Realtors favor anything which generates a commission and oppose anything which fails to irrespective of whether or not this is good for buyers, sellers, or the market. For example, realtors recently lobbied against allowing bulk sales of foreclosures to private equity firms. 
Why? Because those sales eliminate MLS sales which would generate commissions. There is no other reason.
When it comes to short sales versus strategic default, I am indifferent. For loan owners who would benefit from reduced debt, either option solves their problems. I recently noted that strategic short sales are the moral alternative to strategic default. Perhaps the moral and ethical considerations matter most to some borrowers. The threat of strategic default is the only leverage a loan owner has to get a lender to negotiate a loan modification or agree to a short sale. If a lender says no, the loan owner can flip them the bird and simply quit paying. Loan owners should always consider this option.
realtors only want loan owners to consider short sales because that’s what generates commissions.
Strategic default is not the best option for distressed homeowners
Posted June 24, 2012 at midnight
For homeowners in danger of losing their home, walking away might seem like an attractive solution.
“Many distressed homeowners in Ventura County have been getting bad advice when it comes to strategic default,” said Jean Warnke, Certified Distressed Expert with Troop Real Estate Inc. “It has become fashionable for some so-called experts to recommend defaulting on your mortgage as a method of dealing with pending foreclosure,
Strategic default is a good option for any underwater loan owner making mortgage payments far in excess of comparable rents. Those people are just flushing money down the toilet and throwing away their money on interest. Strategic default or a strategic short sale are both viable alternatives, but as one might imagine, realtors prefer loan owners excercise the option which generates them a commission.
but this is actually one of the worst options imaginable.”
Well, strategic default is certainly the worst option for generating a commission. So what evidence can she present to back her claim?
Strategic default is a method some homeowners who are in danger of losing their home to foreclosure choose to take. Rather than spending more money trying to save the home, they simply let the bank foreclose, take the credit hit and then walk away.
Yes, it is foolish for loan owners to throw good money after bad. At some point, these people need to cut their losses and move on.
“It is unfortunate because there are so many better options available to homeowners under the threat of foreclosure than this,” Warnke said.
Like what? Loan modifications? We have seen what a dismal failure those programs are.
While strategic default can provide immediate relief to the overwhelming feeling that the threat of foreclosure brings,
Yes, it does. Once people decide, the financial distress immediately recedes. In fact, once people stop paying their mortgage, they are so rewarded that most loan owners work to game the system to stay in the property as long as possible.
it can have devastating effects on a homeowner’s future ability to find affordable housing.
It that bogeyman the best she can do? Strategic default and foreclosure has no greater impact than a bankruptcy, and it’s only marginally worse than a short sale. 
As a CDPE, Warnke makes a point to find the best possible options not just for the present, but for the future as well. “There are options for homeowners in that can have a much lighter effect on their credit while also allowing them to walk away from an oppressive mortgage,” she said.
That pretty much eliminates loan modifications. So what option does that leave? I guess you need to contact Ms. Warnke to find out. After she explains your dismal “options” she will be delighted to take your short sale listing — which you can be sure she will push on you.
Warnke can be reached at 218-0118,or send email to jwarnke2@gmail.com. For more information about the CDPE designation, visit www.CDPE.com.
I find these pseudo news stories realtors contribute to newspapers amusing. Newspapers are obviously desperate for free content, and realtors are happy to provide this content to plug their businesses. I have contributed to the OC Register, and I probably would more often if I saw more benefit in it. The system isn’t necessarily flawed, but readers need to recognize much of this content isn’t news, and often it isn’t even accurate, and usually it is self serving.
High end foreclosures carry steep discounts
With the absence of move-up equity and prudent lending standards based on verifiable incomes, very few homes priced over $800,000 sell. When properties above that threshold are forced onto the market as REO, they command steep discounts in order to sell. The rumors of strength at the high end are illusions fostered by realtors and lenders hoping they can offload their overpriced properties to unwitting buyers.
Today’s featured property is a Newport Coast beauty bought in early 2008. The owners quit paying, so it went into foreclosure. The bank is now selling it at a 23% discount from its 2008 purchase price. When the banks get around to pushing out the high-end squatters, expect to see more properties like this one sporting significant discounts.
