The year was 2005. The call was from a struggling homeowner who needed to sell their home. However, there was one significant barrier. They had mortgaged their property for more than they could sell it for. Hard luck had resulted in a job loss and they were faced with the stark prospect of making a difficult decision.
The term 'short sale' was not a term that most people were aware of in our area at the time. The negotiation with two banks took several months, but the process finally concluded with a resolution that enabled the home to be conveyed to another party and one which stopped the financial bloodletting which had depleted my clients. While, not a perfect outcome...it was likely the best given the circumstances.
Five years later, short sales are a part of the nation's popular lexicon. Last nights' segment on the 60 Minutes news broadcast chronicles a rapidly spreading viral movement known as strategic defaulting. Strategic default refers to the decision to walk away from a home which you CAN afford because the home is now worth far less than the mortgage note. It's considered by some, to be an ECONOMIC decision or an investment alternative of sorts.
However, what was most troubling to me in watching the segment is one myth which underlies much of the reporting on this issue at the present time. Strategic Defaults are NOT always the decision of a homeowner. As a real estate broker who has negotiated short sales for nearly half of the past decade, I have witnessed a remarkable SHIFT in the process of negotiation with some banking entities recently. Sometimes, the instruction to miss payments can come from an unlikely source!
Most notably, within the past 3 months, we have witnessed some banks giving EXPLICIT written directions to some mortgage holders to DEFAULT on their payments in order to be considered a 'qualified applicant' for a short sale. The home owner is faced with the threat that the file will be closed or denied UNLESS the borrower strategically defaults on their mortgage payment. We have witnessed this even in cases the homeowner has suffered a JOB LOSS and/or JOB TRANSFERS.
Which raises the question...Is it possible that while many struggling homeowners are trying to do what is right and negotiate with the banks, there is a bizarre movement to FORCE them to damage their credit and walk away from their homes by a Strategic Default? This approach is peculiar on a number of fronts, as statistics indicate that there is significantly LESS damage economically from the negotiation of a short sale for the community AND the mortgage investor.
The 60 minute segment indicated that 7 MILLION homes have payments which are in arrears. I wonder how many of these homes are behind on their payments because they have been INSTRUCTED to do so by the mortgage servicer holding the note?
At some point we will awaken from this nightmare. I am concerned that we will discover that much of the chaos has been our own horrific creation...borne of a myopic view of society which forced short term gains at the expense of the reality of long term consequences.
underwater shot courtesy of Stig Nygaard on flickr
Lola Audu, is the Designated Broker & Owner of Audu Real Estate. Our company specializes in helping people buy and sell homes in the greater Grand Rapids, West Michigan area. We've had the privilege of helping hundreds of clients succeed in their goals of purchasing and selling property including demonstrated success in the negotiation of Short Sale Transactions. You can contact us via e-mail @ info@auduhomes.com or by phone at 616-791-0511.
I get how the numbers "work" for the individual. Businesses make business decisions all of the time. So why can't individuals?
However, businesses get in trouble when they breach a contract. (Although the owners of those businesses usually do not if they have other more profitable businesses.)
How would we, as individuals, feel if five (5) years from now, the bank decided to stop honoring the low interest rate that is available for us today--just because it's a good business decision?
It's tough for me to recommend to someone to walk from his or her responsibility--intentionally.
I think that it might be years before we know whether people were smart or short-sighted, Lola.
Good post, though. It's very thought provoking!
Hi Chris, Thanks for your thoughtful comment. I appreciate your point. What perplexes me is WHY some banks seem to be encouraging homeowners to default even is cases where it can be clearly documented that the home is severely underwater and there has been a drastic loss of income or job transfer. There seems to be more to this tidal wave of strategic defaulting than meets the eye...
well written Lola. We have high end owners who still make plenty of money in our area but are $500k upside down on their 2004-2005 purchases. What they bought for $1.2 mil only brings 700k now. More and more are walking away..knowing that even 10-15 years of ownership will not recapture that $500k.
