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The Short Sale Tsunami.

If you have been waiting for the REO Tsunami since 2008 - 2009 but have been a little down that no "Tsunami" ever surfaced...well, you're not alone. In fact, many of us (Experienced REO Agents) would say it's not a Tsunami we are waiting for, it's the end of the REO Drought that we are hoping for.

Well, I wrote a blog yesterday about some chatter I have been hearing about banks wanting to create a preferred short sale agent list and don't exactly know how to go about it and this blog is a follow up to the one yesterday.

Banks and other default real estate portfolio holders are burdened with so much government regulation that they are almost completely abandoning REO. Now, I am not saying REO is dead, let's face it, it will always be with us but, it isn't going to look like anything any of us will be able to recognize in early 2013. This is because these banks are being told that if they don't "save" more homes or at least give the impression that they are truly trying to "save" more homes from foreclosure, they can expect more stress testing, more political demonization and possibly a closer look from the FDIC. Now, this may sound like something straight out of cold war Russia or Eastern Germany but, it's a fact and scary enough, it's backed up by law. Now, I won't go much into that at the moment because this blog isn't focused on that but, look it up yourself, study the Community Reinvestment Act and you will get the point.

What we end up with is a stressed, overwhelmed banking industry who is settling multi-million dollar lawsuits, from all over this country, trying to bow to political regulation (Note I didn't say government regulation) while trying to make a profit.

One of the biggest contributors to why REO has dried up is because of the moral hazard this country has been playing with since the housing bubble burst and that is, "how do we save people from foreclosure?" Yes, I called it as I see it and that is a moral hazard. The truth is, you can't "save" someone from foreclosure unless you plan on paying their mortgage for them. Otherwise, the mortgage holder is going to have to have an income, prioritize his debts and start paying them off. If he can't do that because of whatever reason......then foreclosure is the hard, stark reality.

Granted, in a normal market place, foreclosure would be fine, in fact, here in Tennessee, we have laws that specifically protect former owner occupant equity in foreclosure action however, we aren't in a "normal" market in the fact many of us are upside down and thus, no money to be had in foreclosure...only expenses. This is what brings banks to the bargaining table because now they are forced into loss mitigation regardless if they want to or not. Hence, short sales.

What many people just don't get is that a short sale is simply the most cost effective disposition of a non-performing asset in a negative equity market place. For this reason,  and others previously discussed banks are holding back REO.

Now I have painted the picture, you should understand that the REO drought is from...

1. Political Pressure

2. Government Regulation

3. High Unemployment

4. High Cost of Foreclosure

5. Negative Equity Marketplace

6. Loss Mitigation Strategies Implemented by Banks (keeping people in their homes even though they haven't made a payment in 12+ months or better yet, putting them on temporary loan modifications that are supposed to be only 3 months but end up being 24+ months or better yet, holding onto vacant abandoned properties and not proceeding to foreclosure.)

So, what is the solution, how do we get banks and agents together to dispose of these homes? Well, it seems no one really knows...

 (Refer to my earlier blog:

Now, I do have a suggestion and that is because it's working for me here in my service area.

I work very closely with local non-profit housing crisis centers who sole responsibility is to "save" people's homes. These non-profits are contacted daily by ready, willing and able defaulted owner occupants who need help. These non-profits do all they can to help but, about 73-76% of the time, the people they work with either default off their programs or just can't qualify for help due to lack of income and as such, are sent to me for short sale.

Granted, my cooperating non-profits can't come out and just say, we recommend Jesse but, they do give the struggling homeowner about 3 preferred Realtors and on that sheet of paper, we provide our service areas and then the homeowner gives us a call accordingly. After that, it's on us to make the best impression and win the listing.

From that point, we work very closely with the housing counselor over at the non-profit because most of the time, they have collected all the necessary paperwork I need for the short sale and in fact, have already contacted the bank telling them that the homeowner will be short selling. This way, the bank is informed, knows exactly what is going on, expect to hear from me and by the time I call, it's all good.

Using a non-profit is a great way to reduce agent liability, manage risk, educate the defaulted homeowner and keep in the good graces of the bank. Yes, we have some unique challenges in the area of risk and liability in our cooperation but, nothing we were able to conquer or reduce by disclosing in writing and getting all appropriate signatures.