Newport Coast Overview
Median home price is $1,455,000. Based on a rental parity value of $1,033,000, this market is over valued.
Monthly payment affordability has been worsening over the last 1 month(s). Momentum suggests unchanging affordability.
Resale prices on a $/SF basis increased from $559/SF to $567/SF.
Resale prices have been weak for 4 month(s). Price momentum suggests weak prices over the next three months.
Median rental rates declined $420 last month from $4,708 to $4,287.
Rents have been slowly rising for 12 month(s). Price momentum suggests slowly rising rents over the next three months.
Market rating = 1
Proprietary OC Housing News home purchase analysis 
2 VENETO Newport Coast, CA 92657
$1,399,000 …….. Asking Price
$1,650,000 ………. Purchase Price
2/11/2008 ………. Purchase Date
($251,000) ………. Gross Gain (Loss)
($132,000) ………… Commissions and Costs at 8%
============================================
($383,000) ………. Net Gain (Loss)
============================================
-15.2% ………. Gross Percent Change
-23.2% ………. Net Percent Change
-3.7% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$1,399,000 …….. Asking Price
$279,800 ………… 20% Down Conventional
4.12% …………. Mortgage Interest Rate
30 ……………… Number of Years
$1,119,200 …….. Mortgage
$296,174 ………. Income Requirement
$5,421 ………… Monthly Mortgage Payment
$1,212 ………… Property Tax at 1.04%
$200 ………… Mello Roos & Special Taxes
$350 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$468 ………… Homeowners Association Fees
============================================
$7,651 ………. Monthly Cash Outlays
($1,301) ………. Tax Savings
($1,578) ………. Equity Hidden in Payment
$407 ………….. Lost Income to Down Payment
$195 ………….. Maintenance and Replacement Reserves
============================================
$5,374 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$15,490 ………… Furnishing and Move In at 1% + $1,500
$15,490 ………… Closing Costs at 1% + $1,500
$11,192 ………… Interest Points
$279,800 ………… Down Payment
============================================
$321,972 ………. Total Cash Costs
$82,300 ………. Emergency Cash Reserves
============================================
$404,272 ………. Total Savings Needed
——————————————————————————————————————————————-
We're sorry, but we couldn't find MLS # S703045 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$1,599,000 6 VENETO |
0.02 miles 3 bd / 2.5 ba 2,505 Sq. Ft. |
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$1,599,000 19 PAVONA |
0.1 miles 4 bd / 2.5 ba 2,562 Sq. Ft. |
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$1,575,000 6 FIORE |
0.13 miles 3 bd / 3.25 ba 2,820 Sq. Ft. |
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$1,890,000 3 FIORE |
0.17 miles 3 bd / 2.5 ba 2,552 Sq. Ft. |
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$1,899,000 7 RENATA |
0.37 miles 4 bd / 3 ba 2,777 Sq. Ft. |
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$1,488,800 8 ANACAPRI |
0.39 miles 4 bd / 3 ba 2,490 Sq. Ft. |
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$1,399,000 14 TESORO |
0.49 miles 4 bd / 3 ba 2,490 Sq. Ft. |
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$1,499,000 9 TESORO |
0.51 miles 3 bd / 2.5 ba 2,345 Sq. Ft. |
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$1,425,000 1 VERANDA |
0.55 miles 3 bd / 2.5 ba 2,600 Sq. Ft. |
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$1,599,000 8 TUSCAN BLUE |
0.56 miles 4 bd / 4 ba 2,812 Sq. Ft. |
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19 Responses to “Strategic default opposed by realtors who want short sale commissions”
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The point you make, that all persons with a financial interest will do the predictable thing regardless of morality or the overall financial health of the public at large, is why we have Wall Street Bubbles. The bubble that was the 1981 Penn Square mess, occurred because the players could also commit fraud wholesale and did; the bubble that occurred around 1999 through complete lack of underwriting quality of Conseco on mobile home through their Greentree subsidiary (or some such name) showed how the mobile home industry was perfectly willing to impose unqualified debtors onto a bond-floating corrupt system which made profit ignoring the obvious credit deterioration. Anyone with a lick of understanding of the history of non-regulation understands “people are crooks” which is the Puritan view, not “people are basically good and pure and no regulation of their evil propensity is needed”. The people who want to commit evil have discovered the easiest way in the world to start their evil is to bribe the regulators, and since those bribed the most generally win election since they have larger campaign war chests, pretty soon the legislature is totally compromised. The Puritans were right to view humans as corrupt and corruptible. Muslim “puritans”, for example, desperately tried to ban charging interest as leading to all other sin and corruption (they have now rigged ways around it, of course).