And another interesting point. Once the mortgagor has "strategically defaulted" on advice of the mortgagee, if, and it is a real possibility, that the bank will not approve the short sale.
Where is the home owner then????
Many home owners are continuing to make payments on homes with half the value of their mortgage banance because the payments and interest rates are still low.
Once those interest rates rise, we'll see many more of these defaults along with more short sales and more foreclosures.
Good blog Lola. This is a new and frightening world. I remember being at a REALTOR convention in Las Vegas just about three years ago when an agent from another state asked me "How are you handling Short Sales in your state?" I'd never heard of a short sale and felt rather ignorant. Ah, blissful ignorance.
I can't figure out the answer to this dilemna and apparently the banks and the government are having a hard time as well.
Lola, Seems cruel, doesn't it, that the very institutions (including government-run Fannie Mae, so I've heard) that caused this mess are bound and determined to destroy the credit of their victims. I find it a deplorable situation, especially when so many will borrow from family and savings just to do the right thing and maybe buy a house again within a reasonable amount of time. So shame on the banks. They really know how to stick it to their customers -- past, present and future!
Lola, I am very shocked and dismayed to hear that any lender's employee would be telling a consumer to default on their mortgage. My advice is to get the employee's name and direct phone number...maybe a couple employee's name and phone number (more than one person telling you to default or walk)..then find a really agressive attorney! In my experience in banking, every company I have worked for would have fired me on the spot for giving this type of advice.
Rather like me giving tax advice to a consumer. A lawsuit waiting to happen!
We will come out of this situation. And, I do believe the lending world will eventually give a "Hail Mary" pass for consumers faced into a short sale. A voluntary walk away???????? I would not have the courage to submit a loan to the underwriter with that record on credit report. I would not be surprised to see lenders increase the derogatory standing for a full ten years (currently 2 to 4 for a short sale or foreclosure). And, frankly, I would support a law with that kind of stigma....there are far too many people who have agonized over saving their home to treat them with the standards as volunteerily walking away!
Lola - I have also seen where the banks ask the borrower send them $2,000 - $4000+ in order for them to stop the foreclosure process and continue with a loan modification, only to be foreclosed on anyways....Lender - 1, Homeowner - Screwed. Again, another point that as long as the lenders are maximizing the cash collection for their investors, they really don't care about the homebuyers and their "situation", good or bad.
Great post. I was unaware that banks were doing this - makes me look differently at defaulters.
Concur on the feelings that nobody that can pay should ever walk away. However, as many state, there are life circumstances that mean changes in plans. When those things happen, and they do, people may need help.
Now, the government programs that are designed to assist all have some qualifying factors, one of which is that the loan must be in arrears. In other words, they must be 3 or more months behind for the workers to even take a look at the request to modify, short sell, etc. So, the bank employee is correct in telling those that are current that they need to quit paying to be eligible.
It's nuts, but it is our governments' way of taking care of those that need it most~
Lola,
Just the week before, I sat with potential sellers who hoped for a short sale because their home had lost so much value. They are current on payments and have the ability to continue making them - not 1 bit of hardship. I explained that the bank was unlikely to eat the loss just because the homeowners weren't happy with their investment. No point in listing the home; I simply recommended they talk to their attorney, CPA and the bank. And now 60 Minutes has given them another reason to throw in the towel!
Lola: terrific post on the "hot topic" today---I know of several people who have money, have several homes in fact (all over the world) and they are contemplating walking away from their home here in the Hamptons. No one has been left out on this one, have they??? These people don't have money problems and they are still contemplating walking away from this "thorn" in their side--the house is usually rented and they have no tenant right now, so it appears to be a total drain on their assets, so they want out!!! What a mess we are in!
Good post, Lola. What I'm still puzzled about is the deficiencies. These people are "strategically defaulting" but they are still left with a deficiency that the banks are coming after. What are they going to do about a $500K deficiency like Steve is referring to? How are they going to qualify for another loan in 2 to 4 years with a past due $500,000 on their credit report? Am I missing something?
