Jesus (Jesse) Gonzalez, RDCPro

An article by Jennifer Harmon with www.ManagingREO.com highlights just another reason why I believe that REO's are not what banks want and that our industry is in the beginning stages of a paradigm shift. Back on October 8, 2008 I wrote a blog titled, "REO's Become Extinct" which focused on the idea that REO's just simply cost too much to continue doing and our industry had numerous reasons to change and start doing more Short Sales.

Well, like with any fast growing industry, growing pains with short sales are rampant. Many people complain about short sales and, the list is too long to review here but, we are seeing MLS boards taking steps to force more regulation and in return, the process is smoothing out a little bit.

As I mentioned in my October 8th, blog, we are seeing a surge in Foreclosure Avoidance companies like Titanium Inc. and BSG3. Just so you know, I am an HRC with Titanium and love them, thought I would share that in the spirit of disclosure.

Now, with all that being said, let me get back on task and that is, how are illegal foreclosure claims spurring the growth of these Foreclosure Avoidance Counseling companies and subsequently short sales.

Jennifer Harmon mentions in her article that legal aid groups and the such are trying to sniff out illegal foreclosures and, therefore they are seeing a rise in these types of claims. Simply put, courts, legal aid groups as well as certain law firms are looking to give these homeowners a way of keeping their homes. This isn't really a bad thing, I am all for a homeowner staying in their home, when they can afford it.

Jennifer's point is, lenders need to do more homework and work more effectively to ensure that the chain of title is complete, accurate and legal before they decide to foreclose. It's a great point but, I don't see that happening. Truth is, 2009 isn't going to be any better than 2008 unless the government steps in and does something drastic to stop the foreclosure tsunami. In reality these lenders can't wait for government so, they are taking steps on their own to protect themselves and hence, short sales can do just that.

You see, with a short sale, the bank isn't selling the home, the homeowner is. All the bank is doing is approving the amount they are willing to take as a loss when it's sold. In essence, they avoid the foreclosure all together and don't really need to worry about claims of any illegal foreclosure.

Now I am no Attorney so, I may not aware of some obscure legal principle that makes my argument mute however, it makes a lot of sense to me......lol

In closing, I feel, believe and speculate that REO's are not the way of the future. I really do believe they will always have a place in our society but, I don't see the Default Industry surviving this economic downturn looking like it did when we went in. I do think old business standards are changing as we speak and short sales are going to be a preferred way to do business.

OHHHhhhhh.....this blog is going to ruffle some feathers...trust me! This is my biggest complaint with the "Appraisal" Industry and that is, they don't appraise anything and, you can quote me on that one.

Ok, so the appraiser gets and order to go out to a home and appraise it. Well, on the paperwork he got from the bank, the borrower's requested loan amount appears. That is why it happens that the appraiser's appraisal numbers always match exactly the loan amount, which is obtained directly from the Purchase and Sale offer. So, I have to ask, what is the appraiser appraising?

This also happens in the reverse. When a bank has a REO, they send over the appraisal order which so happens to have the remaining balance and or lowest net amount the bank is willing to take hence, why some banks price their REO's way under value and get multiple offers immediately.

Now that you understand that, it gets worse. So, lets say Johnny Home Buyer goes into a bank and gets a loan for $150,000.00 however, doesn't want to spend that much so he goes and puts an offer on a REO that was priced under value at $100,000.00. He finds out that the home has multiple offers so he submits his final and best at $130,000.00, he really wants the home. He got that number from the Selling Agents comps, which showed the home was worth $140,000.00 so, even though he is paying more than list, he is still getting a deal and feels really good about his offer.

So the banks appraiser (buyer's bank) goes out and appraises the home at $120,000 due to a variety of factors, (pick whichever ones you like because every appraiser that goes out finds something different each visit) condition, location, upgrades or lack of, noise pollution, migratory bison, predatory lions, asteroids and close encounters of the third kind.

Either way, the deal is shot, it's dead, no where to go now so the Realtor is left with trying to save a deal by proving to others that the appraisers were all screwed up and bank policy is fraudulent by any self respecting, self governing, litmus test. Well, this doesn't settle well with the bankers involved because they don't like you pointing out their problems and they go about defending their appraisers.

The best part of all this, no one ever calls the appraiser or the appraiser won't return any one calls but the banks and, they are not calling. The banks makes the excuse that they are just too busy to follow up for accuracy on each deal and rather than fight to save the deal on the table, they move on to the next one because, THEY GOT MULTIPLE OFFERS!!!!!!!!!

Ok, so love it or hate it, the game is a foot.

FYI: this is one reason why I don't deal with Countrywide. It's scandolous.

Have you heard that banks will accept a certain amount of loss on their default real estate portfolios as a rule of thumb across the board?

Have you heard that all banks are willing to take 20% less than the listing price?.

Have you heard that all banks over price their listings because they know they are going to take a less on their properties?

If you believe any of these rumors, urban legends, or false hoods then, you have just been suckered.

Let me explain how banks determine their price when they go to list a home.

