CoreLogic, a real estate data and analytics firm, estimates that while short sales have tripled since 2008 and are saving literally thousands of homeowners from foreclosure, that lenders are losing money in the process – a lot of it[1]. By the end of 2010, CoreLogic research indicates that lenders will have lost as much as $310 million to “unnecessary losses” occurring through short sale fraud. In fact, the report estimates that this type of fraud occurs in one of every 53 short sales, and that the average loss in each instance is $41,500.
The main problem (for the lenders) and the way that CoreLogic is spotting this “fraudulent” activity is by looking for resale of the property within the space of 18 months or less. While CoreLogic emphasized that investor short sales “are not inherently bad because investors provide the industry with necessary liquidity,” it went on to say that short sale transactions of this nature do pose a fraud risk if the investor makes a significant profit or if the short sale and the resale are executed within a short period of time.
I understand that it is important to lenders to recoup as much as possible on these sales, but I still fail to see why it is so important that investors be sure not to make as much money as they possibly can on the sale. To further complicate matters, CoreLogic released a statement declaring that lenders should have both pre- and post-closing information on the property and that all buyers for the property must be disclosed before the short sale occurs, even if the end-buyer is working directly with the investor-buyer. Essentially, this will enable lenders to cut investors out of the deal when it suits them, which does not seem entirely fair.
Do you think that this report represents a problem for short sale investors, or is this just more of the same “fraud” complaint that has been an issue for nearly a year now?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.dsnews.com/articles/lenders-out-310m-annually-from-preventable-short-sale-losses-corelogic-2010-08-10
Same old “fraud” complaint that has been going on for over a year now, IMO, and really, even longer.
I see where CoreLogic is coming from, but I don’t like the generalizations that are being made. First off 18 months?? Really? Do they do that with REO properties too? NOPE. I think that stat and the fact that they even look at it is first pointless and second is kind of “fishing” for something. Secondly, do we as the public push to see how much these lenders made MAKING these loans? How much they made on the secondary market?
Ugh. I can’t even think straight. These types of things really irritate me. We, as investors, need to lobby for OUR rights, and prove the service we provide as valuable. Lenders need to see the volume we do and not the “loss” they take. Do they forget WHY they do short sales in the first place?? Because it MITIGATES THEIR LOSS compared to an REO?!! Whatever… preaching to the choir here.. I know.
Does it matter? At the rate the government is going, it will not
be much longer, before it is entirely illegal to make money if
your not employed by the government.
.
On a short sale offer, the investor (who tells the lender up front that they only buy because they hope to resell for profit) simply gives the lender a decision to make. The lender either turns down offers from the investor, . .or the lender accepts the offer. Where is the fraud?
When a lender is approached with an offer to “short” a loan, the lender is not compelled to accept. They decide- based on the advice of their sophisticated analysts..
No one forces the lender to accept a short. They can refuse any and all offers. But once they accept, shouldn’t that freely negotiated contract bind them.. as it does in any other contract? What right does the lender, after freely making the agreement to accept a negotiated discount for the payoff, have to pursue someone after settling the contract?
An investor makes the market more liquid. They step in and risk time and capital to make the marketplace better. As I said earlier, if the lender has better options, they are free to pursue them.
I think our country has regressed into some sort of immature state of mind where contracts really AREN’T binding or finalized.. ever. There is this constant effort to avoid personal responsibility for decisions and commitments, no matter the consequences to our society.
Those who try to tag “fraud” on any investor who buys at one price and sells for a higher price surely has a deep disdain for contracts and for people who use their wits and hard work to solve problems that the lender can’t solve alone. No doubt, such naysayers are life long bench warmers. They despise those who take risks, work hard to use innovative ideas to solve problems and are rewarded for their efforts. In other words, Corelogic “suits” bench warmers remind me of the Monday morning quarterbacks who would never entertain the thought of actually running onto the field of play and risk injury!