So the Realtors now raised extra money to buy off regulators, making them the second biggest lobby (I believe) after the US Chamber of Commerce, how charming. I assure you first hand, Jack Abramoff was right saying from his prison, how easy it is to corrupt Congress and State legislatures.
But nothing is learned and the bubble based on illegality or behavior warping credit standards established and thus threatening financial collapse, that continues. Here it is blatantly bubbling yet again in subprime…sound familiar? This one is in autos, it will still be a few years until the bubble/illegality/bad credit/bad securities industry turns back to housing and its huge fountains of money (worse than the present moderate quality debtor, FHA backed ridiculous market of low interest loans), but count on it, they will. From today at Bloomberg:
“Heightened competition in the subprime automobile-lending market may result in large investor losses if growing demand weakens underwriting standards, according to Moody’s Investors Service.”
“The market has grown over the past two years as private equity firms, including Blackstone Group LP (BX) and Perella Weinberg Partners LP, are drawn to the sector’s profitability, Moody’s analysts including Peter McNally wrote today in a report. That recent influx of capital echoes trends that led to a lending bubble and heavy losses in the 1990s, signaling a similar downturn may be repeated if competition for attractive returns deteriorates the credit quality of portfolios.
“Loan performance has been strong over the past several years, but the investor interest from outside the subprime auto market niche and the potential for increasing competition imply that losses could increase if a race for profits and market share results in weaker underwriting standards,” the analysts wrote.
While today’s market is not yet as “overheated” as that of the 1990s and benefits from more centralized servicing centers and stricter accounting standards, the credit quality of auto loans securitized in 2011 and 2012 has loosened since 2010, the New York-based ratings firm said. The average annual percentage rate on loans for used cars fell to 8.61 percent in the fourth quarter of 2011, the lowest level since 2008, Moody’s said in the report, citing data provider Experian.”
Great comment.
I wouldn’t have a problem with the bubbles and the corruption if the losses were born by the lenders who made the stupid loans. Eventually, this would put them out of business. Where I have a real problem with it is when the US taxpayer has to pick up the tab, or when the problem is so great the federal reserve has to steal from savers to pay for it.
You indicated that, “I wouldn’t have a problem with the bubbles and the corruption.” However, Judaism (and I suspect other ancient religions) certainly does. Judaism categorically opposes bad laws generally and greed specifically. Bubbles result primarily from greed and bad laws.
I’m not trying to offend you but I’m going to be blunt: you obsessively rant about the same superficial problems and seem to enjoy a good “dust up” with those who argue foolishly. Be that as it may, I suspect that readers of this blog would be much better served if you were to focus on fundamental problems such as this: mass democracy itself is an absurd idea. Judaism clearly teaches that our mass democracy need not be fixed but rather it needs to be replaced.
Let’s take a brief look at one recent example: communism. (By the way, I am ashamed that Karl Marx, a fellow Jew, was descended both paternally and maternally from rabbis). US newsreels, newspapers, radio, and television depicted it as a force that would eventually and- almost irresistibly- spread to envelope the entire globe. Yet today it seems quaintly quixotic, utterly irrelevant, and about as dangerous to American National Security as a standard cotton ball.
Judaism clearly explains that mass democracy inevitably leads to bad laws and greed. The story in Exodus of the worship golden calf is an example of idolatry- a bad law- and, of course, greed.
It’s not an accident you want your son to be cared for by devoutly religious people after you and your wife pass on. However, you have left your home in the upper Midwest, and after living in different parts of the USA, are now in a “nice neighborhood.” Although it almost certainly has many of the accouterments we tend to associate with community, it is almost certainly essentially a modern neighborhood.
Therefore, you seem to clearly and acutely realize that your neighbors are not friends and family who are part of a traditional community that would tend to collectively care for the weak and helpless. Instead they are essentially strangers who are part of a modern neighborhood who will tend to at least abandon, if not prey on, the weak and helpless such as your son. Clearly that last prospect deeply troubles you.