I think we have to be careful not to comingle these terms interchangeably.
Strategic Default is terminology used for a home owner strategicly defaulting on their mortgage when they have the ability to pay but choose not to because they are under water on the value of the house. They walk away.
When a home owner has a true hardship, AND they are under water, they are truely a qualified shortsale applicant. This homeowner does not have the ability to make the mortgage payment because of real financial hardship that must be documentable.
I am a real estate agent that believes in "strategic defaults" It has to be a business decision, a financial decision. The banks make the same kind of decisions day in day out. It's too bad that the table has turned and average people are making sound business decisions.
I am a real estate agent that believes in "strategic defaults" It has to be a business decision, a financial decision. The banks make the same kind of decisions day in day out. It's too bad that the table has turned and average people are making sound business decisions.
Lola- We do strategic shorts. I have no problem with strategic decision making on the part of homeowners. What I do have a problem with is just what you are saying, how does the bank get away with FORCING people to go late on their payments?????
We just had Fannie Mae do that to one of our clients. They refused to even look at the short sale offer until the seller is 30 days behind. So he is going to be 30 days behind. But WHY! We get all of our short sales approved so I am not worried about approval, I am worried about how long they will take.
The banks also do this with the HAMP program and any Loan Mod program. They make the homeowner STOP paying and then say in the same breath that the foreclosure process will still continue?????????? WHAT?????????????? Who are these morons who got put in charge of the decision making at the banks and at the FED Reserve because they are in bed together and then , Oh, don't get me started! Katerina
The operative word here is AFFORD.
Isn't what anyone can afford a subjective decision? One could eat out at fine restaurants every week costing hundreds of dollars, but then not be ableto AFFORD their mortgage payment. Or a senior citizen could forego their health inusrance and then AFFORD to pay their mortgage. I will say it again as I have said before: there should be no moral judgments on this issue as it is a business decision.
One has got to be very careful when they start measuring other people by one standardized value system.
Ummm...I have read 3 or 4 posts today here on AR and I am beside myself...do you guys not see the UNBELIEVABLE opportunity for profit here??? I mean seriously...everyday that I am blessed to wake up I feel like it's Christmas! My email is full each morning, I handle more calls than I know what to do and I keep reading about how bad it is.
The more who walk away the better! I don't get it. We're loving the liquidation business and it's a veritable smorgasboard of activity and this is truly the best real estate market ever...for those who know how to capitalize on it.
I couldn't ask for a better real estate market and as far as I'm concerned the American Dream is very much alive and well!
I have seen too many lose homes during the servicing company induced "default" drug. People on the streets encourage it too. Most of these people just want to refinance and get conforming rates and save a couple hundred bucks on their house payments a month. Then they end up in the foreclosure process, don't qualify for the loan mod and end up foreclosing.
If I had to describe it in one word that word would be "TRAGIC"
Thanks for posting on this topic Lola,
Even though the notion of Strategic Defaults comes up often, there never seems to be any consistency in how/who is deciding on whether of not to walk away. First of all the term "Strategic Default" makes one believe that it is an acceptable alternative to living up to a commitment. The term should be changed to "Dishonorable Default".
LOLA is RIGHT. Many bank policies are no pay, no stay, unless you can qual for a loan mod or short sale. The bank policy is often clear, one of the qualifications is being in default. So they DO instruct clients how to "qualify" just like they instructed the client how to "qualify" for the original loan when the person probably didn't, had they answered honestly and unbiased the questions on their original loan app! "Liar loans" ring an old bell? Those are many in default today. Same song, different verse.
Steve, I understand the mathematics of that decision from a home owner underwater on their mortgage. What perplexes me is WHY banks are forcing people to be LATE on their payments in order to enter into short sale discussions. This math...which is noted in declining values, the possibility of foreclosure and vandalism, not to talk of mounting legal fees and liability is the math which makes NO SENSE to me at all. Yet, we've had banks offer this 'novel' solution to several clients over the past several months.