First, they order an appraisal as soon as a home goes into foreclosure or as soon as they receive the first offer on the home. In an effort to be clear, let me tell you what an appraisal is. An appraisal is an estimate of your homes Market Value by a professional.

It is important to understand the difference between Market Value and Price. Market Value as defined by the USPAP (Uniform Standard of Professional Appraisal Practices) says, "...a type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal." So, in other words, it's the opinion of a trained professional as to how much the property should sell for in a fair market.

So, I bet now you are wondering how these appraisers analyze a property in such an un-certain market as that we are in now, right? Well, that can be answered by the definition of Market Value used by the residential mortgage financing industry and it says, " ...the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." So, in other words, adjustments for any reason, are made to the comparables sales price not the subject property.

Ok, I am sure this may be confusing but let me explain it this way.

You want to put an offer on 1000 Money Pitt Lane but the asking price is $150,000.00, which you think is too high because it's a foreclosure.

Well, the bank isn't going to care if it's a foreclosure, short sale or once belonged to one eyed, one horned flying purple people eaters because, they have comparables, from the appraisal, showing that similar homes that are true comparables, alike in almost (no property is ever the same due to it's uniqueness and immobility) every way sold for or above $150,000.00. So that offer of $115,000.00 you put in thinking that banks are taking less because that is what they do, is foolish and a waste of everyone's time.

Well, maybe the Appraiser was smoking some serious blow that day and you (as the buyer) know that the home just isn't worth $150,000.00 so you want to stand by your offer and have it submitted.

Truth is, the bank isn't just relying on the Appraiser to get the appraisal right. By the time you submitted your offer, they have accumulated approximate 2 appraisals, 1 from the previous homeowner and 1 upon foreclosure, and they have had a Realtor provide a BPO (Broker Price Opinion) monthly for the time before it hit the market and while it was on the market. My point here is, the bank is going to know the value of the home, the monthly average depreciation for the neighborhood and how long they are willing to wait for the "right" offer to come in the door. On average, per my friend at one of America's largest banks, they have 5 price analysis on a home before it is every put on the market so, they know, you can bet on it.

Ok, so now that I have explained that, can you see why thinking a bank doesn't know how much a home is worth is just silly.

Granted, banks are dumping some properties due to the large amounts of real property on their books however, that isn't because they have made some secret policy that they will accept a general loss on all their properties. In reality it's more about that specific home and how much loss they are willing to take and, that isn't something they are advertising.

So, if you come across a great deal, then most likely you were at the right place at the right time with a Realtor who was looking out for you versus, anything else.

A recent unbelievable situation I was in has prompted me to write this blog. This is the account of that situation and should be enjoyed for it's shear entertainment value. I am not bashing anyone, just telling a story. This story is true however, names have been changed to protect the innocent......if any exist.

So, I am working this Short Sale as the Listing Agent and, as I normally do, 2 weeks out I check up with the Selling Agent and make sure everything is on track. As usually, I hear the, "Oh everything is fine" story however, due to my experience in these types of deals, I know better and follow up with my closing agent, Mrs. Super Closer. After speaking with Mrs. Super Closer, come to find out, thing are far from "fine". The Closing Agent hasn't received anything from the Buyer's lender, aka The Package. In fact, she goes on to tell me that they have tried to reach them now for 3 days, ever since I faxed over to them the Release of Contingency, to no avail.

Obviously, I call the Selling Agent back and explain, "Everything isn't fine" because we are 2 weeks out and my closing agent hasn't heard anything from the buyer's lender. Well, he doesn't seem to have a clue as to what is going on and says, he will call me back when he knows more. I update the notes in my database and schedule a 2^nd call back to the Selling Agent in 1 week.

1 week later and I call the Selling Agent back to check the status of the deal. He says "Oh everything is fine". Well, after reading my notes I promptly call my closing agent, Mrs. Super Closer and she tells me, "The bank is still waiting on the appraisal". Confused and dismayed I call the Selling Agent back and alert him to the status of his clients loan. He is lost and says he will have to call me back.

I give him only a couple hours and then I call him and ask for the status, he says, "Oh everything is fine", almost a robotic response at this time. Knowing better I call Mrs. Super Closer and she proceeds to tell me that the buyer's lender is requesting to extend the closing by a week because the holidays are upon us and they can't get an appraiser out fast enough.

I immediately call the Selling Agent to brief him on the status of his client's loan and once again, puzzled and confused he says to me that he will call me back.

At this point, I have no confidence in his abilities and I pull his buyer's loan approval letter from my file. I call the loan officer and ask, what is going on. The loan officer confirms what Mrs. Super Closer told me and request we post pone closing for 1 week, maybe 2. I explain to the loan officer that this isn't going to be a possibility and any delay must be approved by my client's bank (keep in mind this is a short sale) and they aren't going to budge....I know them well.

I call my client's bank and as predicted, not a chance under heaven are they extending the closing. Truth is, everyone has known the closing date for more than 30 days now and they felt any delays were just going to cost them more in the long run so, close on the agreed upon date or don't close at all.