And it should. Anyone who has trouble imagining what happens to the weak and the helpless when good laws are not enforced by righteous men, need merely refer to the story of Sodom and Gomorrah in Genesis.
My Jewish tradition clearly indicates we need to be governed by a council of devout sages who enact good laws which they administer righteously. That is what I learned a couple of weeks ago when studying the portion of the Torah called Korach (Parsha Korach). I’m not a Chabnick, but you and readers of this blog can read more about Korach here:
http://www.chabad.org/parshah/default_cdo/aid/45591/jewish/Korach.htm
Currently in the USA, we are governed overwhelmingly by a bunch of demagogues who pander to the masses and predictably enact bad laws which they administer unjustly. The knee jerk reaction of many is: let’s throw the bums out and change the laws! But as my Jewish sages have taught (and I suspect Christian, Muslim Buddhist, Hindu, and other ancient sages may also have taught) , within our current system, this is mere fantasy.
It’s so simple to deconstruct the series of lower highs and lower lows, as time passes…..
Accommodative monetary policy since 2001 led to gross misallocation of capital which led to asset deflation which led to even more accommodative monetary policy which led to additional gross misallocation of capital which will lead to even more asset deflation.
Gotta love feedback loops…
Amend-extend-pretend is becoming more tenuous in the commercial market. Currently, $59 billion in loans are delinquent.
Trepp Reports CMBS Delinquencies Hit All-Time High
The delinquency rate for commercial mortgage-backed securities (CMBS) moved up 12 basis points in June to 10.16 percent, reaching an all-time high, according to a report from Trepp.
The delinquency rate includes loans 30 days delinquent or in foreclosure. In May, the rate surpassed 10 percent at 10.04 percent. A year ago, the delinquency rate was 9.37 percent and prior to breaking through the 10 percent barrier, the delinquency rate was 9.80 percent in April.
The percentage of loans seriously delinquent, or 60-plus days past due or in foreclosure, REO, or non-performing balloons, is at 9.73 percent. A year ago, the rate for seriously delinquent loans was 8.75 percent.
Trepp cited weak performance among lodging, office, and retail loans as reasons for the rise in the delinquency rate. However, the industrial segment showed improvement in June and multifamily loans remained unchanged for the month.
Late last year, Trepp predicted that the market could see an increase of 70 basis points in the short-term, and the rate has actually increased 64 basis points since late 2011.
There was one positive side to the report. Trepp stated that most five-year loans originated in 2007 were made in the first six months of that year, and so now that we are halfway into 2012, this means the number of five-year loans from 2007 are reaching their maturity dates and will fall off over the next six months.
“The soaring temperatures across the U.S. made for a very uncomfortable June in many places. With the level well over 10% now, the delinquency rate is equally uncomfortably high for CMBS investors. Driving the rate up has been the fact that only 28% of the loans from 2007 due to mature in 2012 managed to pay off in full. Just as the heat should break by September, investors should see some relief, too. Now that most of the 2007 loans coming due in 2012 have passed their maturity date, the delinquency rate should start to level off soon,” said Manus Clancy, senior managing director at Trepp.
Currently, $59 billion in loans are delinquent.
Based in New York, Trepp is a provider of information, analytics and technology to the CMBS, commercial real estate and banking markets.
Seven additional banks could be fined in addition to Barclays. Also, JP Morgan Chase has weird energy trading “issues”.
We need Glass-Segal again.
Foreclosure may get more difficult in California
California Homeowner Bill of Rights passes, sent to governor
Two central provisions of the California Homeowner Bill of Rights passed the California State Legislature Monday.
The bills will travel to Gov. Jerry Brown’s desk, where other provisions of the bill also await approval. Brown has not indicated whether he will sign or veto the legislation.
The Assembly, by a vote of 53 to 25, and Senate, 24 to 13, approved the Foreclosure Reduction Act, which restricts the process of dual-tracked foreclosures and the Due Process Rights Act, which guarantees a single point of contact for struggling homeowners to discuss their loan. The latter also imposes civil penalties on the practice of fraudulently signing foreclosure documents without verifying their accuracy.
