Woodstock, GA

A couple of days ago, I was talking with one of my colleagues about Short Sales. I was astonished when my colleague told me the story of one of her clients in Woodstock, GA. The client had a first mortgage and a line of credit with one of the banks that was saved from collapse by being bought out during the crisis. During the Short Sale process, the second lien holder said that the only way the Short Sale could happen was if the client signed a deficiency note - because when they signed the papers for the line of credit, they signed two types of notes: one against the house, the other was a Personal Note. Since the lender had the Personal Note, they felt they had the right to have a deficiency note signed by the home owner, or otherwise the Short Sale would not happen.

The client decided to sign the deficiency note. Three months later, and life has moved on. They now live in a different state. Their son won a scholarship to go to college, and their life was taking a positive turn.

Last week, they found out that their bank accounts had been frozen. They had left their checking and savings accounts with that same bank that had required the deficiency note. The bank froze their accounts and took all the salary earned by the husband - and did not stop there. The son who was going to college also had his account with that bank, and had received his scholarship payment as well. But since he was a cosigner for them..... The bank took all the scholarship money as well.

How far can a bank go with a deficiency note? Far enough to ruin the life of a student waiting to start his college career, certainly, and without a moment's troubled conscience.

This story has helped me fight even harder every day for my clients, and to NEVER accept a deficiency note in any of my transactions. If you end up agreeing to one on behalf of your clients, at least tell them to make sure they don't have any other accounts with that bank - or any of its tangled siblings as the banks buy each other out.

Please share your good and bad experiences with me - we can learn from each other.

Wendy Herndon's post "Bankers, are you listening?" was excellent. Paraphrasing one of the other responses, "The basic problem is lack of personal contact. We need to return to small businesses dealing with community bankers." You're dealing with monolithic, soul-less entities that we (including myself) created and eagerly sustained by continuing to feed the beast "liar loans" long after we all realized we were contributing deck after soiled deck to what was becoming an increasingly rickety house of cards.

For the record, though we enjoyed the dubious distinction of having been "qualified" to do so, my bank (Crescent Bank of Jasper, GA) has not taken a dime of TARP money. That's not to say that we couldn't use a healthy infusion of capital. We simply prefer to keep Obama/Reid/Pelosi off the Board as long as humanly possible. . .

Back on subject, an AR Realtor posed the question to me last week of whether a lender is entitled to collect on PMI following a short sale. The answer is "no" and the logic behind it goes a long way toward addressing the issue Wendy raised. When you boil it all down, when a lender accepts a short sale offer, they are voluntarily de-valuing both their asset (the loan itself) as well as the underlying asset (the real estate which serves as collateral, aka secondary repayment source). Therefore, the lender logically forfeits the right to collect on the PMI. Then, there's the issue of "recourse", which means the lender customarily reserves the right to seek a judgment against the borrower's remaining assets in order to ultimately collect the "short" (deficiency balance). If the lender agrees to a NON-RECOURSE short sale (as hard as I've tried, I really can't think of a situation in which I'd ever consider doing this), there is a conscious and well-considered reason for forfeiting the right to collect a deficiency balance, which brings up other potential legal arguments.

Taking off my "outhouse lawyer" hat, this is uncharted ground for ALL of us. Regardless of who ultimately created the monster (I suggest that you start with CRA legislation, which goes back several decades), throngs of Americans have become homeowners over the past 10 years who never had enough skin in the game to continue to do so. As I've blogged before, in both residential and commercial real estate, it all goes back to lack of skin in the game. Shame on Washington for incentivizing it, shame on lenders and realtors for living off it, and shame on Wall Street for putting it all in neatly-wrapped sacks of crap called MBS.

In 21 years of community banking, I have never been down this road before. Many of my colleagues have not done so in 30 or 40 years in the business. Though it sounds both trite and chidlishly simple, a big dollop of empathy between realtors & bankers will continue to take us a long, long way.

Today was the day.  I have written about it a couple of times, and it went down today. We had a blast, and we collected 100 pints or so of blood for LifeSouth.  Mud4Blood had its sixth event. 

It was our first year at Dixie Speedway, and it turned out to be a great venue for the event.  We had space to stretch out.  The last few years we have been in shopping center parking lots and we have been restricted on our space.  So, in order to grow the event, we decided to move to  a larger area. 

We couldn't have asked for better weather... ok, we might have liked it just a touch cooler... but sunny skies and puffy clouds made a perfect backdrop. 

Our corporate sponsors were many...  We really appreciate all of the companies that generously donate product, gift certificates and promotion to Mud 4 Blood.  We do it all for free...