Foreclosures Slow Nationwide

Colorado is one of four in the top ten foreclosure problem states where foreclosure filings finally seems to be slowing. According to RealtyTrac, filings were up 27 percent since last year, but this has barely been seen in recent months. Factors contributing to this seem to be state legislation giving borrowers more time before foreclosure proceedings as well as the encouragement of alternative short sales. However, in many cases these measures may only delay foreclosures.

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Posted in Headlines, Real Estate Market Conditions, Foreclosure, Real Estate Industry

Alternatives to foreclosures, short sales and land trusts

Mark Eibner BrokerIPTV: Well, we are here today with Jonathan Goodman with Frascona, Joiner, Goodman, and Greenstein and as always John, it is a pleasure to have you here in BrokerIPTV.

Jonathan Goodman: Thank you Mark.

Mark Eibner: And one of the subjects I called you up to talk about... we all have heard a lot of things about foreclosures and what I am really seeing a lot of as a broker is short sale transactions or short pay off transactions and I know all the brokers have heard about them, but maybe you can explain to us really what is a short pay off from legal lingo? What is a short pay off transaction?

Jonathan Goodman: Right. Well, the concept of a short pay off transaction is that a property has mortgages against it and the amount of those mortgages exceeds the property's value. There are some sellers who when that property sells, they can bring money to the table to makeup the shortfall, but very few and lenders recognize that sometimes it is in their best interest to take less then they are owed and still release the liens off the property, so that is what a short pay off is.

Mark Eibner: So what do you think... what is the real reason lenders are doing this? I mean, ultimately what are we getting at here?

Jonathan Goodman: Lenders do these things because they figure it is their best bad alternative. Of course, they have the option of foreclosing on the property, paying a lawyer, waiting the four or five months or so process while it goes through the foreclosure, then holding it, having holding costs, selling it to the market, but it is a way for a lender to cut its losses and get cash now. The idea is it is better to take your first loss early, take less now, save a bigger loss later.

Mark Eibner: So, let us talk about the next item here that is coming up with short sales and that is the short sale promoters. The promoters are out there saying that they can close your short sale transactions, they could bring investors in, and they use land trust. Why don't you explain to us how that works

Jonathan Goodman: Okay, there are two things that are going on. One thing that is going on is that traditionally a lot of the hard work putting a short sale together has been performed by the listing broker for the seller and there are service providers out there that are holding themselves out as short sale experts and they try and relieve the listing broker of the chores, the hassle, the brain damage of putting the short pay off together. They have contacts with the lenders and the like and they off load that stress from the listing broker. So, I would call them short sale service providers, but then there is another phenomenon, which is more normal and that is our promoters have short sale transactions that are setting them up as two stage transactions. So, the way it works, in my lingo, there is a homeowner, a seller A, the promoter is B, and B puts a property under contract with A at a certain price; let us say $200,000 and what B is trying to do two things at once. One of the things they are trying to do is try and get A's lender to accept the proceeds from that $200,000 sale in satisfaction of the debt. Simultaneously B is trying to find a buyer...I will call them the ultimate buyer or C to flip the property to. The idea is that B doesn't actually close and take title to the property from A until B finds a C. When B finds a C, the money comes in from C and it funds B's acquisition of the property from A. So, if B buys from A for 200, then B tries to find C to buy it for $230,000, and B gets that $30, 000 markup

Mark Eibner: Wow. So, not that there are lot of advantages for the seller to begin with on a short sale transaction... what are the pitfalls for a seller in this circumstance?

Jonathan Goodman: Well, one pitfall for the seller in this circumstance is that if B is finding C who will pay 230, what it means is, is that really if B had been working with A, working for A, then B could have found C for A to sell for, for 230. The point is that the A, the homeowner, is losing out on a sale for 230. Now, even if the property sells for 230, the A would not get anything from that sale, right? I mean that is the essence of a short sale transaction. The seller does not net anything from the sale. However, that $30,000 extra would reduce the lender's losses and therefore reduce the seller's post closing deficiency liability and potentially reduce their forgiveness of indebtedness tax consequences.

Mark Eibner: All right. So, then on the other side, what are the pitfalls for the investor, the promoter, the B buyer or B seller?