The Foreclosure Reduction Act bars lenders from filing notices of default, notices of sale, or conducting trustees’ sales while also considering alternatives to foreclosures like loan modifications or short sales.
“These common-sense reforms will require banks to treat California homeowners more fairly and bring more transparency and accountability to their practices in our state,” said California Attorney General Kamala Harris. “Responsible homeowners will have a better shot to keep their homes.”
The bills’ passage comes the day after the release of a study authored by research and consulting firm Beacon Economics on behalf of industry groups, concluding that if the Homeowner Bill of Rights were signed into law it would ultimately harm the vast majority of California homeowners.
The bills impose stricter rules on mortgage servicers seeking to nonjudicially foreclose on homes with mortgages in default and expose mortgage servicers to substantial new legal liability, according to Beacon.
Beacon argues the bills could add to the financial burden of distressed homeowners.
“The nonjudicial foreclosure process is more efficient compared to the judicial foreclosure process, and it comes with an important caveat,” the study notes. “When using nonjudicial foreclosure, lenders … cannot seek compensation for their mortgage losses out of the borrower’s other assets. If the nonjudicial route is lengthened and made more costly, many lenders may decide to pursue a judicial foreclosure … and thus pursue remedies like deficiency judgments, ultimately costing the borrower more in the long run,” the study said.
Calling the bills “monumental,” State Sen. Darrell Steinberg, D-Sacramento, said people came together from different points of views over the course of 20 hours.
“This is how the process should work,” Steinberg said. “We achieved a middle ground. Let this be the first of a number of things we get done this week.”
About 2 years ago they past SB-1137 that required lenders to document calls and other notices. Now this law.
My question: Since the banks aren’t processing foreclosures, will this new law really reduce the number of foreclosures hitting the market?
What’s the bottom line? If I stop paying my mortgage, how many months can I reasonably expect to live rent-free in CA now?
This law really opens the door for people to game the system through the short sale process. Many people already list their houses with no intention of ever selling it. Many more will do the same because, as I read it, merely attempting to short sell a house makes the bank stop all foreclosure proceedings. If that’s the case, many will list their homes and make it difficult to show, play games with listing prices, and generally drag out the short sale process as long as possible. I hope this law has some restrictions on that, otherwise, people will be able to live rent-free for a very long time.
To directly answer your question, if you defaulted now, it will take them at least 90 days to file a NOD. If you apply for a loan modification, you should be able to delay it six months or more while you apply, then re-apply, then appeal the decision. Once that is done, if you list the property for sale, you should easily be able to delay that first filing for at least six months. Plus, unless there is some prohibition, you can relist the property multiple times and feign a good-faith effort to sell.
There’s a property that I have been watching do this for a few years that FINALLY went through the foreclosure process a couple of months ago.
It looks like they finally gave up in September last year, but still took until May for the property to actually be sold at auction.
May 07, 2012 Sold (Public Records)
This home was sold at a foreclosure auction.
Sep 17, 2011 – Delisted (Withdrawn) — — CRMLS #7
Aug 31, 2011 – Relisted (Active) — — CRMLS #7
Aug 07, 2011 – Delisted (Hold) — — CRMLS #7
Aug 07, 2011 – Relisted (Active) — — CRMLS #7
Jul 13, 2011 – Delisted (Hold) — — CRMLS #7
Jul 11, 2011 – Relisted (Active) — — CRMLS #7
Jul 04, 2011 – Delisted (Hold) — — CRMLS #7
Jun 30, 2011 – Relisted (Active) — — CRMLS #7
Jun 12, 2011 – Delisted (Hold) — — CRMLS #7
Jun 12, 2011 – Relisted (Active) — — CRMLS #7
May 29, 2011 – Delisted (Hold) — — CRMLS #7
May 29, 2011 – Relisted (Active) — — CRMLS #7
May 19, 2011 – Delisted (Hold) — — CRMLS #7
May 19, 2011 – Relisted (Active) — — CRMLS #7
May 17, 2011 – Delisted (Hold) — — CRMLS #7
Apr 29, 2011 – Price Changed * — CRMLS #7
Apr 06, 2011 – Listed (Active) * — CRMLS #7
Aug 23, 2010 – Delisted (Leased) — — CRMLS #6
Jun 15, 2010 – Listed (Active) * — CRMLS #6
May 19, 2010 – Delisted — — CRMLS #5
Mar 27, 2010 – Listed (Active) * — CRMLS #5
Mar 26, 2010 – Delisted — — CRMLS #4
Mar 17, 2010 – Price Changed * — CRMLS #4
Feb 26, 2010 – Listed (Active) * — CRMLS #4
Feb 15, 2010 – Delisted (Expired) — — CRMLS #3
Jan 05, 2010 – Price Changed * — CRMLS #3
Dec 29, 2009 – Price Changed * — CRMLS #3
Nov 22, 2009 – Price Changed * — CRMLS #3
Aug 14, 2009 – Listed (Active) * — CRMLS #3
Jun 19, 2009 – Delisted — — CRMLS #2
Mar 17, 2009 – Price Changed * — CRMLS #2
Feb 16, 2009 – Listed * — CRMLS #2
With the new law, properties like this one will never be foreclosed on.
