Perspective

It’s a Bottom Line Issue

June 19, 2009 By Jon Griffith Leave a Comment

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.

Is the owner walking away from the property?
What is the market value of the property?
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.

Filed Under: Bank Antics, Personal Finances, Real Estate Finances, Short Sales Tagged With: cost, current market value, mortgage, Perspective, short sale

More First-Time Home Buyers Than Before

November 8, 2008 By Jon Griffith Leave a Comment

According to the National Association of Realtors, in 2007, 39% of all home sales were by first-time home buyers. So far in 2008, we’ve seen that number increase to 41%. First-time home buyers have some very attractive incentives to enter the market, and it’s much easier than many would think for a first-time buyer to purchase a home because they aren’t tied to another property.

When you don’t have something to sell, you don’t have to worry about waiting. You have complete freedom to shop the market and quickly purchase a great property. You don’t want to be renting forever.

Renting is money lost. Purchasing a home puts some of that monthly payment back into the home which can be recovered when you sell (Equity.) Not only will you recover it, but it will grow at an average of 4% – 7% annually over time as proven by history.

Even thought recent growth rates have receded due to economic conditions brought about by the mortgage crisis, if you choose the right area to buy your home, such as an affluent area of your city, or a city such as Scottsdale, Arizona which has seen year over year increases in value, you’ll be positioned well in the market and your home will increase in value. They aren’t building anymore land in Scottsdale.

We’ve never seen a better time to buy than now especially IF you are a first-time home buyer with a LONG TERM VIEW.

Getting into the market to make money on your home quickly is not the attitude that you need to have. Lenders are less forgiving when approving loans for investors or people who already own their first home and are looking for a second home or a rental property. Since you are a first-time home buyer, you want to make sure that your perspective is one with a long term view of ownership. Sellers in this market are either desperate to move because of adverse conditions, or they’re wasting their time hoping for an offer at a price that the market will not bear. Lenders won’t lend when the home’s appraisal fails to meet the accepted price.

Understand that the average first-time home buyer stays in their first home for five to seven years on average in a normal market. In this market, where inventory is high and demand is low, the only common denominator is price, and the purchaser must meet the seller in order for there to be a sale. In a buyer’s market, this means the seller will have to move more than the buyer, which puts you in the driver seat. (Article Reference: Supply and Demand, X Marks the Spot)

Buying your first home can be a stressful venture, which is why you need to enlist the services of a professional. By working with a Realtor you will protect yourself from the pitfalls associated with the home buying process.

Filed Under: Buying A Home Tagged With: average, buyer, First-time, growth, Perspective, property, Renting, Scottsdale, supply and demand, value

Perspective and Perception, Small Changes that Improve Productivity

September 26, 2008 By Jon Griffith 2 Comments

Every day I discover something new, whether it be on the internet, in the newspaper, or by speaking with clients and prospects. Following technology advancements is one of my favorite activities and it has led to a myriad of tools that I have implemented to make my life more productive, or so I thought.

E-mail, to this day, has been a great way to keep in touch, but there’s one downfall that I overlooked for a long time until someone recently turned me onto the idea of eliminating e-mail notification. At the beginning of the summer, I made a few changes to Microsoft Outlook’s behavior in hopes of changing my own behavior. I found myself impulsively checking my e-mail every time my computer chimed in. I also found myself very distracted by it. So, I turned it off. Now, I don’t know when I have e-mail, and it’s liberating! Much like disciplined business associates who set aside specific times during their business day to check their messages and return phone calls, I have developed a better habit by doing the same with e-mail. No longer do I jump to my e-mail to read through each overwhelming topic in the middle of important tasks. Rather, I return them in small clumps of time throughout the day.

Another change that I made to Outlook was setting it to open in a way that would lend to more productivity. Why not have Outlook open directly to the calendar page instead of the e-mail page? Great idea! So now, when Outlook opens, it sits in the background and churns along on the calendar page where I can quickly gain access to my schedule without being distracted by the latest goofy joke or video. I can save that for later.

Okay, so here’s another trick that I just realized will help me gain perspective on my finances. I use Quicken frequently. It’s the only way I know where I stand financially. Perhaps I have a bit of a control issue when it comes to knowing where I spend my money, but I know that at any time I can run a quick report to determine where I have been spending my money and where I can change bad habits. Whether or not I change them is the key . If you’re a Quicken user, you are familiar with the annoying Cha-Ching that you hear when a transaction is recorded. Well, I made a change to that. I altered the sound from a misleading Cha-Ching (a sound that gives me a false sense of security because “Cha-Ching” is commonly used to describe income) to a more apropos sound. Since I have more transactions that deplete my account than increase it, I figured a good sound would be the sound of someone swiping something out of my hand.

Voila! Now when I record a transaction I actually feel the money leaving. Who would have thought that a simple change like that would make a difference in spending habits. We’ll see what happens .

Have you discovered any changes that you have made in using your computer that lend to greater productivity?

Filed Under: Helpful Hints Tagged With: notification, Outlook, Perspective, productivity, technology