Jon Griffith, Certified Short Sale Negotiator

I’m on a bit of a tirade today as I work through a few short sale issues and personal banking issues that shouldn’t exist.

I have a firm understanding of my value to a large corporation.  It’s purely monetary, and I’m just a number.  To further exacerbate the problem, one of the companies mentioned in the title is owned by the Government, and the Government is the last entity on the planet that I place my trust in.  The only thing that I can trust in is my own ability to survive.  I am 100% responsible for 100% of my actions 100% of the time.  Period.

Things don’t happen to us.  They are a result of choices we make, and today, I choose to shift my entire financial strategy from big bank, to small bank.  Here’s a simple illustration of what drives me to be suspicious of big banks.  I recently noted two independent tweets from the “team” of twitter support people at both Wells Fargo and Bank Of America.  Let me first disclaim that I don’t believe that either bank has genuinely taken an interest in supporting their customers through twitter for any other reason than to appear as though they care.  There’s no possible way for them to support all of their customers through twitter.

A recent Tweet fromWells Fargo:

@jimgoodman I work for @Ask_WellsFargo & saw ur tweet. (I also replied to @corkz.) Plz follow & DM with the details. We want 2 help. ^JR

…and now a similar response from Bank of America:

@RealScottsdale I work for Bank of America. Were you able to find a resolution to your Equator question? ^km

Perhaps they care, perhaps they don’t.  It’s possible that they both follow a basic protocol that has organically grown through the phenomenon known as Twitter, or it’s possible that they have both hired a 3rd party support organization who answers questions based on a list of policies and procedures.  It could be that they are just hiring whomever to “do it the way the other guy does it.”

Either way, the only responses I have ever received from the “support” department from a lending institution has been something to the tune of, “I work for the bank, so I can help you, I hope we helped.”  No real help is being offered.  They’re simply fielding tweets to gauge customer perception, and they should probably already know that the amount of bad comments will inherently outweigh the good comments, because that’s how people work.  People will always tell 10 people how terrible something is before they’ll tell one person how good something is.

GRRRR.  Good bye big banks!

Dear Wells Fargo,

After nearly 20 years of banking with you, I am leaving.  I will be finding someone else who cares about me more.  I will find someone who doesn’t charge me to hold my money, who doesn’t rip me off when I use the ATM that’s part of the “network,” who doesn’t eat up my money every month at a rate of return that makes what you pay me look like a fee in itself.

I will find someone who makes decisions based on who I am as a customer, not as a number.  I will find a company who is in touch with their client, and who doesn’t hire a team of people to “handle customer service issues” through one twitter account with canned responses.  I will put my money where I can shake the hand of the people connected to the pulse of the company’s culture, who understand and believe in the vision of the company, who aren’t sheep, controlled by a corporate attitude.

Bank of America?  No.  Chase?  No.  Citi?  No.  Don’t worry Wells Fargo, I’m not going to leave you for another famous bank.  I’m going for the bank next door, cause she’ll care more, and we can raise a family of children named Benjamin, Lincoln, Grant, Jefferson, and Washington together.

When I deposit my certificates of appreciation, I do so trusting that you appreciate it, and so far, you have not appreciated me.  So, farewell.  I’ll never come back.

Last year in Maricopa County, there were roughly 35,000 single family homes that sold.  That number almost matches the prior year.  Of those homes sold in 2009, 12,975 of them were Short Sales.  That’s 37% of the market.  That’s HUGE!  Most of those can be attributed to the sub-prime mortgage crisis and subsequent market crash.

While there are reports that have surfaced about the market improving, prices on the rise, etc., one of the more important topics that needs to be addressed is the impending wave of 5-year option-arm “smart loans” that will be resetting this year.  During 2010, I believe that we will see a huge influx of foreclosures in the 400K+ market.

In 2005, buyers were qualifying for homes that were twice as expensive as they could afford because of products that had interest only payments with huge adjustments on the horizon.  At the time, people believed that real estate just continued to go up in value, so it seemed to make sense to purchase a $400,000 home based on income that would qualify you for a $200,000 home, in the hopes that within the next 5 years, the home would be worth at least $600,000.  That’s not what happened.  Now homeowners in the jumbo and luxury market are as stuck as the rest of us, being completely upside-down in their homes.  As a result, they are trapped with a ticking time bomb.  As soon as those 5/1 ARMs reset, they’ll be headed for foreclosure, and the 2nd wave will begin.