Lenn, you're absolutely right! I've witnessed variations of this sordid theme, ranging from banks REQUIRING the note holder to default on payments to delaying action on transactions with offers pending to even look at the deal. In some cases, the timing was suspicious as it forced people to miss out on the Tax Credit as a dis-incentive for prospective buyers to wait for a response on a file which was largely complete. Disingenuous!
What I found most amazing was the willingness to put this request into writing. Actually putting in black & white the requirement to default. Am I missing something???
And yes...I know of at least on situation in which the borrower was asked to go into default and then pushed into foreclosure. A situation which was absolutely unnecessary. Makes you wonder what is really going on.
Marian...it is a terrible dilemma and unfortunately one which is largely of our own creation on so many levels. Thanks for your comment.
Judy...what I have witnessed recently brings me to the same conclusion. There seems to be very little real desire to create a workable solution. I fail to see how 7 MILLION potential foreclosures makes sense for anyone. It's bad for individuals, families, institutions and our nation.
Deborah...Great commentary. I was more than surprised that a banking/lending representative would be willing to put this request in writing. But amazingly, they have. Incredible on so many levels.
Equally concerning is the recent plug by lenders for "deeds in lieu of", with the ability for buyers to purchase a home after such an "easy" transfer equaling that of a short sale (time frame). Sort of falls in line with your thought process regarding a lenders sudden helpful "miss a payment" agenda. Hindsight will be very interesting. I just wish that hindsight would come sooner than later.
Wow - I started to comment about what a shame it is that so many people fail to see the importance of integrity (and that's what loan repayment is) when I got sidetracked with how many agents see it as perfectly acceptable to default on a promise to pay. It's not okay for 'businesses' to renege on promises, nor does the business behavior make it honorable or acceptable for the individual to renege.
Wow, Paul! That's a new LOW, one which I have not personally encountered. This story of abuse has largely been untold by the media which continues to focus on the homeowners decision to walk away. What of the millions of home owners who are literally being forced to ruin their credit and deceived into thinking that the lending institution is being above board.
I've also witnessed this scenario...different departments in the lending institution may be working at cross purposes on the same file. For example, the collections department foreclosing and the loss mitigation department working on a short sale and the work-out department trying to process a loan modification.
Lola- Years ago a friend of mine felt she had no choice but to file bankruptcy after a divorce in which her spouse accumulated HUGE credit card debts. The attorney told her she would have to stop making payments on those cards first. It broke her heart, but she did it.
For a homeowner who "falls on hard luck" ie looses a job, health issues, spouse death- I completely understand the need for short sale or even eventual foreclosure or walking away.
BUT for those who still have that same income they had when they qualified for the loan but have only lost value and walk away when they are perfectly capable of continuing to make their mortgage payment I feel no sympathy only anger. They are bringing down values further for their neighbors and they are placing the burden of their unpaid promises on those of us who are working and paying taxes via bailouts and tarp funds being paid to these banks.
No one is paying my mortgage. And while I'm not underwater and my house is still worth more than I owe on it, it's not worth what it appraised for when I purchased it 8 years ago. I could go out and by an idential home for less than my pay off and then move and let this one be foreclosed upon, but I think that would make me a worthless piece of crap and that's the same thing I think of people who make that choice. Again, I'm not saying I feel this way about anyone who CAN'T pay their mortgage, just those who don't.
Phi...some of them certainly are! And willing to put it in writing! Insisting on this reckless sequence of activity going against the guidelines from FHA in which a borrower has lost a job or has to transfer are reason to pursue a short sale when home values have dropped precipitously.
Tim, I don't think this type of response is a way of taking care of those who need it most. These banks are the same institutions who were bailed out by taxpayers, an expense which will be borne by our children and grandchildren. The very people who took care of them at great cost are the ones who are most vulnerable.