I called the buyer's lender back and explained the urgency of the situation. He explained that they were simply waiting on the appraisal and, they will not be able to send anyone out till after the holidays, past the closing date.

Well, I had to call my client to brief her that her home may not sell and I felt awful to make this call. I knew her situation and a closed short sale was going to start her family on a more secure financial future for the New Year. After calling her, she explained that a man, identified as an Appraiser came by over a week ago for an hour. I asked her if she had his card and sure enough, she did. I got the appraisers information and called my appointment desk

I verified the man's identity and that he had a confirmed appointment to my clients house more than a week ago. Completely befuddled by this miraculous turn of event, I immediately call the buyer's lender back and enlighten him to the fact, his appraiser was out there, more than a week ago and neither his bank, his client (the buyer) or the Selling Agent (the buyer's agent) was aware that an appraisal has taken place.

Granted, maybe I should have known but, truth of the matter is, as a busy Listing Agent, I don't have the time to keep up with every visitor to each and every home I list. I especially don't have the time to ensure Selling Agents are driving their workflows and follow up with their clients as well as their vendors to ensure jobs are getting done.

So the banker calls the appraiser and calls me back directly, just as he said he would, 2 hours later. Come to find out, the appraiser did complete the appraisal, submitted it through his company and his processor didn't hit the "submit" button in the computer to send it over to the bank. In other words, it all came down to someone not hitting the right button.

The banker tells me that we can close on the originally agreed upon date and it shouldn't be a problem at all.

By the way, this all came to ahead on Friday afternoon, now it's Saturday morning, I call Mrs. Super Closer and she tells me that, "Everything is fine" and from her, I know it is.

Saturday afternoon early evening rolls around and I get a call from the Selling Agent. He is begging me to ask my clients bank to extend the closing. I asked him why and he proceeds to tell me his buyer's bank needs the extra time to get an appraisal done.

Knowing what I know, I tell the Selling Agent, no, the bank will not extend the closing and he best follow up with his client's banker. Talk about clueless......lol

So, what is the lesson here....too many to name.

FYI: closing took place as originally agreed upon and the Selling Agent was none the wise to what actually took place.

I am sick and tired of hearing about all these companies who are wanting a Bailout, Rescue Bill or Bridge Loan. The big three auto makers come to mind.

For many requesting government funding, including the big 3, the basis of their ignorant argument is that, they are simply to big to fail. It would be disastrous to our national economy because they have so many vendors and business partners that could go under with them.

Granted, yes, many would perish to the economic devil of bankruptcy which is a reflection of their own poor decision making, ie....high legacy cost, poor quality, inability to compete effectively with it's competition and lack of consumer confidence and lack of desire in their product but, what business could make money with these factors against them, just to name a few?

So, instead of proceeding with bankruptcy and restructuring so that they can come out lean, mean, fighting machines, they want to run to Uncle Sam for a Bailout, Rescue Bill or Bridge Loan, which by the way, they can't get from a BANK because the banks are smart enough to look at them and say, "No way Jose". This Bailout, Rescue Bill or Bridge Loan does nothing to make them restructure, it just keeps them floating so they can get through the economic storm.

Back to the argument at hand, "We are too big to fail, our failure would worsen the economic downturn the economy is going through." Well, bah hum bug....I say. This is like putting a band aid on a compound fracture, only short of a reset....it isn't going to work.

Now, with that being said, let's talk about the largest part of the US economy that failed and never asked for a Bailout, Rescue Bill or Bridge Loan and that is the housing industry. I don't remember some housing executive setting in front of a panel of Senators asking for money to help Realtors, builders, nail gun manufacturers, steel toe boot makers, office equipment retailers, and any and all other effected industries when the housing bubble busted.

No instead we got inquiry hearings as to why Fannie Mae and Freddie Mac failed. We got no relief....and, I mean no relief for struggling homeowners, we got a black eye and bad reputation for "allowing" this to happen. We are looked upon as the creator of our own demise yet, we are the largest, by far, part of this countries economy and yet, where is our Bailout, Rescue Bill or Bridge Loan? WHERE IS IT?

We didn't get anything because we were too big to help!

So, I dare anyone to bring to me a educated argument as to why we should bailout the Big 3, or anyone else for that matter, before we start bailing out the homeowners and the housing industry. How many partner business's failed or had to lay people off when we were struggling. Think of all the Home Builders, Home Inspectors, Home Appraisers, Home Lenders, Property Managers, Brokerages, Realtors, Plumbers, Electricians, Roofers, Construction Manufacturers, Office Supply companies and whoever else failed because we didn't get a Bailout, Rescue Bill or Bridge Loan.

More importantly........THINK OF ALL THE HOMEOWNERS THAT ARE STILL WAITING.

Maybe if we put all the homeowners in private jets and send them up to Washington to stay in fancy swanky hotels and then dress them up in thousand dollar suits with exotic thousand dollar brief cases, then they might be able to get a Bailout, Rescue Bill or Bridge Loan.

Like I said earlier, maybe we are just too big to help.