners from this fiasco will have to take an innovative, aggressive, and proactive approach.
Lenders that want to stay “ahead of the curve“ must look beyond the traditional ways of servicing delinquent loans. Those that want to attempt to keep politicians and regulators at bay will need to develop an image that is both positive and caring for their industry and community.
The momentum of psychology, perception, and social acceptance are working against mortgage servicers.
We’ve all seen or heard of them,…..the “infomercial” that tells how to get rich in real estate. Now, the new twist is how to become a “short sale expert” and get rich in real estate.
Another opportunist touts a “service” whereby for a fee, borrowers will be taught and coached on how to stiff their lenders, by staying in the house as long as possible without making any payments,……. then simply walking away.
The banks are going to be targeted and taken advantage of by all sorts of unscrupulous groups if they don’t act NOW to protect themselves.
The statistics for this phenomenon are overwhelming.
With over $130 billion in losses having already been taken, some experts like Jim Grant of The Interest Rate Observer predict they will dwarf the savings and Loan crisis of the 1990’s.
Bill Gross, the bond guru of PIMCO, thinks that the total losses will be even higher and closer to a half a trillion dollars or more.
I’ve read that others are saying the number could reach $1 Trillion dollars possibly. I believe that we are currently only in the first quarter of this ball game.
With foreclosures reaching record levels and climbing, lenders need to act now to head off more trouble later.
The sooner that a bank acts, the sooner they will save money, and the more money they will save overall. Lower interest rates will not save these homeowners from foreclosure, as liquidity abounds; it is a matter of trust that the banks must rebuild.
Bad loans will not suddenly perform because of lower interest rates. Lenders need to create “goodwill” so as to deflect the notions of being predatory and adversarial.
The ball is in your court, bankers; you can either rise to the occassion or sit back and continue to do business as usual and see what happens.
We, as a people, have become desensitized by the lack of trust that is demonstrated in many segments of our society.
The government questions the longevity of social security, a trusted legacy for many generations; many pension funds have disappeared, leaving millions without suitable retirement; and now, many banks are having to take away the consumer’s last privilege, the ownership of their own home.
Although well intended, these great institutions have left the American public pessimistic at best.
Maybe in part, it is due to the lack of forthrightness.
I think we overlook the determination of the American people when we avoid the inevitable. It is a critical time for Corporate America.
It is a time when they must look themselves squarely in the face and acknowledge openly that there is a problem. No matter how tempting it is to disguise the truth about their ledger sheet, this is not the time to make projections that are rosier than reality. The final truth is more devastating then the glossy report that suggests “everything is a bed of roses”… thorny at best.
According to CNN, Standard & Poor’s is increasing its loss assumptions for sub-prime mortgages originated in 2006 to 19%, up 5% from an earlier loss assumption; cumulative losses from 2006 on sub-prime bonds have more than doubled since July, 2007.
It is estimated that the world’s largest banks have collectively reported more than $100 billion of losses on sub-prime mortgages since last May.
==> US Bank recently reported a 4th quarter loss of $9.8 billion for 2007.
==> Considered the world’s largest brokerage, Merrill Lynch, has reported a sub-prime loss of nearly $23 billion.
==> Citigroup announced a $10 billion 4th quarter loss, it’s largest in 197 years.
==> Bank of America has agreed to pay $4 billion for Countrywide whose net worth on Sept. 30 was three times that and whose market value a year ago was six times that.
==> There is speculation that Washington Mutual, after reporting their first quarterly loss since 1997, is considering merging with JPMorgan Chase.
==> In December, WaMu discontinued sub-prime loans all together, closed nearly half of their 336 loan centers, and laid off 2,600 people, representing 22% of their mortgage staff.
==> Merrill Lynch tapped into $6.6 billion in capital injection from Japanese and Kuwaiti investors followed by Citigroup’s $14.5 billion cash infusion from investors from Kuwait and Singapore.
More will follow; Citibank, Lehman Brothers and Bear Sterns are among top American firms that may be the next to turn to Japanese banks, as well as other Asian investors and sovereign wealth funds.
Okay, already. We know we have a problem and a very big one at that.
So let’s pony up to the table. It is essential that a leader in the industry needs to set the stage with honest disclosure and implement an aggressive planto offset these losses with a campaign to keep as many distressed property owners in their homes as possible.
It is the best plan.
The cost of foreclosing or accepting buyouts from “short sale sharks” will cost them significantly more in the long run.
Why pass the earnings onto investors that walk away from the escrow table with cash in their hands, leave property owners in moving trucks, and banks reporting losses?
Doesn’t it make complete sense to share the loss and the gain between the property owner and the bank?
We advocate just a plan.
Proactive measures need to be taken to modify the loans so they are affordable to the property owner now and offer further adjustments to the banks in the future when the market recovers.
Banks have more at risk than bad loans. The prediction is the number of lawsuits arising from this epidemic of foreclosures will be worse than the fallout from the Enron scandal or the dot-com collapse.