I fail to comprehend how a home owner who must transfer for job purposes and whose home is now worth 50% of what it was purchased for should be FURTHER penalized by being denied a short sale when a viable offer is on the table OR be forced into foreclosure or legal limbo. Isn't it better to deal with a healthier patient and address the issue rather than wait until the situation is beyond any hope for redemption?
Irene...well, this is the reason why so many are walking away. However, it's not the only way to address the issue. A large portion of the loans made within the past few decades have carried mortgage insurance for up to 80% of the value. In addition, many of the homes being forced into foreclosure had been payment interest/profit payments for much of the past 10-15 years. Yes, there is a loss, but not necessarily one which is insurmountable.
It is possible for a bank to create a note for the remainder or a portion of the outstanding balance. However, most recently this option is NOT being allowed by some lenders and their servicing agencies. The only option is to default on the payment. So not only is there a greater likelihood of foreclosure but greater financial and legal implications too. Clueless about how this makes sense from a long term investment standpoint.
Last night's program really posed the morality question for the consumer, and forgetting to point the compass at the lending institutions. Practical thought was missing from the piece.
Paula...WOW! Thanks for sharing your experience. Wouldn't it be wonderful if someday, there would be a realization that what's good in the long term is ultimately the best standard for making short term decisions.
Lending institutions making decisions solely based on collecting monthly payments without informed concern for the well being of their client base over the long term is like real estate agents merely being concerned about getting the next deal without realizing the value of cultivating relationships and referrals.
Eileen...you're right in noting that deficiency judgements remain a part of the arsenal that can be used against a borrower. I'm not sure that many individuals who are wading into this arena of walking away from an underwater mortgage realize how devastating this can be. The judgement is part of the public record on the credit report.
What we may actually be witnessing here is the first stage of deployment of the RENTAL economy; a situation in which buying a home is considered a BAD INVESTMENT. Should this notion take hold, we would in essence be killing the very goose which as been laying the 'golden eggs'. We're essentially in the process of potentially putting MILLIONS of potentially good home buyers out of the real estate cycle for a very, very long time. When one thinks about how much of the economy is driven by housing, this should give us pause!
The first time I heard a negotiator for a bank tell me they wanted the owner to stop making the payments before they would work a short sale I nearly fell out of my chair.
Is that tough love unlove or what?
Concord Real Estate...appreciate your comment, but this IS a type of strategic default. This blog post is highlighting a situation in which the homeowner is CURRENT on their mortgage obligation - sometimes raiding available savings and investment accounts to do so at great personal hardship.
This blog post is about situations in which the homeowner has lost a job or has to transfer or has had a signficant life altering event. This post is about a situation in which the homeowner has tried to sell their home, sometimes for years and has seen values decline to incredibly low levels.
ALL of the above concerns have been fully documented. The banks in question are NOT questioning the proof...they are simply requiring that the home owner STOP PAYMENT on the loan in order for the process of the short sale to continue or in some cases conclude. In my opinion, this is a Strategic Default...one which is initiated by the lending institution. What I fail to comprehend is WHY???
Consider this -- the homeowner "defaulting" is the only way the banking industry is going to be able to give new loans in future. 7 million home owners in the rears, hmmmm..... so if they want to move to a new home in say 3 - 5 years..... they need to be out from under their current home NOW.
I'm not really sure the banks think this all the way through - but.... consider the possibility.
Russ, I understand that argument although I think it is an unfortunate one. Keeping an obligation is a good thing for institutions and for individuals. It's the basis for stability in our economy because it is the basis of our underlying trust in each other and our commitments. I think we're creating consequences which will be with us for a very long time.
Katerina...Thank you for your comment!!!
