One of the latest trends in the investor world has investors cashing in at the sellers expense. Cash for keys is a phrase used in the foreclosure world for when a property has been sold at auction but the former owner or tenant still remains in the property. In order to avoid a lengthy and costly eviction, banks will often offer the homeowner ‘cash for keys’. Often its something like $500-$1000 to be out by a certain time.
Recently I was sent an email promoting a ‘new idea’ so amazing we all should kick ourselves for not thinking of it first. In fact the direct quote from Larry Goins is “Have you ever come across something so brilliant, yet so simple, that you ended up wanting to kick yourself saying, “Why didn’t I think of that?” Ill tell ya why I didn’t think of that…cause I have a heart and I actually care about doing the right thing by the people I help.
-So whats the idea you ask?
Why if you cant get the bank to agree to a short sale, simply negotiate the cash for keys play with the bank and keep the money for yourself.
Now I am a Libertarian at heart. I support free markets and innovation. I support self preservation, and there is even a part of me deep down that agrees with Gordon Gekko’s little speech on greed. However, I also believe in not causing harm. I also believe in serving the greatest good, and trying to help people facing foreclosure get into a stable situation. I’m perfectly ok with most aspects of foreclosure investing, as I see investors providing a very valuable service as long as the homeowner was presented with all options. But this I feel is slimy. It just feels gross.
This is the second such solicitation I have received for “Coach Pats” brilliant investing system. The first was from Tim Mai, who I really had enjoyed listening to and hearing his ideas. Obviously I don’t know any of these guys from Adam, and perhaps they would never use such a tactic in their own investing, but it sure seems like they are enthusiastic about the idea.
You see, my issue is this. An investor approaches a homeowner in foreclosure. If its like 99.9% of all investor meetings, they discuss doing a short sale. They rarely discuss all the options available either because they dont know them, or dont care to share them; Its the old ‘when you’re a hammer, everything looks like a nail’ scenario. But I digress, thats a topic for another day, so you have the homeowner working with you to do a short sale, and you are their only option as rarely do investors want others bidding on their short sales. They always put in their own offer at a very low amount, in an attempt to buy the for a substantial discount. Nothing wrong yet…but what if you cant get the bank low enough? What if you cant find an end buyer? Well, if you listen to Coach pat, Larry Goins and Tim Mai you sell your client up the river and keep the $500 for yourself. There really is no difference between this and equity skimming rent while a property goes under leaving the homeowner with a foreclosure that could have been prevented.
Not to sound like someones mother, but every one of you guys should be ashamed of your decision to employ this tactic. This business is one that requires the highest amount of integrity and ethics. We should serve the needs of the homeowners we seek to help. I guess this is my Jerry Maguire moment, but I stand by it. Its right and If any of you read this, once you think it through I think you will come to the same conclusion.
When a homeowner faces foreclosure they will be inundated by solicitations from all kinds of people. Each one will offer a service to the homeowner that fits within that persons area of expertise; Realtors will offer to list the home, Attorneys will offer to file bankruptcy, Loan Officers will offer loans, and of course Investors will offer to buy the home.
Each of them respectively is taking a narrow approach that offers the homeowner whatever service it is that they specialize in because “when you’re a hammer, everything looks like a nail”.
Foreclosure Rescue Services together with the Non Profit 5000families.org seeks to offer information to families in financial crisis for free. We offer the family The Mortgage Survival Guide which helps them understand all of the available options and determine which is best for them in a non threatening and unbiased atmosphere.
Every one who approaches has an agenda, and thats not necessarily a bad thing. Their agenda might be exactly the right option for you, but you should be the one to determine this, so that its whats best for you, not just whats best for them.
So I found this video on youtube recently where this attorney is telling people that there are “two kinds of short sales”. He goes on to tell people that not only are short sales a pain but they could end up worse off for having done one. I really believe he over simplifies the question. I commented on his video that he is ‘talking his book’.
This is the concept that people always hype whatever it is they are selling like its the best possible answer. For people in foreclosure; Realtors hype selling, because its what they do. Attorneys hype filing BK because its what they do. Investors, mortgage people, loan modification/forbearance companies, all hype what they have to offer. And naturally so.
I get questions all the time about whether it makes sense to do a short sale if you have determined that you need to file a bankruptcy. The thought most homeowners have is “it can’t get worse” so they move on thinking that they have done all they can and with a bankruptcy a short sale would be akin to placing a band-aid on the titanic.
Compounding this problem is more often than not, bankruptcy attorneys think the same way. I have had countless clients tell me that their attorney told them that it wont matter on their credit because the mortgage that is foreclosing will be included in the bankruptcy. The worst scenario is when a homeowner hasn’t filed yet and is told that its better to just file and let it go than to try a short sale.
This could not be further from the truth. The bottom line is, you have to ask yourself this simple question; Does a foreclosure look better on your credit than a short sale. The answer is no.
Attorneys will answer with a myriad of reasons why its sometimes better and sometimes not. Always hedging their bet…I cant blame them, its the attorney way. They are taught to think this way, BUT Ill go as far as to say this: Its never not worth it to try a short sale first.
