Love's Real Stories

“I am a hounded, hunted man,” said Ron Balkman. “Remember the T.V. show The Fugitive? I’m like that guy. On the run. People chasing me all the time.”

Mr. Balkman contacted us through our Short Sale Survivor Series. He was the seller of a short sale last year. He told us he hoped that by sharing his story, he could save other sellers from making the mistake he did. “I thought that when the bank approved my short sale, I was in the clear, but the dirty plasterers just let me off the hook long enough to sell my property. After it closed they sent a pack of hyenas after me for the money. Jerkmeisters!” (Note: Mr. Balkman enjoys colorful language which we will attempt to neutralize here.)

Balkman is one of many sellers who didn’t (and don’t) know the rules about short sales. The first important rule to know is that banks, after allowing a short sale, can pursue sellers for the unpaid loan amount, in some cases. They cannot, by law, if the loan is a First Loan. But they can, if it’s a Second Loan.

In Balkman’s case, there was a First of $240,000 and a Second of $80,000 owed against his home. He accepted an offer for $220,000, and began the process of asking the banks to take less than they were owed. A short sale.

“Man, they put me through the                  wringer,” said Balkman. “They had me fill out a ‘Hardship Package’ that asked for verification of every last red cent I ever had, and every little detail about my life problems. When I looked back over it, about all the hardships, I cried like a baby I felt so sorry for the guy. I couldn’t believe the guy was me.” Balkman had lost his job, his wife, and some of his health. He was an ideal candidate for a short sale seller. Even so, it took six months for the two banks to approve his short sale.

The next important rule to know is that when the bank with a Second Loan approves a short sale, they may take advantage of the law allowing them the right to pursue the seller for the “deficiency”. Their “Short Sale Approval Letter” may contain sinister language giving the bank the right to come after their money later.

“The letter from my Second Loan holder said they were “removing the lien” from my home and allowing the short sale,” said Balkman. “Sounds good, right? Ha! It just means they took the debt off my house and put it on my body! The freakin’ fusebreakers! Their letter was full of so much legalese bullstock it might as well have been Chinese!”

The bank with Balkman’s Second Loan hired a collection agency to pursue him after the close of his sale. “They’ve been after me like fleas on a dog.”

The next important rule to know is that sellers don’t have to accept the terms of a short sale from any bank. Sellers with expert guidance in the sale of their homes routinely hold out until the bank with the Second Loan includes the magic language in their Short Sale Approval letter that forever discharges the debt.

The Most Important Rule of All for short sale sellers: Hire a good Realtor to work your sale and an attorney review your Short Sale Approval Letters.

No fair. Housing has been getting a bad rap, accused of crashing the U.S. economy. But Housing was just along for the ride. Financing was the one behind the wheel. Financing was all hopped up on cash, and drunk on power. Financing fell in with a bad crowd, and was dealing in contraband called “sub-prime loans.” The crowd that Financing became associated with were high-rise wise-guys and the more infamous gang-bangers from Wall Street.

Financing was moving fast and dealing fast, and throwing money around like it was going out of style. It was, as it turns out. Sub-prime loans led to toxic assets, and Financing spun out of control. Unfortunately, Housing’s fate was intertwined with Financing’s.

In the aftermath of the fast times and the ultimate crash, Housing’s reputation has suffered. It’s become fashionable in the gossip circles to blame Housing, and the worst of the blamers are saying Housing can’t be trusted anymore. Mind you, this is the same Housing that has helped generations of young people get a start in life, supported families and communities, and helped little old ladies cross the street.

Since Housing has been down, the blamers have been piling on, seemingly determined to create a whirlwind of negative spin to blow away Housing’s renown as the leader of the American Dream.

Is the blame game working?

The Pew Research Center conducted a survey to find out. Pew staff published a report of its findings, titled “Home Sweet Home. Still.” The report begins this way:

“The five-year swoon in home prices has done little to shake the confidence of the American public in the investment value of (Housing). Fully eight-in-ten (81%) adults agree that buying a home is the best long-term investment a person can make, according to our nationwide survey of 2,142 adults conducted from March 15 to March 29, 2011.“

Friends of Housing are adamant in their support, and quick to call out the blamers, too.

“It’s not Housing’s fault. The people who are blaming real estate for our problems are idiots!” says a survey respondent, “Wall Street crooks took advantage of loose Financing morals and pumped every dime out of the market until it collapsed.”