None the less, this industry does have very specific needs and I truly feel that some companies out there who specialize in default customer contact (if you don't understand what I am hinting at, let me know, I will be more clear in a reply) will likely lead the way but, even these procedures can be umbrellaed under a legitimate non-profit.

All in all, my point is, I really think we are going to start seeing the development of non-profits to truly reach out and initiate short sales. This will be a strange but, positive movement for our industry and I think it will really have a great impact on homeowners. Now, I know some of you are already doing this in your local areas and are seeing a lot of success. In fact, some of you have even created very robust networks of professionals, much like I have done here locally so, when this industry shifts, we are ready. For those of you who didn't see this coming or even now, can't imagine this every happening....I challenge you to keep a very open mind because, it's a great business plan, with or without bank participation, you still end up making really good money, helping out your community and offering a free market solution to a crisis that already has too much government / political regulation.

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Comment by Mario Taboada on August 22, 2012 at 9:58pm

High Gold Prices Mean The Risk Of A Sudden And Catastrophic Financial Collapse  Is Real

Read more:

Comment by Mario Taboada on August 22, 2012 at 9:45pm

In another school of thought, the  recent scandal within LIBOR may be another reason why we're seeing increasing Foreclosures without much REO debris in the wake. The LIBOR as you may already know, sets the pace for vale and Interest Rates. Well this scandal has popped the pin and spring in the scales of the balance of commerce, globally!

The trickle down effect then would be, for us in R E: REO Drought and crappy low ball retail prices in multi- and SFR housing.

Comment by Mario Taboada on August 22, 2012 at 8:28pm

Aye matteee! We'll toss the m off and out and slaay them in thar streets! (((LOL))) ;)

Well if the REO is occupied...  you just happen to have a SFR that you bought Wholesale (from me of course) and you will offer creative down, pymnt, owner carry (and secured in case of Default) Financing that they can work with to also fix up the wreck I sold you, and you sold to them!

Jesse - I knowwww........... I think it going to get to be a bit of an O K Coral type market before too much longer.  I'm thinkin that the Status quo is thinking; "why should we get our hands dirty with being the bad guys and throwing people on to the streets... why not let the vestors do it??? well OK  but that opens up another customer for both RE Agents and Vestors, wouldn't it?

Comment by Jesus (Jesse) Gonzalez on August 22, 2012 at 7:56pm

Hey Mario.


I was literraly on a webinar this morning with a top 3 servicer discussing this very type of sell and how they are wanting to move REO closer to this scenario. In fact, they went as far as being willing to sell even if occupied. So, the instruction to me was, find me a buyer, even if we are in pre-eviction, let's just forego the whole eviction / relocation assistance all together.


Comment by Mario Taboada on August 22, 2012 at 7:52pm

There are some vestors out there working a Pre- REO strategy.

It goes something like this: you, identify a "Pre REO" by observing that the subject house (SFR in this example) has a Lock-box on the door and there is not Realtor's Sign on the property (...anywhere!). Next of course, do your Due Diligence and realize who the Lender's Asset Manager/Agent etc. uses as their REO Listing Agent. Next, Contact that Listing Agent and let them know you have an offer as soon as they get the Listing. (...and always be nice to Licensees RE Agents, they are the Investor's CIA ;) ... of course next, the Listing Agent contacts you and submits your offer while the ink is drying on the Listing Agreement. The rub is, the vestor has to cash out today, pickup all conveyance and closing yada yada... and be fully capable of completely closing escrow within 48 hours of the acceptance of the investor's offer.

Tools needed:

Private Money w/Cash and or Quick Liquidiity Assets or Documentation of Proof of Funds

It's going to be a very interesting time ahead for all of us, and IMHO I thought this was a great pice of info. It brought to mind a quote which Gerald Celente uses often: "...through the door of today, walks tomorrow"

Prosperity to all!

Comment by Steve Adkins on August 22, 2012 at 4:33pm

I was afraid you were going to say this. I've been lucky so far at avoiding short-sales....until recently. Lucky for me I'm working with the buyer but it has been a stress filled ordeal from the beginning. Even so it was already "pre-approved" (which I found out that it doesn't mean squat!), the seller's lender went thru the whole process again. If my buyer didn't like it so much, she would have walked away (again) when they failed to meet deadlines.

I don't know where I'm headed right now, but with record low inventory in the Atlanta market, not sure it really matters.

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