Frankly the greedy crooks [sorry,"lenders"!]who created these loans for their immediate re-sale packaged as securities, deserve to get screwed sideways after their hollow schemes blew up in their faces. Common street criminals show more skill in “running a farm”,and in “milking their herd”, than the Wall Street Wankers. The bankers exhibited nothing less than foolish boosterism, backed by financial incompetence and adolesent arrogance when they set out to turn the housing market into their short-term cash-cow. How they can whine about somebody else making $$$ unravelling the mess they created strikes me as just re-emphasising “the mediocrity of the intelligence” that presides in banking circles, to put it politely.Just goes to show once again what dumb b——s they are.Obama should have let them fail,nationalized the subsequent remains, and then sold them off to smaller efficient investors [chinese?indians?] who had more respect for all the participants in the market.Oh,and 30 years hard labour for the a-holes who made this mess,without parole.
As most of you are – I too am getting tired of hearing lenders complain about the amount they “lose on a property”. And blaming the “investor” for fraudulant deals??? It’s all B.S. All of us can cry all day long – but we still have to keep going. I can’t tell you how many deals I have heard of lately that the lenders refused to do a work out on an offer. Two deals I personally have had where the lender’s bottom line was 14% above FMV….? How does that make sense? 3 months after the deals fell through….I see where the properties are now listed at 5% below FMV….whose making those calls??? All I can say is I ‘m not making a $100+ Million in bonuses a year. God forbid that I make anything on a deal! Fraud is a term that is being thrown around like a wet noodle to see if it will stick.
Just more of the same crap. Big wigs at the top afraid that someone else might make some money besides them. Trying to cut out the small investor….
We, investors, were not the ones who approved all these subprime loans. If they would have done their homework to approve borrowers the way they were supposed to this situation would not be happening.
We do all the work and they rake in all the profits, I don’t think so. If they want to make big profits then the lenders should go out there and find the buyers themselves. We do all the work, it is only fair that we get rewarded for it. There is nothing fraudulent about that.
The investor is providing a service to the marketplace that the lender is incapable of or unwilling to provide, namely resolving distressed real estate situations. Why shouldn’t the investor make money for their service?
The lender approves the short sale at an amount that they deem to be fair. They get what they want for the property, then they get upset when someone else, through their own efforts manages to make a profit on the same property?
Let’s not forget that these very same lenders caused the problem by lending to anyone that had a pulse. Sorry guys, I have no sympathy for you. Maybe all the investors should walk away and let the banks take the full magnitude of their potential losses, which would greatly exceed any losses created by a short sale.
When you look at the way businesses do business, the suggestion that Corelogic makes seems to be totally out of line.
Many businesses buy product on a wholesale basis and sell on a retail basis. It is not considered fraud for those businesses not to disclose the cost of the product to the end buyer or to the originating seller. This is considered the way commerce is done.
I have trouble understanding why the originating seller (the foreclosing bank) needs to know who the end buyer is and what the end buyer paid for the product.
Are we moving further away from the free market system and if so, are the banks going to have to play by the same rules. Are they going to tell the consumer to whom they are providing the mortgage, what rate they are paying for the moneys they are using to support the loan versus the mortgage rate they are charging the consumer.
I’m very much of the belief that distressed sales are a different market that non-distressed sales.
Meaning, all the things that usually go into a short sale situation really do mean the property can only command a price that is lower than it would be once owned (and fixed up?) by a stable new owner (investor.)
Meaning, an investor who acts ethically (full disclosure etc) while saving the butt of a distressed homeowner by buying a and then flipping a property for profit is doing absolutely nothing wrong.
Imagine if somebody invented an exchange where lenders could “wholesale” these troubled properties, liquidate them, agree to take a haircut in return for a smooth and relatively low-cost process, and investors would then act as “retailers”, identifying the proper markets, adding value where it makes most sense to add value.
2 things. 1) who answers to the ability to expedite the ridiculous process & timeline of short sale while expecting the buyer to hang around for the sale? and 2) Who spends all their time, efforts, and skill to work this process for free until they finally get paid a marginal return (run the tape of the profit you really make versus what they claim you make). THEN MR. “BANK WHOM IS THE BIGGEST CROOKS THIS SIDE OF HELL” tell us why you consider this FRAUD???? We the entrepreneur and investor are exactly whom cleans up the mess the socialistic corporate finance fat cats made!! Hooyah!!
So when is CoreLogic gonna release a report on all the “preventable” losses to the lenders when they refuse/sabotage all the short sale offers and foreclose on a property?
- Receive less net than short sale net
- Additional expenses
- Additional liability
- Additional time (and time value of money)
Wonder how big these “preventable” REO losses are? Betcha they’re a lot bigger than $310M.