Replies (14)
- Michael Helton
- Contributions:456
I am not a bank, but my initial thoughts are:
1) Wouldn't that essentially be a re-fi?
2) If the person was not able to uphold their word in the first place and needed to default, why would they give them another loan? Seems like an unacceptable risk to me.
1) Wouldn't that essentially be a re-fi?
2) If the person was not able to uphold their word in the first place and needed to default, why would they give them another loan? Seems like an unacceptable risk to me.
- Jim Basquette CRS, CNE, "Jim Basquette"
- Contributions:1515
It's illegal for the homeowner or a relative to purchase a short sale without disclosure to the bank.
Short sales are for people who have had a hardship and cannot afford to pay their mortgage. If they could, there would not be a short sale in the first place and mortgage fraud would have been committed.
If that were legal, wouldn't everyone with a home value below the market price re-purchase for a lower price?
Short sales are for people who have had a hardship and cannot afford to pay their mortgage. If they could, there would not be a short sale in the first place and mortgage fraud would have been committed.
If that were legal, wouldn't everyone with a home value below the market price re-purchase for a lower price?
- shasta_steve
- Contributions:448
Well in my opinion I feel that the whole short sale process is quickly just becoming another real estate scam. Talk to most short sale specialists and look at the commercials on TV and you will see it is just another way to make a buck.
As Michael pointed out what you are essentially asking for is a debt forgiveness re-fi. If it were in the banks best interest that would be great but RE agents would hate it because there would really be no sale, so no commission.
The reasons it would be a horrible idea are the bank rarely own the mortgage. The banks are usually only servicing the loan and most likely it is owned by Fannie or Freddie. Banks often hold the seconds but almost never the firsts.
You would essentialy be rewarding bad behaviors in many instances many of these loans that are now being short sold or foreclosed upon were no doc or 80/20. I know you are supposed to have a change in income to qualify but I can tell you that is not always the case here in California. Is is really fair to reward someone who did not live within their means when you are doing nothing to help someone who did.
Lastly, if there was no real penality, you would have many more people trying to do it and that would only prolong our problem. I personally would love to see all short sales stopped as I feel the do much more damage to home prices than outright foreclosures. Around here foreclosures sell pretty close to market but short sales are almost always listed at least way under market to drive up interest. If short sales did not exist many of these houses would never hit the market but they have been convinced by their agent that short sales are almost painless.
As Michael pointed out what you are essentially asking for is a debt forgiveness re-fi. If it were in the banks best interest that would be great but RE agents would hate it because there would really be no sale, so no commission.
The reasons it would be a horrible idea are the bank rarely own the mortgage. The banks are usually only servicing the loan and most likely it is owned by Fannie or Freddie. Banks often hold the seconds but almost never the firsts.
You would essentialy be rewarding bad behaviors in many instances many of these loans that are now being short sold or foreclosed upon were no doc or 80/20. I know you are supposed to have a change in income to qualify but I can tell you that is not always the case here in California. Is is really fair to reward someone who did not live within their means when you are doing nothing to help someone who did.
Lastly, if there was no real penality, you would have many more people trying to do it and that would only prolong our problem. I personally would love to see all short sales stopped as I feel the do much more damage to home prices than outright foreclosures. Around here foreclosures sell pretty close to market but short sales are almost always listed at least way under market to drive up interest. If short sales did not exist many of these houses would never hit the market but they have been convinced by their agent that short sales are almost painless.
- Dan Kingsley, "TheRealEstateRanger"
- Contributions:110
I am not sure if you were kidding when you posted this but I am glad you did because there are a lot of seller that ask this same question. So it is great that there are these good explainations out there for people to see. Thanks Steve and Jim!
- wordsmth
- Contributions:394
You say it's not "fair" that banks won't let owners simply do a short sale on their own properties. So a bank should allow an owner to unilaterally reduce the amount he owes, that he borrowed, and that he's promised to repay? Let's try that with a car. You buy a car for $20,000. You drive it off the lot and now it's worth $17,000. Would it be OK to drive it around the block, come back to the dealer, and demand that your indebtedness be reduced by $3,000? I doubt it.