I would encourage you to watch this video created by Jonathan Jarvis which explains why our market experienced what it did, and also makes a great case against borrowing money.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Short Sales are a tricky beast.  There are two sides to the argument when it comes to paying off a loan that you’ve promised to pay.  The first argument is that you’ve signed a promise to pay and you have a moral obligation to do so.  The second argument says that the lenders took advantage of us, so why should be pay them back?  They are the cause, right?

It doesn’t exactly work that way.  When you signed the note on your home, there was no clause within it that stated that you promise to pay “when the market is good.”  You signed a promise to pay no matter what.  Let’s face it.  I think we all can take a step back and say that we’ve learned a huge lesson about borrowing money in this day and age, and the lenders have clearly taken a step back to re-evaluate how they lend money.  So, it’s arguable that both parties are at fault for the disastrous market conditions.

That doesn’t release you from the obligation that you agreed to.  So, what are you supposed to do now?  Repay, or walk away?

That all depends on your financial outlook.  If you are in a position of financial distress, and you’re headed towards an inevitable foreclosure, then you’re probably a candidate for a Short Sale, which is the best option for you because it’s not really walking away.  It’s asking the lender for permission to sell for less than you owe. Foreclosure is what happens when you simply don’t pay. Foreclosure is not an option, it is a symptom.  People who don’t pay their mortgage lose their homes.  People that walk away from their homes, lose their homes.

It’s critical that you determine whether or not you qualify for a Short Sale.  A short sale allows you to move on with your life with the permission of the lender.  The lender agrees to release you from the note, and release the mortgage, and in most cases, you can walk away with peace of mind and a bright outlook on your future.

Why would a lender allow this?

Banks don’t want real estate.  They want money.  They lend money to make money.  Without cash, a bank goes out of business.  We’ve seen this happen time and time again.  When you quit paying your mortgage, and the bank reposesses your house, they have to spend thousands upon thousands of dollars to maintain the house, prepare it for sale, and sell it.  It will cost them more to foreclose than it will to allow you to sell it for current market value.

You have a moral obligation to pay your debts.  You signed a promise.  When you walk away, you are invalidating your credibility and as a result, regaining trust in you as a borrower will take years.  Don’t walk away without attempting to sell the property, and make sure you hire someone who knows what they’re doing.

Reinstatement

Bring your loan current.  Contact your lender, let them know you’re going to get caught up, and you’ll be able to remove the Notice of Trustee’s Sale and your home won’t go to auction.  Make sure you and your lender are on the same page, and that you get everything in writing.

Forebearance

Contact your lender and work with them to come to a temporary repayment plan.  Keep in mind that this also needs to be in writing.  Bank collectors are not friendly people and what comes out of their mouths is usually not true.  Forbearance is a temporary solution, and it will ultimately benefit the lender over you, but for now, it may relieve a cash-flow problem.

Refinance

Find a better deal.  The ability to do this hinges on your ability to qualify, and the value of your property.  If you owe more than it’s worth, you won’t be able to refinance without bringing the new loan to value ratio within an acceptable range.  This will mean coming out of pocket to bridge the gap.  Not many people can do this, so it may not be an option for you.

Loan Modification

It’s possible, but not likely.  Over 60% of those who attempt to modify don’t even qualify.  The rest manage to arrange something with the lender, but rest assured, it will be in the banks best interest, not yours.  Loan modification doesn’t usually solve the long term problem.  Prinicpal modification is extremely rare.  Don’t bet on it.

Sell the Property

If your payments are too high, sell the house.  If the home is worth more than you owe, you’re going to solve a huge financial burden in your life and you’ll have some cash left over.  Most people in this situation don’t think to down-size, but if you have equity in your home, and your income is such that you’re headed towards financial difficulty, sell the house.  Downsize and live within your means.

Rent the Property

Renting out your property may be a good option for you, but I would encourage you not to carry unnecessary risk in your life.  Renting out, while you’re renting, is a risky proposition because there are costs associated with being a landlord.  If you’re in foreclosure, you still need to be current with your lender to stop the auction process.

Short Sale

Even if you owe more than the property is worth, you can sell the home.  Most lenders will allow this to avoid the extensive costs of foreclosure.  It’s in their best interest to do so, and if you haven’t caught the tone of this message, I’ve been quite clear about the banks.  They typically only do what’s in their best interest.

Deed in Lieu

This is when you voluntarily hand over the keys to your house, much like when you voluntarily hand over the keys to your car.  The problem with this is that it doesn’t solve the problem.  When you hand it over, the bank, who is not in the real estate business, will have to pay the associated costs of selling the house, and that means that every penny that doesn’t cover your loan is a penny they’ll chase after legally.

Bankruptcy

Stupid.  Bankruptcy is something that you should only consider if you’re forced into it. It will slow the process down, but it will not prevent foreclosure.