“There is nothing wrong with Housing,” says another, “The problem we’ve had is with Financing. Loans were made to people who couldn’t afford them, and we’re all paying for it.”

Housing still has a ways to go to instill confidence, create the reputation once enjoyed, and walk with head held high. But “That day is coming,” says Jack Mature, appraiser with 25 years of experience, “Housing may stumble from time to time but always straightens back up.”

What about Financing? Can the recent fall from grace be redeemed? The good news is that Financing has undergone treatment and is back on the straight and narrow. No more wild sprees or out of control rampages. Financing is associated with a sober and structured crowd now, and doing much better.

Housing has taken the high road and forgiven Financing for bygone transgressions. For that, and for so many great deeds of the past, Housing is worthy of our respect and our investment in friendship. And even as a life-long companion.

“My husband is just too hard-headed for our own good!” said Rhea Gretta, recent home seller. “We had equity in our house, and it literally slipped through our fingers.”

Ms. Gretta spoke at the recent Science and Psychology of Selling Symposium. She and Mr. Gretta were invited as examples of sellers who made wrong decisions in marketing and selling their home.

Mr. Gretta declined the invitation.

“And now we’re known as Three-Steppers!” she said.

“Three-Steppers”, explained Dr. U.N. Real, the psychologist leading the Symposium, “are sellers who make the three most common mistakes in the science of home selling.”

The three steps referred to by Dr. Real are, one: pricing too high; two: reducing the price insignificantly; and three: over-negotiating offers.

Ms. Gretta admitted that she and Mr. Gretta had been cautioned by their Realtor about the dangers of over-pricing. He showed them the sales prices of homes similar to theirs, and recommended listing the house at $389,000.

“But we listed at $429,000 instead, said Ms. Gretta. “My husband just wouldn’t listen. He wanted to get everything back we ever put into the house.”

“Experts call this syndrome the ‘Endowment Effect’”, interjected Dr. Real, “We tend to put more value on things simply because we own and care for them, so we over-price them.”

Buyers, however, are reluctant to offer on over-priced property. They perceive the seller as being unreasonable, and unwilling to sell at fair market value.

Dr. Real then explained step two.

“Token price reductions are meaningless,” he said. “A price reduction should go below the next significant price point to open the property to a new category of buyers.”

The Gretta’s Realtor had repeatedly urged them to get their price below the $400,000 barrier, but they only agreed to small incremental reductions. After three months on the market, and four price reductions later, they finally reduced to $399,000. At that point, they received an offer.

Dr. Real then spoke about step three, over-negotiating.

“Tough negotiators who overplay their hand, lose in the end,” he said.

The Grettas received an offer of $375,000. “My husband insisted on counter-offering back and forth, said Ms. Gretta, “and we lost the buyer to another house. We finally sold for $355,000 after six months.”

Ms. Gretta raised her voice: “My husband just couldn’t get it through his thick skull …!” Dr. Real held up his hand in “stop” fashion, silencing Ms. Gretta.

Dr. Real then said “Now Ms. Gretta, our study of your case indicates that you, not just your husband, were instrumental in Three-Stepping your home, resulting in a loss of over $30,000.”

“Wasn’t it you, in fact, who refused to list at the recommended price?” he asked.

“Well, I, umm……” Ms. Gretta’s explanation trailed off.

Dr. Real’s voice grew louder and sterner. “And did you not, in fact, urge your husband to keep countering your first buyers, Ms. Gretta?”

“Well I couldn’t let my husband just give our home away!” she snapped. “I mean……………………”

Things are pretty tight for Uncle Sam these days. The pockets of his threadbare striped suit aren’t jingling, and he’s looking around for places to pick up some spare change. Look out, homeowner, he’s been eyeballing your MID, and he just might be reaching his long bony fingers in your direction ASAP.

Your MID? It’s your Mortgage Interest Deduction, known as the granddaddy of all homeownership tax incentives. Since 1913, Uncle Sam has allowed you the privilege of deducting the interest portion of your monthly mortgage payment from your taxable income. But now Uncle Sam’s Deficit Reduction Committee is recommending an MID grab. What Uncle giveth, Uncle may take away.

The MID is seen by many as a major incentive for homeownership and one of the cornerstones of the American Dream. The prospect of seeing the MID eliminated is causing the Dreamers some restless sleep and crankiness.

The National Association of Realtors (NAR) says “Housing is the engine that drives the economy, and to even mention reducing the tax benefits of homeownership could endanger property values. Home prices could decline as much as 15 percent.”