Or: A few months ago you put $2,000 into your IRA--into a few mutual funds. Now the value has dropped to $1,400. Would it be "fair" to go back to the IRA manager (Fidelity, Vanguard, etc.) and demand a $600 credit because the value had dropped? Of course not.
Or: You go to Las Vegas and buy $1,000 in chips. You lose (as most people do). You now have $500 in chips. Would it be "fair" to go to the cashier and demand a $500 credit because you'd placed bad bets? Of course not.
Or: You spend 4 years at a university getting a degree in something. You've paid $50,000. You get out and find that the only jobs available are paying half of what you'd expected. Would it be "fair" to demand that the university refund $25,000 to you because the dipoloma isn't as valuable as you'd hoped? Of course not.
See the pattern?
You sign a contract. You make a deal. You agree to pay a certain amount of money for a certain product or service. You receive that product or service. Now you're complaining that the product or service--while accurately described and 100% of what you'd asked for--isn't worth as much as you'd hoped it would be. That's your problem. You weren't scammed. The other party delivered what it had agreed to. I don't see anything unfair about that.
Or: A few months ago you put $2,000 into your IRA--into a few mutual funds. Now the value has dropped to $1,400. Would it be "fair" to go back to the IRA manager (Fidelity, Vanguard, etc.) and demand a $600 credit because the value had dropped? Of course not.
Or: You go to Las Vegas and buy $1,000 in chips. You lose (as most people do). You now have $500 in chips. Would it be "fair" to go to the cashier and demand a $500 credit because you'd placed bad bets? Of course not.
Or: You spend 4 years at a university getting a degree in something. You've paid $50,000. You get out and find that the only jobs available are paying half of what you'd expected. Would it be "fair" to demand that the university refund $25,000 to you because the dipoloma isn't as valuable as you'd hoped? Of course not.
See the pattern?
You sign a contract. You make a deal. You agree to pay a certain amount of money for a certain product or service. You receive that product or service. Now you're complaining that the product or service--while accurately described and 100% of what you'd asked for--isn't worth as much as you'd hoped it would be. That's your problem. You weren't scammed. The other party delivered what it had agreed to. I don't see anything unfair about that.
- LaNita Cates, "remaxagent33"
- Contributions:315
I agree with wordsmth - there has to be some responsibility to signing a contract and following those terms. It wouldn't be fair for someone to just "buy their home"...then EVERYONE should be allowed to do that. I believe "arm's length" is very important in keeping family members from buying the home at a discount and then selling it back to the seller. I think it is wrong.
- SoCal_Engr
- Contributions:6605
It's really not fair that banks don't allow that in my opinion.....
I think it would be really unfair to the home owners who are not fortunate enough to not be able to afford their home. Hmmm. Did I just say that?
Let's try a different angle...
I think it's unfair to those who have not over-extended themselves, and so are able to make payments on their house - underwater or not.
I think it's unfair to the lenders, who entered into a specific agreement and shared risk - and would now be asked to eat all the consequences and let the consumer keep the collateral.
I think it's unfair to the people who took-a-pass on what they perceived to be over-priced homes, and ended up being correct. And now, having exercised due diligence and self-discipline, are now ready to buy for a more reasonable price.
Life is not about "fair". It's about equal opportunity. In this case, everyone has the same opportunity to make good decisions, and bad ones. Everyone also has the same opportunity to live with the consequences of their decisions.
BTW, I also think it is incredibly unfair when the second place teams get the same size trophy as the first place team.
I think it would be really unfair to the home owners who are not fortunate enough to not be able to afford their home. Hmmm. Did I just say that?
Let's try a different angle...
I think it's unfair to those who have not over-extended themselves, and so are able to make payments on their house - underwater or not.
I think it's unfair to the lenders, who entered into a specific agreement and shared risk - and would now be asked to eat all the consequences and let the consumer keep the collateral.
I think it's unfair to the people who took-a-pass on what they perceived to be over-priced homes, and ended up being correct. And now, having exercised due diligence and self-discipline, are now ready to buy for a more reasonable price.
Life is not about "fair". It's about equal opportunity. In this case, everyone has the same opportunity to make good decisions, and bad ones. Everyone also has the same opportunity to live with the consequences of their decisions.