In the past, banks were often quick to settle major claims in order to avoid costly court battles which could accelerate the number of sub-prime-related law suits. In a rising market, it made sense to settle and put the problem behind you. However, during a down-turning market, banks will be forced to aggressively defend themselves first with the loans they modify, the short sales they accept, and finally, the claims they respond to in court.
They can’t afford to settle too quickly, or can they?
As President of Virtuosity Unlimited, LLC, a company committed to serving the needs of our banks and their loyal customers, I anxiously await the leadership of the banking industry to step forward and develop a plan that makes it their goal to share in the hardship with the property owners by implementing preemptive measures to educate their customers to their options and restore trust and faith in the banking system.
With the tsunami of foreclosures closing in on lending institutions, there is a growing need for workout specialists. The need is so apparent that in some parts of the country, workout specialists have coined their own title as elite members of “The Mod Squad”.
These individuals have a singular purpose:
Their objective is to minimize bank losses.
However, the cost for this process of minimizing the bank’s losses is not inexpensive.
There is an exhaustive process of recruiting and training employees that must be able to analyze financial statements, tax returns, appraisals, audit reports, and other legal documents that may not be familiar to the average person.
Experience with credit counseling is also a plus because they will be asked to make modifications to the existing payments and establish a new payment plan. In addition, they must have excellent communication skills.
Workout Specialists must first be able to adequately counsel borrowers in hardship situations, appealing to both their emotional and financial distress, and negotiate a mutual agreement, if possible. Their working knowledge of real estate and contract law is essential since they will be coordinating the settlement with attorneys, title companies, realtors, and more.
This is a tall order when the wave of foreclosures is on the horizon
Those Banks that fall victim to the old way of doing things will find themselves scrambling and, most likely, carried away in the chaos that is forthcoming.
In light of the pending onslaught of foreclosures, Banks will need to look at new ways of settling their pending losses from a more proactive approach. Literally, in a tsunami, experts say “take the high road”. Go to an elevation that provides safer ground.
Why not do the same?
With the numbers of people that will be effected by this catastrophic event, Banks need to make disaster plans that include advanced warnings and preparatory measures.
We believe it is essential to keep the property owners engaged so that they are not paralyzed by the wave of hopelessness.
We believe that education is key.
We believe that local and regional workshops are essential for a safer, more responsible way of treating those lost and confused.
We believe it is essential to let these victims know they are not alone, they should not feel ashamed, that their lives are important and that we, as a community, are going to do everything possible to help them escape the tidal wave that will inevitably effect each and everyone of us, as a community, as a country, as a world.
It is not enough to simply send in an emergency crew to clean up the mess, to salvage what is left, to restore the lives of the hopeless that were caught unexpectedly in the wave of foreclosures. We need to face the reality, communicate the need for readiness, and prepare ourselves with grossly needed channels for communicating viable exit routes… at all times, suggesting that we all take the high road.
So, banks…
The choice is yours. Stick with your old and outdated ways of dealing with foreclosures…
OR
Join Virtuosity Unlimited, LLC to implement a truly innovative, efficient, and effective plan that comprehensively helps you deal with the foreclosure tidal wave… but at the same time positions your company as a compassionate company who truly cares about your clients.
Even better, this solution will actually help you decrease foreclosure related expenses as well!
See about our innovative workout specialist and integrated PR service today:
With Real Estate Values Dropping, A Readjustment of our Values.
Reluctantly…
I attribute our current downturn in real estate values and the surge of foreclosures to short-sightedness and a pinch of “greediness”.
Overly zealous developers, catching the wave, continued to develop without consideration to future demand.
Municipalities approved subdivisions after subdivisions because it was good for the tax base, but did so without consideration to the overburdened roads, schools, and public services.
Aggressive mortgage brokers put first time home buyers into adjustable rate mortgages, often with too high a loan to value.
The mortgage broker was joined by the real estate agent advocating the escalating home values and the opportunity to “own a piece of the rock”, without thought or consideration to their ability to pay in the future.
Realtors and homeowners priced their properties for sale above the true market value because they could get their asking price.
We are not seeing a readjustment of property values, we are experiencing a readjustment of our values - based on greed and the notion of making a quick buck.
Brace yourself.
We are in for a ride of readjusting our greed factor. Lenders, having seen their errors, are now raising the bar for qualifying.
As a result, we will have fewer financing options, fewer people being able to buy the homes in foreclosure from those that effortlessly slipped over the bar in the past.
The foreclosure rate is at a historic high and it is only going to get worse in the coming years.
Developers are offering cars, closing costs, and vacations to induce buyers to bail them out of their inventory that isn’t selling.
Public officials are battling budgets in an effort to overcome their shortsightedness and passing the burden onto their already overtaxed constituents.
Sound ugly?
It is… but I hate to say it… we deserve it.
I’m not pointing my figure at one group of people; we all decided to join the game. There were a number of economists, real estate organizations, and governmental officials that saw the wave, the tsunami, coming but were unable (or unwilling) to slow down the “feeding frenzy”.
In their defense, lets be honest, the escalation of the real estate market was the solution to a lagging economy and we turned our head because it was a great temporary fix. The good news (and the bad news) as with most ills, they finally correct themselves.
