Home improvements can be a very successful future investment. Figures below are based on normal pricing and are dependant on the equity within your property.
Not only can home re-decoration add a huge increase to the worth of your home, they also act as a practical enhancement to your property, especially if you have a growing family or are not wishing to actually move away from where you currently reside, as it could be close to family or friends.
"Berlin Property - Invest in the Capital of Europe" - http://bit.ly/19ra3K
74% think now is a good time to invest in property, while 40% believe it is a bad time to invest in shares. [Citibank Wealth Survey]
74 per cent of Aussies think now is a good time to invest in property according to Citibank’s Australian wealth survey: http://ow.ly/CFu2
Similarly,
A new Extension could cost up to £90,000 and should increase your home value by £44,000, so a true equity value increase, after costs, of £19,000.
In real estate, a short sale is a property being sold for less than ("short of") what is owed on the mortgage. Sometimes called "preforeclosure" sales in real estate marketing ads, it is a misnomer because a short sale can happen on any property for any reason but mostly because the borrowers are either insolvent (unable to pay their bills) or have too much debt (bankrupt), someone died, or most of the time because the value of the property has gone below what is owed on it.
While it is marketed by the homeowner, ultimately the decision on selling is up to the mortgage holder (or investors). This type of sale can not only be maddening for the sellers (mortgage debtors) but also for the staff working at the financial institutions which services the loan.
It can take up to sixty days some times just to get an answer on whether your offer is accepted or not, but in some cases, if you talk to the right decision makers and you have done all the proper homework, you can push a sale through with a confirmation of a meeting of minds in one day.
Short sale offers are now the only way for smart investors to buy real estate and many investors are now sitting on the sidelines looking for better places to put their money than in American real estate because real property values in the United States continue to plummet by as much as 80% in some markets, particularly land values where builders have defaulted on purchase options and no other buyers can afford to pay multi-million dollar price tags for undeveloped raw land.
Investors don't like to catch falling knives and get hurt. The old adage is "don't start buying until you see blood running in the streets" is as good as gold in today's real estate mortgage malaise market. Although that is a euphemism for waiting until the worst is almost over, we are very far from that date according to most professional real estate investors, some who made millions during the last real estate debacle during the Savings and Loan Crisis.
Some journalists are reporting in the mainstream media that short sales are making a comeback as a way out for cash-strapped homeowners who can't keep up on their mortgage payments. Most real estate investors have not heard of short sales unless they were part of the California real estate collapse after the Northridge earthquake in 1994.
During that period over 50,000 homes were heading into foreclosure each month for almost a year because more than a million homes had been damaged by the earthquake and insurance companies were not paying homeowners full market values afterward to build replacement houses. Instead, lenders were collecting insurance payments while borrowers were being hit with taxes by the IRS because of short sales.
A short sale creates a gain on debt forgiveness which is a taxable event by up to 40% of the amount forgiven. It is a very tricky financial device and you don't as a seller want to get caught owing the IRS money unless you are willing to disappear for ten years, after which the IRS cannot collect any money owed to it. That is one reason the national debt will never be repaid and it too is gradually going into default. It has been kept current only because Congress keeps moving the finish line every time the national debt hits the ceiling.
The finish line is much closer than most investors and money managers would like to admit. Congress and the Federal Reserve Bank have lost control of the money machine that fuels the global economy. That machine now belongs to a communist nation called China and the Chinese are flexing their powerful financial muscles and showing American politicians that imperial war profiteering is no way to run a civilized society.
In a regular sale, the person selling a home gets to decide on offers. But in a short sale, the mortgage holder holds all the cards. Because that lender will be taking a loss, it may choose to turn down short-sale offers, and instead allow a property to go through foreclosure, which in today's market could prove extremely foolish.
The actual holder of the mortgage might be some European bank or a Chinese Central Banker; both of which have recently taken more than $250 billion in losses on their mortgage backed securities because most of the loans that were originated in the past five years contained false and misleading investor information and are now worthless electronic blips on someone's audited financial statement or a footnote in a Securities and Exchange Commission filing.
There is no accuracy in any "stated income" (liar loans) mortgage and most of those loans have been securitized and packaged off in sales to foreign investors who have now totally woken up to the facts and stopped buying American made mortgages lest they discover that death is what these mortgages are really about.
