Ethical Question re Short Sale

Cindy in NY · #1 08/06/12, 03:20 PM

It's my understanding that in a short sale the borrower is asking the bank to take less than a property is worth because of some hardship (unemployment, medical issues, etc). It would seem that the lender is doing the borrower a favor by doing this.

The house across the street from us is up for sale as a short sale. They are not a very friendly bunch so no one knows why.

They have not done anything to make the house attractive to a buyer. There are broken windows covered with cardboard, trash in the yard, tall grass, and vines growing over the porch and shed. The "For Sale" sign has been knocked over several times and is now hidden by the grass and weeds.

Since the bank is essentially helping them out by allowing them to continue to live there, shouldn't they be helping to get the house sold? Or do I expect too much from folks?

Dusky Beauty · #2 08/06/12, 03:38 PM

If it were me, *I* would do what I could to get a short sale sold and do what I could to prevent a full forclosure in my own best interests.

Sounds like they just don't care. Maybe they don't care because they're trashy people and don't know any better, OR maybe they don't care because there may be worn out from all kinds of family problems like a terminal illness, or a divorce, or a death in the family-- you just wouldn't know unless they tell you so there's no point in judging them.

Maybe they are planning to ride out the process until the sheriff tosses them out. I think that can take from 3 months to a year of no mortgage payments being paid. Lots of people do this.
My mom lost a property in another county from where she lived a few years back-- she had a major car accident from winter conditions on her delivery job. Fell a couple months behind, fair enough on the bank-- but the tenants kept the bank's "warning visits" a secret from her and made the conscious decision to not pay rent for 2 months-- then when she came in person to collect rent and catch up with the bank, THEN they smugly told her it was being foreclosed and they were not going to pay anything. They stripped out and sold everything in the house, broke into the second house on the lot and stripped that, and even stripped and sold the BARN wall by wall down to the poles of the pole barn, all the while staying till the sheriff removed them.

Bluesgal · #3 08/06/12, 04:50 PM

Sounds like they are trying to short sale it as a last ditch effort to stall a foreclosure. No, the bank isn't really doing them a favor, in reality, they're are doing the bank a favor, since at the closing the bank will get more than they would if it sold as a foreclosure and they've saved all those expenses.

Then there is the deficiency balance. Let's say the mortgage is for $225K and the short sale is for $125K, that $100K that the bank took as a loss is the deficiency balance. The bank can then go after the former homeowner to recover that money (laws vary by state).

In addition, it is considered income and taxable (at the moment that tax is waived by a tax break from 2008 that will expire at the end of this year).

So in the end... a short sale is less bad on the credit report than a foreclosure and sometimes the seller can get the bank to waive and release them from the balance.

As for the neighbors, you didn't say if the house was always kept like this or if this is something new. However, something tells me they are acting like they always have.

Cindy in NY · #4 08/06/12, 04:59 PM

No, it hasn't always been this bad. They haven't mowed as much as they probably should but the place hasn't looked "abandoned".

plowjockey · #5 08/06/12, 05:00 PM

Maybe they have "given up".

Many already have. Hopefully if the property is priced right, the new owners will fix it up nicely.

Alice In TX/MO · #6 08/06/12, 05:12 PM

No ethics involved in this issue. Helping people who don't pay is not ethical. The people in the house have no obligation to the bank, other than paying the note, which they didn't do.

Being nice is not about ethics. The media has blurred the lines, unfortunately.

jwal10 · #7 08/06/12, 10:54 PM

In it for more than it is worth. Very little in it anyway, should have never been able to buy in the first place. It is all the banks fault. Gave up. They are just squatting until forced out and have been robbing the place blind. When they do go, the house will be a shell. Cheaper than rent....James

cindy-e · #8 08/07/12, 01:51 AM

Actually, a short sale is just a way for a bank to not have to pay the insurance on an empty house and mess with their "profits" on paper by taking it back as a foreclosure. Often banks will take back a property as quickly as possible if they think they can make money on it, but they won't bother to take one at all if they think it is going to sit empty for a long time because of insurance costs. They just let that be a "short sale". Here, there are houses up for "short sale" where the bank has required that the mortgagee move out. So, really it is just repossession that they don't call by that name because it is better for them financially to do it that way. Legally, it's technically different, but not at all different to the people who got tossed out. So, your neighbors may still be in the house because it is trashed, not because the bank is being at all magnanamous. We lost a house to foreclosure once... while in the middle of a short-sale. The bank "lost" an important paper, and claimed it was never sent. I saw the time stamped fax. I know it was sent. But they gave us 5 days to leave. 5 days. The place, oddly, never went on the market. It was just miraculously sold within a month and new people moved in. Bottom line, they got a better offer. That was a long time ago. It took a long time to rebuild our finances after that. But don't assume banks let people stay in a house to be kind. That is just not true. It is all about the numbers, and if the numbers worked better for the bank to throw your neighbors out, they would be gone. I don't trust them as far as I can throw them, and I don't feel sorry for them.
FWIW,
Cindyc.

doozie · #9 08/07/12, 06:40 AM

My neighbor is doing one better than a short sale...he is just walking away from his house. He got a loan for another house first though. He said the bank wont work with him on house #1 refinancing. He bought it around 2005, the house was flipped, and he paid a very high price for our neighborhood. The house is now worth at least 100K less than he paid for it. He says he is getting a bigger house with less of a mortgage payment with the new one.