The passage of the ‘bill’ is another fine example of bureaucratic diametrical genius because it will increase the cost of originations and further reduce availability of capital to fund mortgages in Cali.
I know this is a bad thing, but, hey, I can’t help thinking that if it limits lending capital, it’s a good thing.
We’re in some sort of alternate reality.
The next thing the legislature will do is pass a law saying banks must lend money in California, and they can’t charge any more fees and interest than they do in other states.
Got to love how Sacremento politicians congratulate themselves for “getting something done”, never once considering or being asked about the efficacy of the legislation or the unintended consequences of such rules. Foreclosure is actually the medicine we’re supposed to take, but nope, we’re not taking it no matter what, because obviously the medicine is making us sick…look at all these poor sick people who are upside down by the thousands. Also, medicine? Not a fan. It tastes bad.
Update….
California governor expected to sign foreclosure reforms
By Jon Prior July 3, 2012 • 12:37pm
Gov. Jerry Brown said he fully supports the new requirements for mortgage servicers under the Homeowner Bill of Rights passed by the California State Legislature Monday.
“The Homeowner Bill of Rights will prevent banks from throwing Californians out of their homes while they are trying, in good faith, to renegotiate their mortgages,” Brown said in a statement. “This bill establishes important consumer protections that are long overdue and I commend Attorney General Kamala Harris for her determined pursuit of these changes.”
His office did not say when the governor is expected to sign the legislation.
Democrat lawmakers took just four months to push a series of bills through both chambers since introducing them earlier this year. Many of the requirements were built around similar requirements under the national $25 billion foreclosure settlement California Attorney General Kamala Harris and 48 other states signed onto in March. Oklahoma did not sign the settlement.
The bills passed Monday end the practice of dual-track foreclosures, by which mortgage servicers continue the foreclosure process on borrowers while simultaneously considering them for a modification.
They also require servicers to provide documentation to the borrower establishing the right to foreclosure before filing a default notice, and the bills levy civil penalties for filing fraudulent affidavits and other paperwork with counties.
Other bills give Harris new powers to pursue financial crimes across several jurisdictions.
The bills faced significant opposition from the mortgage industry.
“The California foreclosure laws are misguided and damaging,” said Anthony Sanders, an economist at George Mason University, in a blog post Tuesday. “Essentially, would you lend money to someone in California if you knew that it is more difficult to enforce a foreclosure if the borrower defaults?”
Roughly 263,500 properties in California received a foreclosure filing in the first six months of 2012, the highest total in the nation, according to RealtyTrac. Filings dropped 13% from last year.
It takes an average 274 days to foreclose on a property in California after the notice of default is filed, one of the shortest timelines in the country, according to ForeclosureRadar.
“Californians will finally have a fighting chance to keep their homes, as this measure brings fairness to the loan modification and foreclosure process,” said California Senate President pro Tem Darrell Steinberg.
“Committee members narrowed the measures to apply only to modifications on primary, or “first-lien,” mortgages. The compromises also limited the protections to owner-occupied residential properties with four or fewer living units. Mortgage holders who bought property for investments and so-called strategic defaulters, who turn in keys and voluntarily go into foreclosure, aren’t covered by the proposed law.”
How do they prove if someone strategically defaulted or not?