Jonathan Goodman: There are several pitfalls. First of all, there is a lot of people out there including regulators who do not like these transactions. They feel like A is being ripped off. A is not realizing the full value of the sale of the property. If the market will pay 230, A should realize the benefits of that. There are also people who think that A's lenders are being misled. They are being ripped off by $30,000. There are also people who think that C's lenders are being misled; because lenders are skeptical of flip transactions and instant appreciation and like. So, if these things go bad, if for some reason in this transaction, if somebody is unhappy in this transaction or shows up on the radar screen of regulators, people are going to be pointing the fingers of blame at the promoters, B.

Mark Eibner: So what happens when you have... I have seen a lot of these seminars where they are actually recruiting brokers to recruit other brokers for their promoter to talk to the A's of the world?

Jonathan Goodman: Right. I advice my real estate broker clients that they do not want to be the listing broker for A. If you are the broker for A, you have duties to A and A is not selling the property for as much as the market will pay; that is proven by this transaction. It is proven that the market will pay in my example 230 and A is not reaping the benefit of that. So, if I am a real estate broker or if I am advising a real estate broker, I say you do not want to be the listing broker for A. I am also saying to real estate brokers, you do not want to be the buyer's agent for B; because even if you are buyer's agent for B, you have certain duties to the seller. You have the duty to disclose adverse material facts of which you are aware and I think the fact that B is flipping it for a $30,000 profit is arguably something that has to be revealed to A. What I advice real estate brokers are if you are going to be involved in these things at all, you want to be as far away from A as possible and what that means is being the listing broker for B, trying to find C or there is nothing wrong with being the buyer's agent for C trying to buy it from B.

Mark Eibner: Wow. So, I mean in a quick sense or two what is the right way? What is full disclosure? I know we have talked about fraud, where it has to be in the contract, it has to be in the HUD, has to be disclosed to the broker... I mean the same type of guidelines that have to be followed?

Jonathan Goodman: Yes, essentially. I mean, in order for A not to be defrauded; if A signs off on paperwork which says B's goal is to get this under contract and not close until B finds a C, and B will sell it to C at a markup, and B will pocket that markup, then A is making a choice. The A's of the world are also making the best... choosing the best bad option that they have got. The A's of the world are choosing between just abandoning the house, letting it go into foreclosure, deeds in lieu of foreclosure or short pay off, and a two stage short pay off might be the best bad option that they have. So, A has the to fully understand what is going on.

Mark Eibner: Okay. Oh, great John.

Jonathan Goodman: Okay.

Mark Eibner: It is always a pleasure. Thank you very much.

Jonathan Goodman: Thank you Mark.

Posted in Headlines, Real Estate Investing, Title Insurance, Foreclosure, Real Estate Industry

BrokerIPTV: Today we are talking with John Goodman, real estate attorney. We appreciate you being here

Jon Goodman: Thanks for having me.

BrokerIPTV: One of the things I got to thinking about with current market conditions are you busier or not so busy?

Jon Goodman: We are busier, but the work isn't as fun as it used to be. There is lot of chaos out there and when there is chaos, people need lawyers. People sniping at each other more, but we are quite busy.

BrokerIPTV: All right, well this topic is about fraud and I want to know how big of a problem is mortgage fraud, I think I know the answer, but I would like to hear from you?

Jon Goodman: I think mortgage fraud is a big problem. Nobody knows how big a problem until we hit the bottom. Mortgage fraud doesnt tend to be detected until loans go into default and remains to be seen how many more mortgages will go into fault, but it is a big problem, it is very easy to guess that somewhere around 5%, say a residential mortgages are tainted by mortgage fraud.

BrokerIPTV: And because of the current market conditions, have we seen more which fraud go like this?

Jon Goodman: We have seen the revelation of mortgage fraud escalate, yes. In August of 2007, the lending industry had an awakening and had really cracked down and so I don't think there is a lot of new mortgage fraud going on in the system, but there is lots of mortgage fraud being reviled.

BrokerIPTV: About types?

Jon Goodman: There are lots of different types of mortgage fraud. One type is occupancy fraud, another type is lying about income and one my favorite types of mortgage fraud is what I called evaluation loan fraud. Where other people might call appraisal loan fraud, where people are faking the prices of properties, they are artificially inflating them to induce lenders to loan more against the property than the otherwise would.

BrokerIPTV: I am going to tough on a occupancy fraud, because when I was read around and look at it is statistics and even I talk that the revelation that occupancy fraud is may be comprising 1/5th of the fraud out there and it is something as simple as, yes I have every intention of buying this house as my primary residence, when they did, they were making it for investment, but they led everyone to believe it was going to be primary residence. To me that almost seem like the easiest type of fraud to pass by, am I correct?