On average it costs an investor around $50,000 to foreclose on a property. If that property is in a falling market, and the institutional investor does not respond quickly to an offer, they lose more money. Unfortunately, like the billions in backed up mortgage bond and other loan type security offerings such as Treasury Bills, the buyers these days are very few and far between because of the total deception which Wall Street, the United States Treasury Department and the Securities and Exchange Commission through their $5 trillion dollar negligence have foisted upon the global capital markets.
Even the IMF, whose recent statements went unnoticed by many, cannot quell the ongoing implosion occurring in the mortgage backed securities industry which has more or less altogether collapsed.
If a homeowner requests it, a Realtor can list the house for sale subject to a short sale but the listing agent cannot represent the Buyer in such sales due to the conflict of interest.
It is in the best interests of investors to buy real estate in America for less than what they are listed for on the market. This is called the wholesale real estate market.
If you are a very smart investor you can buy property for ten cents on the asking dollar, but right now lenders holding the bags on fractured mortgages are not sure which way to turn and this is causing some hiccups in both sales and realistic valuations. The only people who are determining true market value at this point are qualified buyers who have a penchant for bargains galore.
Despite more than 80% of the property currently on the market having had recent price drops, quick and hasty buyers are not to be found. Instead those with cash to invest are making short sale offers on property that has not even begun to go into foreclosure because the surrounding property values have collapsed completely. Any home listed for more than $400,000 in America is currently over priced regardless of location, location, location as Realtors would falsely have you believe.
The value in any real estate is in its use. Real estate as an investment vehicle is now dead because of the death in mortgages and the collapsing mortgage industry. No one has any use for real estate that is falling in value. Those who use real estate to live and work on and who bought it more than five years ago before the industry was pumped up and dumped onto the investing public may be ok in terms of return on investment if they wait another ten years to sell. That is how long it is going to take to America and the world to recover from this mortgage marketing debacle.
Most of the second mortgages out there that were piggy backed onto the refinancing of first mortgages over the past year are now not worth the electronic paper they were created on. Instead, because of fallen property values, those second mortgages are being picked off by savvy investors for as little as a penny on the dollar and then they are foreclosing on the second while making a short sale offer on the first mortgage.
Either way, the investor winds up with a discounted wholesale price for real property.
For example, in California particularly, any house that sold for a million dollars or more during the past five years usually has a second mortgage home equity line of credit for between $100,000 and $300,000 on it because those borrowers who qualified for such financing were sold those lines at no cost.
Unfortunately the only real way they qualified to make the payments was if they used the equity lines of credit granted by the lenders. It was a reverse catch 22. If you stated you made it, you could borrow it and pay it like the government has operated for the past 100 years. Keep borrowing and paying on old debt with new debt until no one will buy your debt or loan you any more money. The compounding of interest just ate you alive.
Some borrowers used those free equity lines to keep up with payments on cars, credit cards and other ongoing obligations such as their first and even their second mortgage but their time has run out. They didn't act any different than our Federal government when it comes to fiscal responsibility.
Now they cannot sell the home because the values have severely dropped and they cannot refinance because their "equity" which was an illusion created by the bankers in the first place has vanished into thin air from whence it had originally originated.
It can be frustrating dealing with lenders in short sales. The contact person is usually not the decision maker. The decision maker usually sits in some ivory tower in a high rise building at an insurance company or foreign investor office deliberating actuarial tables and pondering why their financial predictions have gone southward into the red.
There may be as many as five layers of decision makers between the final decision maker and the person who will let you know if the short sale has been accepted. In today's real estate market, any where in America, you can bet that 60 days could mean the difference between buying right and catching that falling knife.
Many lenders have been blindsided by the rapid rate of default which has crept into every mortgage investment pool on the planet. It is as if a virus has attacked the entire industry and some giant Pac Man is eating up trillions of dollars of illusory equity at the rate of about $300 billion dollars per month, about as much as was being spent on the global war on terror when it was first invented.
Many lenders are not prepared to act in a timely, resolved and professional fashion when a short sale offer is presented because they don't know what to do with it. They have to consult legal counsel and many higher ups. They need to get educated in the process. Hiring in foreclosure departments at the 20,000+ financial institutions that hold and service mortgage loans around the world is booming.
Some employees who work for lenders just don't get that they have to get rid of defaulting property as quickly as possible lest they find themselves in the property management business and vandals move in to squat on the property, or worse yet, the property values go further south and they must keep marking to market the value of their real estate owned every quarter. That is an accountant's worst nightmare.