This is not an issue that can be resolved at the micro level.
As Federal Reserve Chairman, Ben Bernanke reported, “a comprehensive plan needs to be put into place…. this cannot be addressed on a ‘onesey-twosey’ approach.”
Collectively, all parties (that stimulated the problem) need to work together. It is more than offering creative exit strategies or reasonable modification plans.
It is more than offering “great deals” on distressed properties.
It is more than passing legislation that offers rebates to the consumer.
This problem mandates the cooperation of realtors, lenders, government agencies, and the property owners themselves to create a comprehensive plan. Otherwise, the“short sale sharks” will multiply and feed from the bloody waters for their benefit and not the benefit of the whole.
The lenders need to create a comprehensive plan to address problem loans before they reach the foreclosure stage by retaining experienced workout specialists. In addition, lenders need to do a bit of damage control and turn this foreclosure crisis into a positive by casting a positive PR image on the way they are handling the situation.
Collectively we need to focus on strengthening lagging communities by building stronger, more resilient economies, create jobs in areas with low vacancy rates, and offer alternatives to property owners hit hardest by unstable lending practices.
Our goal should not be to take our hits and resale a home at a loss but to lesson the blow by doing whatever it takes to keep the property owner in their home. In either case, compromises will need to be made, sacrifices taken, but in the end, what is the right thing to do?
Unfortunately, the fact is that a lot of people are going to get hurt… and hurt bad. My sympathy goes to those on fixed incomes, especially the elderly, and the hopeful first time buyers that just wanted a chance at owning their own home; they will pay the price dearly. This is the segment of our population that will feel the pain the most from our greed.
I’m sure you’ve read the recent news about Bank of America purchasing Countrywide (America’s largest home lender) for about $4 billion earlier this month.
This is a huge deal in the mortgage world… but what will this mean to borrowers who are having a tough time making their Countrywide mortgage payments?
What you will likely see is a huge effort by Bank of America and Countrywide to help their borrowers keep their loans by using workout specialists.
We see this as a huge opportunity for Bank of America and Countrywide to garner the services of expert foreclosure workout specialists who have the banks interests in mind… and help the bank turn this recent rash of foreclosures into a public relations campaign to once again put the banks in a good light in the media.
There is no way around this foreclosure crisis…
Banks such as Bank of America and Countrywide will need to find solutions to help their good borrowers keep their loans from going to foreclosure… and at the same time use this opportunity to create a positive image for the bank.
How can they do this?
A couple ways…
They can hire and train their own workout specialists now… then lay them off in 2-3 years when the foreclosure crisis calms down. This option will mean huge expenses for the bank, possibly less efficiency in the process, and a situation where the bank will have to lay off these temporary workers once the crisis subsides.
They can retain expert foreclosure workout specialiststo protect their interests, help their borrowers workout suitable solutions that are truly win-win, and who will help create a media campaign that will provide positive PR for the bank. Of course, this option will decrease overall costs to the bank, increase efficiency and effectiveness of loan workouts, and provide the bank the opportunity to integrate the foreclosure workout process with creating a positive public image of the bank.
Which option will these large banks likely choose?
Who knows… but a forward thinking bank CEO will most definitely want to look into retaining a company such as Virtuosity Unlimited, LLC to deal with this foreclosure crisis in a unique effective way that will be extremely difficult to do with an in-house crew.
So, bank CEO’s… do you want to create another problem for your company by hiring and training your own foreclosure workout staff?
Or…
Do you want to take an innovative approach to dealing with these foreclosures in a way that not only helps to solve the foreclosure workout problem… but also creates massive goodwill toward your company that will last years to come?
The choice is yours. If you are a bank representative and would like to learn about our innovative Foreclosure Workout Specialist services that go far beyond simply turning bad loans into performing loans…
If you are in the market to buy a new home or refinance your existing mortgage, you had better be extremely qualified or not really in need of one.
The reason that I say this, is that the easy credit that fuelled the housing boom of the last ten years is gone. The only loan programs available, except to those that do not need one, basically come from the government agencies of “Fannie Mae ” , “Freddie Mac”, and FHA/VA.
Their guidelines are acceptable and understandable, but they do require that one has:
A down payment
A verifiable stream of income
Decent credit
… something that had been a problem for the now extinct subprime lenders.
To be successful in real estate investing for the next 3 - 5 years, one is going to have to go back to their playbook and come up with some creative financing alternatives.
There are a few options that exist and will become much more visible over the next several years. Terms like “owner-financing”, seller-carry backs”, “assumptions”, and “lease-to-own” are some that will top the list. Though the number of transactions closed will come to a slow crawl, there will be business and financing available to those that are creative and work with the right professionals that understand these concepts.
my thoughts on the coming real estate market. My forecast of this massive mortgage meltdown fell on deaf ears. I tried to warn anyone that would listen to me. Most didn’t.
some way becomes a nonperforming asset.
wave of foreclosures dwarfing anything like it in the past 75 years. 
many segments of our society. 
be put into place…. this cannot be addressed on a ‘onesey-twosey’ approach.” 