BTW, I also think it is incredibly unfair when the second place teams get the same size trophy as the first place team.
I know someone who bought his own home at the foreclosure auction. THAT is completely legal, you bid cash like anyone else.
- KD in Texas
- Contributions:859
If he had the cash to buy his house, why did he let it go into foreclosure? Legal but still wrong.
- Gino Herring, SFR, "Gino Herring SFR"
- Contributions:1294
Short sales have been around for years. It is the traditional way for investors to motivate people that have legitimate hardships to begin negotiating with the bank, and ultimately sell the house "short" of its total due to the bank.
This practice became a hot trend because so many folks became overwhelmed with their new notes, and needed a way out. The hardships are definately legitimate with the economy the way it is. Short sales became more and more prominant.
Gino Herring, SFR
This practice became a hot trend because so many folks became overwhelmed with their new notes, and needed a way out. The hardships are definately legitimate with the economy the way it is. Short sales became more and more prominant.
Gino Herring, SFR
- user3811293
- Contributions:1
Banks are not your "mommy" and are not there to take a loss without you honoring your obligation. Yes, they got bail out money on loans that they probably shouldn't have made in the first place and that's a different topic.
It is illegal for you to buy back your own house at a short sale price. It's not an arm's length transaction and you are technically defrauding the lender on the difference. So for example, if you have a house with a $500,000 mortgage and the current market value is $300,000 and that means, you are "upside down" by $200,000, you can not simply offer the bank $300,000 the current value and let me the "eat the loss". The debt forgiven by them is a loss on their books, is treated as income for you the borrower, on your books. That is to say, they would "forgive you" the $200,000 but now it's considered ordinary income. Although you no longer owe it to the lender, you will owe to the IRS. The law that allows you to not pay taxes on this "negative equity" expires December 31st, 2012. Please see this link : So this law :http://www.irs.gov/individuals/article/0,,id=179414,00.html
is what is called the "mortgage tax relief act". It was signed by President Bush before he left office, and extended by President Obama and Congress. It was originally set to expire in 2010 but will instead expire in 2012. So if you want to short sale, do it now, before this law expires
Some people do the following, which is mortgage fraud, but I'll describe it anyhow. They find a real estate investor, that can buy their house from the foreclosing lender in CASH. The original lender than sells the house to the investor for the approved short sale price. The real estate is then put into a TRUST. The original homeowner is named as a beneficiary of that Trust, or essentially the "manager" of the Trust. They then enter into a lease-option-to-buy contract with the investor. They are then renting their own house from the investor for a monthly rental fee. They then qualify for mortgage financing in 3 years time, once their credit is repaired. They then buy back their own house, from the Trust, with cash that they can now borrower from a brand new lender. They are again "credit worthy" 3 years later. Because they are not taking Title in their own name, but in the name of a Trust, they are able to get Title Insurance, since if they took the Deed in their own name, it instantly signals a red flag that they defrauded the original lender, and the "debt relief" or the original lender was not valid and the difference "forgiven" would be re-attached back to the borrower. Since they are a manager of the trust, and the trust owns the property, the trust CONTINUES to own the property in 3 years time down the road, and therefore, no Title Change took place, since the original home owner as a beneficiary of the Trust in the first place. So the fact that the investor was cashed out and was paid rent for 3 years is irrelevant. They are paid off in full and the original owner is the owner again. This is essentially border line mortgage fraud. Proceed with the help of an RE attorney and proceed with caution. This is NOT an arms length transaction, because it can be shown that there was collussion between the original seller, the defaulting borrower and the buyer, which was the real estate investor.