Honestly, I have yet to have anyone including attorneys show me a reason why to not try and short a mortgage whether they are already in a BK or not.
I have a bit more in depth thoughts on the matter on this article here.
Reading this article from CNN only confirms my belief that we have yet to see the full correction here in Utah. In the past we have trailed the rest of the nation in trends, going up after they peak and going down after they level out. The NAR and of course the UAR and nearly every talking head within their grasp is touting the end of the crash in complete defiance of every known principle of economics I have ever read. Well one of us will be right, an so far its not them.
Speaking of that…I have to mention here that just the other day there was an article pinned up on my friends cork board from the UAR titled “Utah market poised for gains in 2008″. My Uncle Jeff spent 15 or so years in New York as a commodities trader and was an innovator with-in his field as a trader of Weather Derivatives. Anyway, he has a phrase that they use on Wall Street called “talking your book”. It basically means that whatever it is you are selling you talk up.
Realtors call it puffing. In my experience Realtors just might be the most notorious book talkers of all time. Realtors talk their book religiously and it harms their credibility. Honestly I laughed when I heard the radio ad from the UAR talking about how strong the market is in Utah. Its a joke; The UAR not the market that is.
Bottom line, housing demand is directly proportionate to the availability of financing or cash. Since so few cash buyers exist, the availability of financing will be the principle driver of housing demand. Since the secondary market has not only not recovered, but has become worse I find it hard to understand just how the NAR and UAR foresee such incredible growth for 2008.
Well, half of that year has come and gone, and so far that article on my buddy’s cork board might be the most wrong article I have read all year…and I read a lot of the L.A. area rags before the Finals.
There is a reason Banks always use agents to sell homes they foreclose on; Liability.
Having an agent allows the bank to cover themselves in the event that there are ever any issues with the transaction. When a homeowner looks to do a short sale, the bank pays the agents fees out of the purchase price. That means that even though they are taking a loss, they are including real estate fee’s in that loss. Using an agent in a short sale is an absolute win-win-win for all parties involved…including the investors who buy them.
I just met with a really nice woman who has had some unfortunate changes in her life. In the last 4 years she has lost her Husband, a son and her home. She is also caring for her elderly mother who has developed dementia.
I dont want to focus in on the tragedies that she has endured as this isn’t really the forum for dealing with such losses, however, she did suffer one loss that is exactly what we deal with here at foreclosure rescue services. Issues that are relevant to Utah Homeowners facing foreclosure; She did a short sale directly with some investors and without an agent involved.
This woman’s home became delinquent in 2007 and she was approached by some investors with a plan. What that plan was, I can only guess based on the evidence left behind. But I’m sure they made her some wonderful sounding promises like “You can stay in the home and we will lease it back to you”.
The result? She lost her home.
Nothing ever happened with these so called investors and it went to foreclosure. Recently I wrote an article on why you should never do a short sale without an agent in Utah. There are a lot of investors and so called ‘gurus’ out there saying just the opposite. I spell out exactly why there is no reason that a homeowner who is facing foreclosure should ever do a short sale without an agent involved.
Oh one other note; Just as important as using an agent…is using the right agent. More on this in another post though.
On June 9th the FHA made a change to their long standing policy which requires a 90 day waiting period before an FHA insured loan can be used to purchase a home where title (or ownership) has been transferred.
Upon the announcement from FHA there were immediate shouts of joy heard amongst investors, Realtors, loan officers and anyone interested in seeing the housing market work through its current issues.
I admit I was amongst those shouting for joy. But my joy was to be short lived. The waiver of the 90 day anti-flipping rules does not apply to investors or private owners who buy a property to fix up and resell.
A careful reading of the actual document signed by the secretary of housing HERE indicates that this only applies to lenders who foreclose on a property who are not already exempted from the 90 day waiting period. Apparently certain lenders that are government sponsored (e.g Fannie Mae and Freddie Mac) were exempt, so they could foreclose (which transfers title) and immediately put the property up for sale and then sell it to someone who was using an FHA insured loan.
Some non FHA lenders (conventional) have also adopted similar “anti-flipping” rules, but this move from FHA comes in response to the glut of homes that are being foreclosed upon by non-exempt lenders who are now having issues getting the foreclosures off their books. The main problem is that buyers who require FHA financing are not able to even submit their loan until the 90 day period has passed. This means that a lender will have a foreclosed home on their books for at least 120 days and thats assuming that a buyer is in place and willing to wait until the 90 day period ends and submit their loan on day 91. A cumbersome process indeed.
While I would have liked to see FHA drop the rule in regard to investors…it was too much to hope for. I’m afraid the rules are there to stay, at least for now.
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We have been working with homeowners in foreclosure for over 15 years and have literally ’seen it all’. FRS believes that the scales are unfairly tilted in favor of the big banks, so we work to level the playing field ensuring you the greatest chance of success in saving your home and stopping the foreclosure.
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