NAR says the proposal by the Deficit Reduction Committee will hit the housing market with a low blow and knock out opportunities for homeownership across the nation.

The California Association of Realtors (CAR) says “Few issues are more important to homeownership than the Mortgage Interest Deduction. As the housing market continues to recover from the worst financial crisis in recent history, any change that reduces the ability of the market to heal is misguided and must be rejected.”

It’s not just the businesspeople who don’t like the idea of losing the MID. Seventy five percent of homeowners and over fifty percent of renters said the MID was “extremely” or “very important” to them, in a survey commissioned by NAR.

What’s so great about the MID? Well, the MID effectively reduces the amount you pay for your home. Your home loan, unlike credit cards and student loans, is tied to an amortization schedule which allocates part of your payment to interest and part to the principal. In the early years of your mortgage the majority of your payment goes to pay interest. So in the first few years almost the whole monthly payment is tax deductible.

The MID allows homeowners to take the funds they would have paid in income taxes, and use them instead to make their loan payments. It’s one of the reasons it makes more sense to own a home than to rent one. Smug homeowners have been known to remark that renters work from January to April just to pay their taxes.

In the realm of tax incentives, the MID is one of the great wonders of the world. After all these years, will Uncle Sam in his quest to find some jingle, just reach out and snatch back the MID? Not without a fight.

CAR and NAR together declare, “We will remain vigilant in opposing any plan that excludes the deductibility of mortgage interest and make certain that the Real Estate industry’s opposition to this proposal is heard and its far-reaching implications understood.”

Hear it and understand it homeowners and would-be homeowners, it’s your MID life-crisis.

You can’t fight City Hall. You can’t fight Citibank, either; or Bank of America; or any bank, for that matter. Not when it comes to short sales, anyway. If you happen to find yourself in a short sale, you’ll have a fight with a bank, alright, but all you can actually do is beg. You’ll become frustrated and angry. You’ll probably find yourself saying, “I hate the bank!” or “How can they treat us like this?” You might think that aggressive action will get results, but you might as well get in a bare-knuckle match with a brick wall. The bank is big. The bank is indifferent. You’re puny. In the end, you’ll wind up like all the contestants before you. You’ll be on your knees, begging the big bad bank for mercy.

Why is this so? In a short sale, the seller and buyer of a home must wait for the bank to accept less than it is owed because the house is being sold for less than the loan against it. “Wait for the bank” is an understatement. Buyers have seen their kids grow up and leave home while waiting for the bank. Realtors have suffered cauliflower ears and physical atrophy from phone-sitting, waiting for the bank.

The bank’s method for granting acceptance is to implement a regimen of slow, tedious torture. They lose paperwork, demand ever-increasing stacks of forms, never communicate, and withhold acceptance. The bank hides behind “Asset Managers” (underpaid, uninformed underlings), who systematically ignore the desperate struggles of their victims.

Enter the California Association of Realtors (CAR). CAR conducted a “Short Sale Satisfaction Survey” of its 150,000 Realtor-strong membership. The results not surprisingly, show overwhelming dissatisfaction. Realtors cite “unresponsiveness, onerous procedures, and long delays” in the short sale process, not to mention high rates of blood pressure, migraines, and divorce.

CAR is fed up with the banks, and has decided to do something about it. What are they doing? They’re begging, of course.

That’s right. CAR published an “Open Letter on Short Sales” in major newspapers up and down the state, calling on the banks to have mercy on us all. In the letter, CAR President Beth L. Peerce says, “Short sales can play an important role in our state’s economic recovery by accelerating the pace of home sales and reducing the inventory of bank-owned homes on the market. Banks get a nonperforming asset off their books and avoid the headaches associated with disposing of properties they don’t want to own in the first place.”

Ms. Peerce urges the banks to “standardize and streamline” the process, and to “increase staffing with the goal of eliminating service issues.” Then she points her verbal finger at them and says, “Poor and slow service has only exacerbated the problem. Horror stories abound from potential homebuyers and Realtors forced to wait 90 days or more for a response, or being required to fax short sale applications or other paperwork as many as 50 times.”

CAR is a powerful organization with lobbyists and political liaisons that have access to high places, and when President Peerce speaks, people listen. But when it comes to short sales, the banks might as well be on another planet. CAR is reduced, like the rest of us mere earthlings, to one option:

Begging.