Jon Goodman: Yes, it easiest because it is just making a representation on a form, its also culturally the easiest, it sort of classic wink-wink, why-why kind of lie that a lot of people have been making and for lending industry has been turning a blinds eye to that.

BrokerIPTV: How good for the mortgage industry?

Jon Goodman: Well, in Colorado I think a year from now, I think things will be better. It might get worse before then, but I think Colorado is a little bit ahead of the curve and Colorado did not get puffed up as much as some other places. So, I am optimistic about Colorado in a year from the rest of the country, only time will tell, yes.

BrokerIPTV: Jon, thanks, great information, I appreciate it.

Jon Goodman: Thank you.

Posted in Headlines, Foreclosure

BrokerIPTV: Today we are talking with Jon Goodman, real estate attorney. Jon thanks for being with us I appreciate that.

Jon Goodman: Thanks for having me.

BrokerIPTV: You know these are interesting times and I want to talk about short sales, because they seems to be the topic around the water crew that quite a bit of real estate offices among consumers, it has the short sale become the ugliest of the possible transaction out there?

Jon Goodman: Its a quite a burden especially for broker, especially for listing brokers put together. What I tell my listing broker clients is if you are busy as you want to be handling got ready transaction, it is great, but some broker aren't as busy as they want to be and so they have to go through the hassle of trying put short sales together.

BrokerIPTV: Why is it that they have become specifically short sales more and more difficult?

Jon Goodman: Well, in some ways I think they have gotten little easier, but they have gotten more difficult for two reasons. One of the reasons they have got more difficult is, lenders have been getting more aggressive about trying to create auction like dynamics. They don't get an offering and then just focus on one offer, they want the listing broker to bring in several offers and try and create competition between those buyers to drive the price up. The second reason is the lenders just aren't staffed up enough to deal with these things and so the file languish it is hard to get attention get deal actually close.

BrokerIPTV: So, Jon would it be better if the buyers out there just said listen, may be we got to look at just properties that went already to foreclosure, because it is going to be less painful, easier process, less time consuming? Jon Goodman: It depends on the needs of that buyer, there are some buyers who will lock into a property, want that property and will not want to wait for the property, because its foreclosure process, it can take a while. Also, once a property goes through the foreclosure process the property is general exposed to the market and that buyers competing against other buyers. If a buyer wants to go to the head of the line, if they will and they are patience enough, a short pay might be a good way for that buyer to go.

BrokerIPTV: Alright, best advice to stay out of trouble both the seller and the agent, or the buyer for that matter?

Jon Goodman: When I advice listing brokers contemplating a short sale, I tell them to look for 5 things. One of them is they got to have a seller who deadly pride and as Bill Gates is going to get a short sale, if a lender is going to ask the Bill Gates to bring money to the closing to make up the short fall. You need a seller who is behind in their mortgage. You need a contract lenders do not consider these things hypothetically. You need to have patience buyer and you need to have a seller who has some compiling reason to move.

BrokerIPTV: Yeah, okay, its great and in for the consumer, who is thinking about buying, best advice?

Jon Goodman: The consumer is work with the real estate broker who is sophisticated enough to pull this things off, at least they are tricky transaction, there is a lot of real estate brokers out there who really know their way around shot pace, but there is a lot who don't and you like to work with somebody who is experienced.

BrokerIPTV: I did tell I was going to ask this, but I will throw it in, how do you feel about 3rd parity companies involved?

Jon Goodman: That's a complicated topic. I represent at least one of those 3rd party companies and of course there are very honorable and well intentional about [Inaudible], but there are a lot of short with things out there and there is lot of bumble about there and they cause a lot of problems.

BrokerIPTV: Jon good advice, I appreciate it, thank you.

Jon Goodman: Thank you.

Posted in Headlines, Foreclosure

If you lost a home to foreclosure last year or paid mortgage insurance premiums, there is some good news. Congress enacted laws in late 2007 to allow deduction of some mortgage insurance premiums. This could amount to a tax break of up to $350. The foreclosure tax break applies to all taxpayers who were granted forgiveness of mortgage debt. Previously, this amount was fully taxable and could have run into the tens of thousands of dollars.

http://www.businessweek.com/ap/financialnews/D8U6GH5O0.htm

Posted in Headlines, Mortgage, Foreclosure