Short Sales help reduce numbers of strategic defaults..

Short Sales reduce numbers of strategic defaults..

Since beginning my short sale career when this mess in the Coachella Valley, CA took hold years ago, it has been my mantra that the Lenders do NOT want to be truthful with their shareholders regarding true values of their housing assets. Now, I am seeing this very idea in various media outlets. I still believe it! If they were okay with telling the truth, and not "cooking" the books, they would work with their Short Sale Agents in a timely manner and let us help them clear out the inventory, set the price/sf back where it should be to actually SELL, and get us back on track. They will HAVE to declare these losses anyway..they just want to control the timing as long as they can..infuriating! The following is from First Tuesday and gives some interesting timelines.

Presently, the average time period in California between a homeowner’s first default and the trustee’s sale is around 12 months: five months in default before the notice of default (NOD), and another 7 months to complete the foreclosure. Prior to 2008, foreclosure periods stretched across three months of delinquency followed promptly by the recording of an NOD, with the trustee’s sale occurring four to five months later. (So true..used to be 6 to 7 months across the board here in Coachella Valley.)

However, the foreclosure routine has been altered and extended as the result of California legislative changes in the periods for enforcement of lender foreclosure remedies. (And, I believe, the Lenders inability to be truthful regarding their asset's true values..)

Entirely aside from the lender’s inefficiency in handling their files, what lenders are not doing currently is putting all of the real estate owned (REO) properties on the market in order to avoid declaring a loss. Lenders do not declare the loss at the time of the actual foreclosure sale. At the trustee’s sale, they bid on the property for the amount of the outstanding loan balance, declaring their bid as the cost of acquiring the property.

After, when the sale of the REO takes place, it inflicts damage on the lender’s reported solvency since they accept the price for the property the new buyer pays, a price generally well below the original outstanding loan balance paid by the lender at the trustee’s sale. On closing, they must declare for the first time the loss they have long held on that loan. On a resale of the REO they must “book” the loss as the asset (mortgage, turned home, turned cash) has been liquidated.


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