I read online there is nothing the bank can do to take house #2 away from him, cant garnish his wages, nothing! and he is not concerned about his credit score in the least.

It is not ethical,at least to me, but I dont think the bank is being ethical either. Kind of like one theif stealing from another.
I dont think he is thinking far enough into the future, I am sure this will bite him in the end somehow, but all he cares about is the monthly payment I guess. They were wonderful neighbors.

Alice In TX/MO · #10 08/07/12, 06:43 AM

I wish words hadn't been corrupted. The bank isn't being ethical? Where? When? What??

He filled out an application, and the bank gave him a loan, and he signed a contract. The bank was ethical. He wasn't after the economy tanked.

1.
pertaining to or dealing with morals or the principles of morality; pertaining to right and wrong in conduct.
2.
being in accordance with the rules or standards for right conduct or practice, especially the standards of a profession

Cindy in NY · #11 08/07/12, 06:48 AM

Alice - I wasn't asking if the bank was ethical. I'm asking if the current owners should feel any responsibility to keep the property looking good so that it will sell.

willow_girl · #12 08/07/12, 06:56 AM

A few years ago, I worked with a guy whose house had depreciated in value. The bank refused to work with him on it, as both he and his wife had jobs and were capable of making the payment. So he was suing the bank! And not just to obtain refinancing, but asking that his mortgage be discharged altogether! He used to go around bragging about how he was going to stick it to the bank.

Never did find out the outcome, as he got fired and I never saw him again. But used to think ... "Good luck with that, buddy.:

doozie · #13 08/07/12, 07:04 AM

(I am assuming here)The banks will now give a loan for the same house at a much lower interest rate to new homebuyers, but wont work with a current customer to keep them in their home/retain the customer for the remaining life of the loan. I wonder if these homes were being appraised by the banks higher on purpose just to collect the interest on the inflated value that just was not there.
I believe if the banks would have worked with customers forclosing, by even extending a mortgage for a few years and lowering the interest rate things would not be in the shape they are in now.

Alice In TX/MO · #14 08/07/12, 07:16 AM

Cindy, I should have said who my post was in response to. It wasn't yours. SORRY!

JanO · #15 08/07/12, 10:18 AM

In most cases the bank won't allow a short sale unless the owner keeps it in marketable condition. In this case is sounds like they are losing it and just don't care anymore.

Cindy in NY · #16 08/07/12, 10:48 AM

I think you may be right Jan. They had an open house a couple weeks ago and the only thing they did outside was to take the sofa off the front porch.

Yvonne's hubby · #17 08/07/12, 11:20 AM

Quote:

Originally Posted by Cindy in NY

Since the bank is essentially helping them out by allowing them to continue to live there, shouldn't they be helping to get the house sold? Or do I expect too much from folks?

If you are waiting for folks to "do the right thing" (when there is nothing in it for them)... you might better bring a lunch and a good pillow.

These folks are in trouble, the bank is doing them the favor of letting them live there... rather than going through the eviction process. If they help the bank out by making the house more attractive... that requires putting forth effort... and shortening the time they have to live there free. Its kinda like helping the hangman build the scaffold for ones own hanging.

DarleneJ · #18 08/07/12, 11:26 AM

Not everyone lives in the same reality we do. My husband and I had friends whose house went to forclosure. They just never thought it would happen. They missed their opportunity for a short sale because of their denial. The problem was not that they purchased the house. The problem was the second mortgage they took out on it to pay medical bills. The bigger problem was not ever obtaining help, even free help while they had the time. Later the wife told me that God told her to stop making mortgage payments. (Foolish woman. God doesn't tell people things that are different than the written word.) Not paying the mortgage made the forclosure move more quickly and the bank denied a short sale. Two months after they were kicked out of the house, the husband's father died and he received a nice sum for an inheritance. They could've paid off their house if they hadn't been so self-deceived.

Your neighbors could just be stalling. Going for the short sale will lengthen the time of the forclosure, giving them more time to live rent free. But since we don't know them, we can only assume. There are people who do all the right things and losing a job or medical expenses drives them to poverty. Likely we'll see more of that in the days to come. A lot of people that "used to" have good jobs, nice cars, travel.

The bankers have been very evil in overinflating housing prices. I think in the end each of us will stand before God to give an account of how we lived while on this earth. I wouldn't want to stand in judgement of another though. Sometimes it is all I can do to do the right thing for today. I wouldn't want to be a banker though. The judgement will be severe as they have hurt many innocent people.

There are also such things as clouded titles too. People have paid off their homes and because the title was seperated from the actual loan the banbks have stolen back their homes and forclosed on them. It is happening more frequently. We really never know what is going on by looking in from the outside.