Saturday, October 11, 2008

Bailing out the idiots
...or is there something fishy?

It's amusing, but I don't feel like smiling.

It would be funny if it didn't look very suspicious. The background of the bank crisis makes this case quite eye-opening. It illustrates some of the incredible things that are happening in the real estate and mortgage markets, while our government is embarking on the largest bailout in history.

I am a licensed Florida realtor. In July 2008, one of my clients called me to place an offer on a condo listed in the MLS by another realtor. Located in Hollywood, it was listed for sale at $238,000.

I called the listing agent and he informed me that it was a SHORT SALE, which, as you know, means that the mortgage lender is willing to take a loss. Some time ago, the bank had refused an offer for $ 250,000 but, after a few months, the situation had deteriorated so much that they had lowered their price and would be very open to negotiations.

At the request of my customer, I put immediately presented an offer of $199,000 CASH, with no contingency, which was transmitted to the bank by the listing agent. As required, we provided the bank with the proof of liquid funds that my clients had ready to close.

I did not hear from the bank. I periodically checked with the listing agent who had the contact with the bank. He kept telling me that the bank was silent and had not replied yet.
He told me a couple of times that our offer was the only one and that he hoped that the deal would go through.

About a week ago, I called him again. This time the news was different. The listing agent told me that the bank had foreclosed on the property. Then, the bank gave it to another realtor for sale and it was placed on the Realtors MLS system. Very quickly, the bank got some offers and signed a contract to sell it for $155,000.

I called the new listing agent who is selling the foreclosed condo.
He tried to explain that what looked funny was "usual" since banks have 2 separate divisions, one for foreclosures and the second for short sales, and that they don't act in a coordinate manner. I don't buy into this foolishness. I am sure that a simple note in the file would have made clear to anybody involved in the bank that there was a solid cash offer for $199,000.

The bottom line is that there is no reason why a bank can foreclose on a property where they had an offer to sell for $199,000 and instantly list it (after foreclosure) and sell it for $155,000. That evidently would increase the loss of the bank by $44,000 plus the usual foreclosure expenses. That is an additional loss of about 22%

Later on, I had a conversation with the listing agent who had handled my short-sale offer and he was evidently distressed since he had worked with the seller for a long time, getting offers for up to $250,000 which were systematically ignored or refused by the lender. The outstanding debt was apparently of about $ 288,000. That meant a loss of a little more than 10% on the loan. The bank ended up taking an almost 50% loss. This is one of the major banks. It might be a peanuts case, compared to the hundred of billions these big banks are holding in their portfolios, but still a significant example.

The seller had apparently tried to save his property from foreclosure by selling another apartment, and keep paying his mortgage. But, later on, he opted to put it in short sale hoping to minimize the loan default and salvage his credit.

The realtor told me that after this experience he was considering retiring from this business.

This is not about the loss of a commission by me and the other agent.
Frankly speaking, the point is that this smells very "fishy".

The whole situation could only be one of two things. Complete stupidity, or fraud. Actually I wouldn't worry too much about a bank mishandling their business. But at this point, our whole banking system is being "bailed out" with taxpayers' money and we have the right to know.

Traditionally, there was a fairly transparent way of conducting sales and purchases of real estate. Lately, a very different environment is encountered by many professionals, and some of us fear that, even when people are losing their homes and our whole economy is deeply troubled, some persons or organizations could be involved in unscrupulous dealings.

Although I am not making any accusation, this case is, in my opinion, very strange. Of course, there is also the strong possibility that it's just one more instance of the banking mess, and that this is a case of plain bureaucratic stupidity.

Will our money be used to bail out this kind of businesses?

October 11th, 2008


Henry B. Nathan is a Realtor in South Florida. Please visit my website and search of the top real estate database. Great Search Tools will make your search enjoyable and successful. http://www.condo-southflorida.com

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