"The banks also do this with the HAMP program and any Loan Mod program. They make the homeowner STOP paying and then say in the same breath that the foreclosure process will still continue?????????? WHAT?????????????? Who are these morons who got put in charge of the decision making at the banks and at the FED Reserve because they are in bed together and then , Oh, don't get me started! Katerina"
Thankful to know it's not just me! :) The process of FORCING homeowners to become delinquent and threatening them with denial even when they are getting MORE than their own appraisal indicates the property now warrants is extraordinary and inexplicable.
Michael...I think we're all wrestling with what the American Dream means. My prayer is that this does not become the American nightmare.
Deborah Stone...I'm not sure I understand your comment. Could you clarify? This post is referring to a situation in which the lender acknowledges that a short sale is a viable alternative but then forces a home owner to DEFAULT on their payments in order to complete the short sale process. It would seem to me that this may be more about putting people into further financial misery and ruining credit and collecting fees...JMHO.
Real Estate Investing...Believe me, I'm all about opportunity and making a good living. However, I also believe that we must be careful that in our rush to acquire profit, we do not create a situation which will cost us ALL more than we ever imagined. The best societies historically have been ones where people were treated fairly and there was a level of trust which underscored financial dealings. Forcing a homeowner to default when it can reasonably be avoided is not in the long term national interest in my opinion.
Renee...TRAGIC is an absolutely accurate descriptive. I don't think that hindsight will judge this period well. What's also tragic is that the mistakes we may be making are going to impact us for a long, long time. And yet, we're making judgments and decisions which seem to barely extend past our noses when it comes to the impact on our long term well-being.
Bob & Debbie...Thanks for your comment. I've read a number of posts and articles about the homeowner deciding to walk away in a strategic default. What I've heard less about is when they are asked to default on their mortgage payment...
It is really a precarious situation we find ourselves in. Although I don't agree with anyone walking away from a mortgage they can afford, I do understand it from a financial/economic standpoint. You're throwing good money after bad. However, that being said, I hope we have a complete shift in our thinking about real estate from here on out. A home IS NOT an investment. It is a home. A rental home is an investment, but only if it is giving you a positive cashflow. If the cashflow is negative, it is a liability. Plain and simple. We need to return to these tried and true rules. Great post and best of luck to you Lola.
Kristen...You make a VERY interesting point. Hadn't thought about this in terms of it being a variant of the old 'liar loans.' Hmmmmm
Laurie...yes, Deed in lieu has become a more popular alternative with regards to a lender offer. Does my understanding serve me correctly that this is also not a guaranteed option? Like the 'skipped payment' suggestion, the lender may change the rules mid-stream? Just wondering...
Lynn...thanks for your comment. There is quite a discussion going on about the point you made on some other blog posts. However, the issue being discussed here is a situation in which home owners are being required to stop payments..home owners who are doing everything possible under substantial distress to continue to make payments in a situation in which the only option available to sell a home is through a short sale negotiation.
Lola I can't expand more on what you said. Your insight is amazing.
Tammy....I appreciate your comment. This situation pits neighbor against neighbor in an awful way. I personally don't believe in walking away from an obligation because it becomes a bad deal. However, I also have issue with a lender FORCING someone to default in order to make a decision about a short sale. This type of a mandate makes light of the seriousness of the situation that millions of Americans are facing.
Cherise...that's why I wrote this blog. I'm not hearing about this part of the Strategic Default story ...it's all about home owners walking away. Some home owners are desperately trying to not walk away and are having their hours of pleading for a viable solution fall on deaf ears.
I could write a whole series on strategic defaults... morality and ethics. While I understand "ya gotta do what ya gotta do", there WILL be a consequence for everyone if thse gain more "popularity"... Look for lenders to mitigate their risk by increasing rates (look at the commercial sector).
Cameron...I couldn't believe it either! I asked the home owner to have the lender put it in writing. And then I did another double take when they did! Amazing!!!
Susan...the part about the 7 Million home owners being tomorrow's potential banking pool is interesting. It's way to depressing to think of this in terms of lending institutions deliberately setting this up as a strategy for future business. I think it is more likely to be short term reactionary thinking IMHO.