There is an alternative, if the property is bought by a NON-profit organization, and then, sold on a lease-option-to-buy program back to the original owner, that stays as tenant for 3 years. But they can't sell it to you back at a profit. So if they bought it for $300,000 as short sale price and in 3 years from now, they still have to sell it back to you for the same amount and can't make a profit from you. But you do have to come up with a down-payment from your new lender and you do have to come up with the "option money" to exercise your lease option. It can be seen at this link: http://freshstarthousingprogram.org/
Again, Realtors are NOT lawyers, and this is best answered by an attorney. But buying back your own property is pretty close to mortgage fraud, so proceed with caution unless you have very reputable people covering you.
is what is called the "mortgage tax relief act". It was signed by President Bush before he left office, and extended by President Obama and Congress. It was originally set to expire in 2010 but will instead expire in 2012. So if you want to short sale, do it now, before this law expires
Some people do the following, which is mortgage fraud, but I'll describe it anyhow. They find a real estate investor, that can buy their house from the foreclosing lender in CASH. The original lender than sells the house to the investor for the approved short sale price. The real estate is then put into a TRUST. The original homeowner is named as a beneficiary of that Trust, or essentially the "manager" of the Trust. They then enter into a lease-option-to-buy contract with the investor. They are then renting their own house from the investor for a monthly rental fee. They then qualify for mortgage financing in 3 years time, once their credit is repaired. They then buy back their own house, from the Trust, with cash that they can now borrower from a brand new lender. They are again "credit worthy" 3 years later. Because they are not taking Title in their own name, but in the name of a Trust, they are able to get Title Insurance, since if they took the Deed in their own name, it instantly signals a red flag that they defrauded the original lender, and the "debt relief" or the original lender was not valid and the difference "forgiven" would be re-attached back to the borrower. Since they are a manager of the trust, and the trust owns the property, the trust CONTINUES to own the property in 3 years time down the road, and therefore, no Title Change took place, since the original home owner as a beneficiary of the Trust in the first place. So the fact that the investor was cashed out and was paid rent for 3 years is irrelevant. They are paid off in full and the original owner is the owner again. This is essentially border line mortgage fraud. Proceed with the help of an RE attorney and proceed with caution. This is NOT an arms length transaction, because it can be shown that there was collussion between the original seller, the defaulting borrower and the buyer, which was the real estate investor.
There is an alternative, if the property is bought by a NON-profit organization, and then, sold on a lease-option-to-buy program back to the original owner, that stays as tenant for 3 years. But they can't sell it to you back at a profit. So if they bought it for $300,000 as short sale price and in 3 years from now, they still have to sell it back to you for the same amount and can't make a profit from you. But you do have to come up with a down-payment from your new lender and you do have to come up with the "option money" to exercise your lease option. It can be seen at this link: http://freshstarthousingprogram.org/
Again, Realtors are NOT lawyers, and this is best answered by an attorney. But buying back your own property is pretty close to mortgage fraud, so proceed with caution unless you have very reputable people covering you.
- Josie Morrison -CRS,CDPE, "JosieMorrison"
- Contributions:221
I guess the reasoning is that banks do not want anyone associated with the homeowner, even the homeowner to benefit from the distressed property ciuation. You would think simply reasoning would be that but I guess if it were so easy why wouldn't everyone do it. Banks would start going under in droves.
- Stuart Santana, "StuartSantana"
- Contributions:494
There is a new program that does allow a "seller" to act as a "buyer" later down the road through a short sale lease-back program available in some states. Very few Realtors have the mandatory training to do them (I will/should be certified to perform these next week).
It basically works like this:
A short sale takes place to where an eligible non-profit buys it and allows a qualified seller to rent it back for three years. Assuming the sellers take care of their credit, attend necessary courses, etc, they can then buy it back at a pre-determined price. Think of it as a "3 year long loan mod."
Best wishes from So-cal
It basically works like this:
A short sale takes place to where an eligible non-profit buys it and allows a qualified seller to rent it back for three years. Assuming the sellers take care of their credit, attend necessary courses, etc, they can then buy it back at a pre-determined price. Think of it as a "3 year long loan mod."
Best wishes from So-cal
- Jack Pysz, "JPyszChicago"
- Contributions:97
Lots of things that banks are doing don`t make any sense. Why do banks sometimes/many times prefer to proceed with a foreclosure instead of accepting a short sale offer? Lets just say the offer was 150k, bank countered with 170k, there was no willing buyer for this price and the bank eventually sells the home for 110k eight months later, also after incurring additional costs of foreclosure , upkeep, maintenance, taxes....How does this make sense? Guess who is paying for all this... Taxpayers - like you and me!!! Banks are not being held accountable for what they are doing.
Buy your own short sale........
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