Bank Antics

It’s a Bottom Line Issue

A recent post on raincityguide.com got me going about the bottom line when it comes to short sales.

The article, written by Ardell, touches on the apparent importance of the assets that a property owner may have that could affect the bank’s decision regarding whether or not a short sale will be approved.

At present, there’s no guarantee that any lender will approve a short sale, ever.

Just because the value of a property is obviously less than the amount owed, that does not mean that the seller’s lienholder is going to approve the short sale.

Consider this.  If a property owner has a net worth of $1,000,000.00 and they decide to quit paying their mortgage, what happens?  The bank forecloses.  It doesn’t matter if the seller has money or not.  They have made a decision to walk away, and one thing is certain…if you have a home with a mortgage and you quit paying it, the bank will foreclose.

So, when this seller, who arguably is walking away from a moral obligation, decides to attempt to sell the property to reduce their potential deficiency liability and potential income tax liability for current market value, which may be less than what they owe, would it, or would it not be in the bank’s best interest to allow the short sale?  If they don’t allow it, will they waste money on the foreclosure process, and lose money when they list it for sale for less than market value?  They will.

Ardell’s Auto Metaphor

You lend your friend $10,000 to buy a car. He decides to sell it when he still owes you $8,000.  He tells you someone is willing to pay $5,000 for the car and he wants you to take $5,000 as payment in full.  You look at his offer, you find out he he has $15,000 in a savings account.  You find out the blue book value for the car is $6,500. The person who wants to buy the car for $5,000 is getting impatient wating for an answer. What would you do?

My answer?  It doesn’t matter to me whether or not my friend has money in the bank.  The only thing that matters to me is how much the car is worth on the open market, and how much is being offered.

The what you may be missing about this example is the fact that my friend has made a decision to eliminate a debt, and he’s going to do it one of two ways…he’ll either a) let the car get reposessed, or b) try to sell it for as much as he can and ask for a forgiveness of the remaining debt.  True, he may no longer be a friend, but that’s what he’s doing.

So, what do I do?  Well, in this case, the car should sell for $6500.00 based on Kelly Blue Book private sale.  I as the lender now have a few options.  I can a) take the car back, or b) agree to sell it for the offering price, or c) require that my friend find a buyer willing to pay market value.

Perhaps the cost of repossessing the car, reconditioning the car, licensing and registering the car, and re-marketing the car will exceed $1500.00, the difference of market value and the current offer.  In that case, I would be an idiot not to take the offer.  I as the lender, will make smart decisions in mitigating my loss, which means that I would in fact approve the sale.

If all of my costs to resell that car are less than $1500.00, then I would deny the sale and require a higher price.

Should you just take the car and try to sell it for the $6,500 or better, so that you can still collect the amount your friend owes you after you sell the car?

This is a classic example of the tug of war that we face with lenders between the concept of Loss Mitigation and Collections.  At this point, I’m not interested in collecting.  I’m interested in preventing further loss, because I know that my friend is not going to pay.  So, I want to get the car OFF of my books as quickly as possible for as much as I can possibly salvage with as little time invested as possible.

If I am concerned with collecting, knowing that my friend has the money to satisfy the debt, I will surely become bitter at him for not paying, and then I will do something stupid, like refuse to agree to mitigate my loss, which in the end will eat up time and energy, and money.  Give me my $5000.00, get the headache out of my life, and let me put that money somewhere it can begin earning again.

Is it possible to short sell more than one home of the same owner who has plenty of money in the bank but has chosen to walk away from their obligation?  Yes.  Is it right for them to walk away?  That becomes a moral question that the seller would have to ask of his self.

Bank executives understand loss mitigation, and they don’t care about each person’s personal financial situation.  They care about 3 things and 3 things only.

1. Is the owner walking away from the property?
2. What is the market value of the property?
3. What is the current offer?

Anything else has zero bearing, from the bean-counter’s perspective.

Some second lenders (junior lien holders) will hold up the sale of a property because they just want to get back at the seller for not paying.  This is a ludicrous path to follow, because it gains them nothing.  If the senior lien holders were to behave the same way, then ultimately they lose more than if they allow the short sale.

Do lenders have to approve short sales?  No, they do not.  Would it be better if they did?  Yes, but only if it means avoiding foreclosing on the property, which is something that the bank cannot prove the owner has actually decided to allow.

A New Trend in Bank Communications

Until recently, and by recently I mean last week, communicating with a negotiator in the loss mitigation department at a given bank involved sending e-mail back and forth the old fashioned way.  It worked.  I create a new message, I send,  they reply, they send.  Pretty simple if you ask me.

On my end of the equation, however, I implemented a support ticket system which automatically tags the message thread with a tracking number.  Every time someone responds to the original message, which is tied to a specific e-mail address, a database of messages is built which gives me the freedom to delete new mail after I’ve read it instead of letting it stack up in my inbox.

The bank, mechanically, has no idea this is happening and it works out just fine.

Enter bank secure e-mail, a new niusance designed to do nothing more than eat up my time.  Last week I received communications from a negotiator who previously used standard e-mail to communicate.  Now they have implemented a system by which the negotiator posts their message to their secure e-mail system, and then their system notifies me that there’s a message.  Then, I have to register to use their system (only once) and then login to their website to read and reply to their messages.

The disadvantages are many, but the most obvious is that I no longer receive the actual message in my e-mail inbox.  My ticketing system receives a new message every time the negotiator responds because their system sends out a new notification without the ticket number in the subject line, so every notification causes a new ticket to be created.

I can see how this security measure may be good for the bank…er…no I can’t.  Each bank seems to be using their own version of this type of system, and since it’s a proprietary system for each bank, there’s no connection to my system at all.

There’s nothing more annoying, in my opinion, than systems that are implemented in the wrong context.  The idea behind this system is to put the messages in one location to take ownership of the correspondence, but by doing so, without transmitting the actual message in the e-mail, it adds steps.