Jerry, appreciate your comment. Thanks for stopping by.
Renee...thank you.
Lane...very much appreciate your thoughts on the commercial sector. There will be a domino effect here. That is another reason why the tactic of creating a default to negotiate a short sale which you have ALREADY approved in principle makes absolutely no sense.
Lola,
Great post and I do consider it depressing to think lending institutions are deliberately setting this kind of default up! 7 million home owners involved is mind boggling!
I didn't watch the piece last night but browsing through these comments it seems it was/is a very confusing situation we are in as homeowners AND realtors. I don't see anything correcting itself in the near future. This could go on for some time.
Chase has already been sued for this practice of telling homeowners to miss payments before they would consider a short sale or loan mod. This will be the first of many lawsuits to come over this practice. The lenders tell the homeowner to miss payments because their mortgage insurance pays out after 2 missed payments. It is disgusting that they are even suggesting this and simply because they can collect at the expense of the homeowner's now destroyed credit.
Homeowners should weigh all of their options and make decisions based on wise counsel from their realtor, accountant & attorney before they decide to default on their loan. But it is a shame that Corporations can make business decisions that affect their bottom line but homeowners are stigmatized and credit destroyed for making the same decisions.
Lola, I never thought about a homeowner who was instructed to quit making their payments before they could do a short sale as a strategic default. Wow. The homeowners I am speaking of are the ones who are in financial distress but barely making their payments. That puts a whole new slant on this term, but not the one 60 Minutes wanted to convey. As usual, they only wanted the sensational part.
Google Morgan Stenley defaults for more evidence of what's wrong with this country.
If I was paranoid, I might believe that the bankers all want to turn us in to indentured slaves!
I imagine purposely damaging my credit as hard to do as self-amputation. If the bank instructed me to default I don't think I could do it deliberately.
Hi Lola, I met a homeowner who is a self-employed contractor. His mortgage is with Chase. He wanted to do a loan mod. A lovely customer service rep told him he has to be late on his payments for 3 months in order to do the loan mod. After 90 days, he calls back and another lovely customer service rep told him he can't be late on his payments in order to do a loan mod. Sinve he is self-employed and his salary isn't "stable" Chase will not do the loan mod. Now he's angry and doesn't want to do a short-sale. He hasn't made a loan payment in almost 2 years so foreclosure is looming.
Banks have to be more regulated. They created the mess homeowners are in and now we are going to be in a new mess since banks aren't clear about their "policies" concerning loan mods. Banks have to start caring more about their customers.
This scenario happened to one of my clients recently. The lender will not consider their short sale, which is insured by Fannie Mae, until they are 30 days in arrears. Based on the families circumstances I consider it a national embarrasement that a lender would even suggest what they have to stop making their payment in order to qualify for a short sale. The same lender had already taken their money and then denied them a loan modification. Now they want to ruin their credit and future ability to rent a home.
Lola, I have not had that happen yet where the bank told the seller to miss some payments. In the beginning of the short sale shift in Real Estate I would not tell a person to miss a payment. Then I did con-ed and the local Mi Attorney said it is ok to do that as the banks won't look at the file unless they are behind.
I have a hard time with that one, but now I tell them "in my experience, this is what the banks do.....it is your choice, I will never advise anyone to mess up their credit.
Lola, you bring up a valid point. I had a buyer client this year who almost failed to qualify for a loan because Wells Fargo suggested (in writing thank goodness) the year before to fall behind a month on the mortgage payment.
My client had lost his job and did not know when he would get another job. He contacted Wells about a loan modification. Wells told him they could not do a loan mod as long as he was current and to miss a payment. My client missed the payment and before the loan mod could go through he was hired again and caught up that payment and remained current ever since.
Luckily for us we had the letter from Wells Fargo to go with the loan package for his new home.
I keep hoping more and more short sales will be done without need of the seller going into default on the mortgage.