This just in from Coach Daryl.. if you are finding the same experiences with short sales, please post your comments! You know my opinion of short sales… My time is better spent building relationships on the REO side so I can get many deals from a few sources, and work alot less. 
Here you go…
“I blogged recently about being interviewed recently by our local NBC news affiliate. To read the blog, click here. Basically, IndyMac Bank (now OneWest Bank), is holding one of my clients hostage, demanding a $75k promissory note, or they will proceed to foreclosure. For the life of me, I couldn’t figure out why they were doing this. The BPO came in at the contract price of $275k, with a net to IndyMac of $241k. What advantage could there possibly be for them to proceed to foreclosure?
Yesterday, I figured it out. You see, IndyMac was taken over by the FDIC and sold to OneWest Bank in March/2009. Guess who the investors are behind OneWest? George Soros, Michael Dell, Steve Mnuchin (former Goldman Sachs executive), and John Paulson (hedge-fund billionaire).
Now, listen to the deal they got from the FDIC….
Basically, they purchased all current residential mortgages at 70% of par value (70% of the outstanding loan amounts). They purchased all current HELOCS at 58% of Par Value!!!
Next, in order to “sweeten the pot”, the FDIC stepped in and guaranteed the following: For any residential mortgages where OneWest experiences a loss, the FDIC will step in and cover anywhere from 80%-95% of the loss. The loss is calculated using the ORIGINAL LOAN BALANCE, not the amount that OneWest paid for the loan. Let’s use my clients situation as an example:
Loan Amount is $478,000, plus 6 months of missed payments, for a grand total of $485,200. OneWest pays $334,600 for the loan. We have an all cash offer of $241,000, net to OneWest. So, let’s do the math, shall we?
The net loss, according to the FDIC formula is the ORIGINAL LOAN AMOUNT minus the amount of the offer. In this case, $485,200-$241,000, or $244,200. Next, the FDIC, according to their Loss Share Agreement, writes a check to OneWest for 80% of the so-called “net loss”. So, in this case, OneWest gets a check from Uncle Sam for $195,360 (.80 X $244,200).
Add the $195,360 to the sales price of $241,000, and you get a grand total of $436,360. Remember, OneWest paid $334,600 for the loan. So, OneWest puts $101,760 in their pocket, thanks to the FDIC. Folks, that is over $100k of our hard-earned tax dollars!
So, you ask…Why does this program hurt short sales? Because, our brilliant government offers this SAME PROGRAM FOR FORECLOSURES! The only difference is, the government picks up 80% of the tab on all of the extra costs associated with a foreclosure (BPO’s, upkeep, utilities/maintenance, legal fees, etc.)
So, If I’m OneWest, why would I want to waste my time negotiating through a Short Sale, when I can make the same amount of money (if not more) by just letting it go to foreclosure? And we wonder why nobody can get a Loan Modification? Why would OneWest approve a loan modification for this guy, when they can foreclose and make over $100k? And, to add injury to insult, they have held this loan for 6 months! Not a bad ROI, huh?
What infuriates me the most is that in my particular case mentioned above, they have the guts to hold my client hostage for a $75k promissory note, after they are already making more than $100k on the sale!!! This is his primary residence, 1st Position loan, and OneWest has NO RECOURSE! Imagine if they could make $100k, then get a deficiency judgement! Talk about making some big bucks!
Can you say “GREED”?
The scary thing is that over 50 banks have Shared Loss Agreements in place with the FDIC. Some of them include: Bank of America (go figure), CitiMortgage, Wells Fargo, etc.
This entire agreement between the FDIC and OneWest can be found here, on the FDIC website. It’s all there, for the world to see! They have it all layed out. All of the formulas, worksheets, etc.
Now, it’s up to us to bring it to the attention of our elected officials and the media. Enough is Enough!
Wait, it gets better…The FDIC just announced that it needs to start borrowing money from the U.S. Treasure in order to replenish it’s deposit insurance fund (the same fund being used to pay all of these banks in the Loss Share Agreements). Go Figure! –Robert Hertzog, Summit Home Consultants”
Now, if you want an easier, smarter way to find great deals, you need to focus on “getting on the inside” with REO agents and asset managers, so you can help them unload their non-performing assets and get a great deal for yourself at the same time. I will show you how this is done on Wednesday, October 28th at 6pm PDT (9pm EST) in my *FREE New Foreclosure Investor Webinar. *Details Here or Call 800-310-7730 x2
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Good article that Robert wrote. It is refreshing when an article is backed up by more than just personal opinion. Though I can’t validate all the data, it does make sense.
Here is where I lie and what I do know. Having done short sales on a full-time basis for over 5 years, with hundreds of closings, I do see a propensity that is heavily weighted to how an offer is presented and by what is demanded by and to the lender(s) involved.
On several occasions we have received a request by the lender for a promissory note to be signed by the homeowner. Here is where some of those requests fall into murky waters. Due to a few positives that the government has recently done, one was to enact a “forgiveness of debt” on any property that was either lost through foreclosure (REO), sold as a short sale or sold on the courthouse steps to a third party buyer. The stipulations are that it be a primary residence and that it is before 2012 that this happened. Being that we are only at the end of 2009, so far, so good!
The few properties we have purchased where we had this requested demand from the lender (or its investor), we “encouraged” them to reconsider their promissory note request and through negotiating and substantiating certain facts, we were successful in getting that request removed in all cases (if memory serves me correctly, it was under 7 times that this “promissory note request”) came up. I haven’t seen a promissory note demand by a lender in all of 2009.
So, while I agree with your logic and understand why they may choose this option, I just don’t see it that often and either out of good fortune, luck or knowledge, haven’t had to worry about it either.
As a worse case scenario though, I suppose the homeowner could agree to sign the promissory note, close the short sale and move on. The promissory note is an unsecured note and based off of the homeowner’s insolvency, would be hard, to receive any payoff.
I do agree with Alexis as well that REO’s are a definite way to go. It is all about diversification. Just as in stocks, real estate should carry the same diversification rules. The more arms you have looking for the low-hanging fruit, the better the chances are that you aren’t going to have to get a ladder, climb up to the top rings and worry about a strong gust of wind coming your way.
Should short sales be frowned upon? Absolutely not.
Does it help to learn the methods of short sales so they turn from a “pain” to a “gain”? Most definitely!
Just as in REO’s and building your business, contacts and knowledge within that realm, just as great, if not greater discounts can be achieved in short sales as well.
To everyone’s success;
Daniel Bruckner
#1 – The Indy Mac analysis is accurate… but only as far as it goes. It omits one step that is hidden in the exhibits. The “First Loss Amount” (from the Definitions) exempts FDIC from any reimbursement for the 1st 20% of losses, as shown in the exhibits for the calculations. This still guarantees One West a healthy profit, but nowhere near the amount claimed.
#2 – Daniel Bruckner’s point about forgiveness of debt is not quite correct. What the 2008 Act did was waive the taxes otherwise due for cancellation of indebtedness income IF (and only if) the loan passes that law’s tests. The Act did nothing about actually cancelling any debt.
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