By Brett Woolley
Author’s email: BrettW76@cox.net
Here’s how to dramatically speed up the recovery of the housing market here in AZ and the whole country.
Through legislation make the penalty for people who have been foreclosed on 3 years, the same as short sales. Example: Two people can’t afford their mortgage. They both file paperwork for short sales. One person manages to sell via short sale because the bank asset manager decided to do it. The second person got foreclosed on by the bank in the middle of the short sale because the bank asset manager decided to do it. So seller one waits 3 years, and seller two has to wait 7 years, to buy another home. Why? Because two different asset managers made decisions that affected the credit of two sellers in identical situations!!! How freakin’ fair is that? The Short Sale serves ONE purpose only—a desperate attempt by a seller to save 4 years on their credit so they can buy another home sooner. That is it.
So if the penalty for foreclosure was also 3 years, you would completely, and totally, eliminate ALL short sales because there would be no need for them and all of their endless paperwork and uncertainty and outright fraud. Instead, the bank gets it over with quickly and forecloses, becomes the new owner, then turns it over to the real estate pros to market and sell as a traditional REO. The time it will take to get the “poison” out of the system would be cut dramatically, perhaps even by as much as 4-5 years, and greatly accelerate the recovery of the housing market and the overall economy. Can you imagine what would happen if every short sale listing could be instantly converted to a traditional REO? The Listing Agents would be estatic! I believe this recovery would add billions and billions to tax revenues because houses and home ownership stimulate economic activity, not bail outs!!!!
The second thing to do is bring some order into the chaos that is our current real estate industry. The MLS has clout if it only had the will to use it. Start removing listings from the MLS by sellers (namely banks and their sometimes accomplice list brokers) who think they can make up their own rules. Restore the prominence of the AAR Contract. Accept all legal forms of signatures. No more “unapproved” and thereby fraudulent list prices. No more Listing Agents who refuse to communicate with Selling Agents by phone and other means designed for “time is of the essence.” No more discrimination against “Un-protected” classes of buyers such as investors or second home buyers. No more re-writing real estate laws, the law is 10 days for an inspection period, not whatever the bank feels like. Comply with the rules or get the heck off the MLS!!! You will be amazed at how quickly banks will comply when faced with the option of listing or selling their portfolios “for sale by owner.”
These two concepts would have a spectacular affect on both the real estate market and the overall economy. Even the banks would fair better although they are too dense right now to see it. That’s what bailouts do, they prevent people from thinking and innovating and being resourceful because the manna is coming from heaven.
{ 3 comments… read them below or add one }
I could not agree more!!!
Brett,
I certainly agree with your ideas for doing away with short sales to help speed up recovery but the banks are doing the opposite from a few years ago…….they’re approving more shorts than ever. It seems they already have REO inventories at an all time high so the banks have turned to short sales to reduce the number of bank owned properties.
Short sales are referred to as “brain damage” due to the complex nature of these transactions but we are experiencing much quicker approvals now from most of the large lenders but it still takes a 100 page SS packet to obtain approval. There is one other thing that could make short sales dry up and that is if the 2007 Debt Relief Act is Not extended when it expires at the end of 2012. This act exempts the primary homeowner from taxation on the deficiency. Without this dificiency exemption, there is little incentive for a homeowner to do a short sale. In my opinion, this could lead to the death of short sales ,but it would increase foreclosures, which might expedite the recovery process if I understand your earlier point correctly.
Chris Silva
HomeSmart
Great points Chris. I still think the whole short sale idea was terrible from the get-go. A short sale is foreclosure light, and the seller commits the same sin as a foreclosure. I’m glad the banks are closing more short sales but I think the Associations share a huge part of the blame for the short sale mess. Consider this, if you are going to list (and therefore advertise) a home for sale, even a short sale, then it dang well better be for sale. There is no earthly reason to change your mind and foreclose. But we the Realtor community could have brought order to this chaos years ago and not with any legislation. We could have done it through simple MLS rules. Here is the rule I would have made. If you list a short sale you have to have written approval of the list price from all lien holders and agree to respond to all offers yes or no within 5 days. No waiting around, period. If you can’t do that, then get off the MLS you are de-listed and are free to do a For-Sale-By-Owner. That simple rule would have changed the behavior of the banks, at least in Phoenix, almost immediately and all short sales after that would fly off the shelf like these REOs. So we have the power of the MLS to bring order to this wild west environment, but NOT the will power to use it.