With the market in such disarray there is much talk about whether banks will take advantage of the bailout by holding onto their foreclosures and take their run with REOs (Real Estate Owned) or if they will become more formidable about short sales. As managing partner of ALMS (American loss mitigation Services) I spend my days negotiating short sales with the banks. Having been active and watching all the changes this market has undergone in the short sale arena I tend to be opinionated on this topic.
What most people don’t understand, banks are FINALLY getting it, is the gap between foreclosures and REOs. Many banks have turned to third party asset managers to liquidate their REOs. Most of the asset managers are using the retail market as a way of unloading them. On paper this looks like the banks are better off selling an REO as opposed to doing a short sale, hence the reason things have been so rough for short sale investors.
Let’s talk about where the problem is. In an example where an investor makes an offer of $150k on a home valued at $200k. Let’s say the bank does the BPO and it comes back right at $200k. This would prompt them to deny the above offer for $150k. Once the house goes into Foreclosure the file is probably noted as having an offer of 75% of the CMV (current market value). Note I just used a percentage instead of the actual dollar difference. Now the asset manager is going to assign an agent. Once they do this the agent that received the property will have to “reassess value”. Here is where all the problems come into play. An REO agent, traditionally, will NOW come in low on value. For the purpose of this example the agent will come in around, say, $170k. Keep in mind that the agent’s motivation is getting that rock bottom number so that it will move quickly which will make them look good and hence the asset manager. They take an offer of $145,500 and close.
What is wrong with this picture? If we go back to percentages the bank will see that the asset management company just sold the home at 85% of current market value. That is 10% more than the investor was offering, but is it? Herein lies the leak that everyone was missing for some time. The “retail” offer itself was $5,500 LESS than the “investor” offer. Again, for purposes of reports most are given in %’s. Somewhere along the line the dollar figure will come into play but the value of $200k will be lost in time and space due to the shuffling of the file. There really isn’t a good enough “checks and balances” system to catch this.
This has been killing the investor market prior to the sale date of the property. Mitigators are told that they can get an average of 85% of CMV if they let it go as REO. This will prompt them to decline offers that will yield, say, 75% of CMV. They are given an analysis system to which they simply plug in numbers and, like the magic 8 ball, the system spits out the infamous yes, no or maybe. This is what the investor’s HAVE been dealing with.
With the feds stepping in now we, ALMS, have already had Freddie Mac force the banks hand to take the property back because there was a current offer on the table. We were negotiating on these properties as a short sale and the mitigator declined the offer and let the file go to sale in these cases. Upon review by Freddie Mac someone internally called us and asked if the offer was still valid. Of course you know my response was ABSOLUTELY! We were able to complete the deal and close. The feds don’t want to flood the market with REOs anymore than we want them to. My honest thought is that someone has recognized this little leak and things will get a little easier, evidence this has already happened, for the short sale investors.
ALMS spent months putting together their full short sale training program but waited until recently to finally release it. One of the reasons we waited was the market shift. We wanted to make sure that our students would have the best of the best and we have dedicated ourselves to keeping it current, creative and comprehensive.
To find out more about our training program visit our website at www.americanlms.com/training
Written by Donna Atwater, American loss mitigation Services, Inc.
Since the rise in Foreclosure rates in 2006 companies and individuals have positioned themselves to take full advantage of the situation and in many cases, the homeowners as well. There are legitimate companies out there and some that were positioned well before the Foreclosure rate increase. Unfortunately, it’s those very companies that may be having difficulty staying a float.
The Better Business Bureau has reported an outrageous number of complaints placed on “Foreclosure rescue” companies. Some have resulted in litigation. What happens many times is a company or individual will collect monies before even knowing if or what you qualify for. loss mitigation is a viable service. However, there ABSOLUTELY must be an approval process. If they can collect your financial information and basic home information a legitimate company should be able to determine whether or not they can help you. This pre-approval stage should NOT require information such as signed authorizations, social security numbers and/or bank account and credit card information. Most legitimate companies will ensure they have checked if you qualify before proceeding with a contract.
In addition, there are some companies charging to provide a short sale. You should not be charged for an investor to negotiate a short sale with lender if they are finding the buyer or acquiring the property from you. A short sale specialist will receive considerable profits be it real estate commissions (if applicable), profit from selling property and/or profit from renting the property on the back end of a deal. If someone is charging you money for a short sale it should be nominal in nature. Any company or individual charging fees over $300 should be researched thoroughly. You are facing Foreclosure. You need what money you have to find a new place should you feel short sale is your last resort.
In my time in this industry I have stumbled upon quite a few companies and scams that have taken advantage of homeowners whom I have helped later. The problem is most of these companies eat up valuable time that a real company could have used helping them save their home or prevent Foreclosure. Unfortunately sometimes it can be too late. The most important thing, and I must stress this to every extreme, DO YOUR RESEARCH and investigate the company you are getting involved with. Try to go with a company that can provide you literature or a website with an actual company name that you can research via the internet or with the Better Business Bureau.
Foreclosure is a scary thing but don’t get sucked in by companies offering a rescue without doing your due dilligence. There are plenty of legitimate companies out there like Freedom Foreclosure Prevention Services that can and want to help. For every ONE of those there are THREE more that are scams. Recently a company called FAS - Foreclosure Assistance Solutions took $1,200 from an unsuspecting homeowner in Columbus, Ohio.
There is a another company that sends out a postcard that appears to be official in nature. When homeowners call they are taken through a mini application and told little to nothing about what will “Really” occur and then they come in for the kill and get the homeowner’s bank information or debit card. The company has been known to call themselves the Fresh Start company and charges a flat fee for loss mitigation services. Their charge is $1,300 when last I heard and they seem to have call centers in Texas and Florida. They could have other locations and the information I have been able to obtain about this operation is little to nothing other than they collect this fee for $1,300 and don’t seem to do anything. There may be clients that have been helped by this company and I may not even have the correct company name. If you have any further information your comments would be appreciated.
In addition, if you have been taken advantage by a Foreclosure prevention company we want to know. It is important to understand that though you had a bad experience passing the information along would keep someone else from having one. There is always going to be someone that gets victimized that has a worse situation, ie more children, maybe less family to help…It is important to share your experiences so that others can learn and grow together. If you have been a victim of a Foreclosure scam please tell us about it by commenting on this article. Thank you for your participation and time. Save a family today!
http://www.cfreedomforeclosure.com