Every day they have real estate owned in their portfolio it costs them more money. Most financial institutions mortgage departments today are overloaded, overburdened, confused, unable to deal, and are solving their major problems by shutting down their operations altogether, then sorting out the chaos after or during bankruptcy proceedings. Some lenders are even holding out thinking that this market is going to turn soon with what President Bush falsely called a "soft landing".
There is not going to be any soft landing, only the harsh grating sound of gradual deflation of home real estate values, particularly for builders holding onto inventory and then defaulting on their lines of credit. The deflation will probably not end until some time after the tax laws are changed and the banking industry is hung out to dry for awhile while the regulators and law enforcement people sort out all the fraud that is fraught in almost every non owner occupied mortgage loan that was falsely documented, secured by real single family property in America, and then sold off as mortgage (false information packed) backed securities.
90 per cent of all homeowners in America have no equity or negative equity. That is a misnomer because negative equity means you owe more than what is owed but that really means no equity at all.
If a homeowner bought with 100 percent financing (or took out extra loans after buying) and the house is worth less than they paid (borrowed) for it, they are like the new car buying fool who, the minute he drives off the dealer's lot, loses as much as 40% of the value he paid, usually with borrowed funds.
Cars like homes have also been over inflated through false and misleading marketing techniques during the past decade, but mostly because of a $100,000 tax incentive in the IRS rule book compliments of Congressional leaders who do not pay taxes and keep giving themselves raises while many more millions go homeless in America.
There are three increasingly common factors that are converging to create the circumstances for massive short sales to occur in the near term:
1. Increasing numbers of defaults. 2. Downward spiraling property prices and 3. A rapidly deteriorating U.S. fiat dollar which is sending foreign investors out of dollar denominated assets, causing oil prices to spike higher and higher, forcing bond prices lower and yields higher, causing the upward spiral of increasing numbers of defaults to spread from the consumer level to the international corporate level.
Millions of homeowners now can't make their payments. Many multinational corporations relied on the housing market and the false sense of equity it created to keep their own sales humming after the war began. These increasing defaults may be attributed by the mainstream media as probably being caused by adjustable-rate mortgages that have reset at a higher rate, perhaps adding hundreds of dollars onto the monthly payment. They miss the cycle of the dwindling spiral in the mortgage market. See circumstances one through three above as a circular catch 22 downward spiral.
That is actually happening on over a trillion dollars of mortgage debt that was sold off to foreign investors in China and Europe, whose central banks have had to shore up their own financial systems recently by adding over $250 billion in liquidity to prevent widespread global panic in the financial markets.
But global panic has not set in quite yet but it will when the dwindling spiral created by the bankers unfolds over the entire 2008 fiscal year as George Soros, the famous billionaire investor, has predicted it would over a year ago.
Although historians will consider 2008 the year of the actual global deflation which led to the worst depression since 1929, the global real estate depression triggered by the American Mortgage Banking and Brokerage Industry actually began near the end of 2005.
The lag of almost three years before the depression actually materialized was mostly a result of accounting tricks which had to be brought to light before honesty and ethics could be restored to the entire banking sector.
In the first half of this year, lenders sent more than a million notices of default to homeowners all across America for missing mortgage payments, according to independent research conducted by mortgage and real estate investors who track the imploded market with blogs and other intelligence gathering techniques used by most savvy real estate investors.
An additional million people a month during 2008 will be scraping to make payments but eventually will fall behind and wind up in either bankruptcy or foreclosure. That is 12 million out of more than 70 million homes financed by the giant mortgage backed securities market.
If during bankruptcy proceedings lenders discover fraud in the original mortgage application, such that a borrower who stated he made $20,000 a month as a sales manager but who in reality was really only a sales clerk making less than $3,000 a month, then that person could go to prison for committing perjury on a financial document which resulted in false and misleading information being added to marketable securities which in turn were sold by Wall Street who knew or should have known that those loan documents contained false and misleading information.
Everyone along the line that had anything to do with the origination, marketing and sales of the mortgages and the subsequent fraudulent securities sales that funded them are contributors and some think they should be fined, fired and fried all at the same trial.
When the fraud is discovered, not only do the securities become worthless, the other securities in the pool get negatively impacted because the yields on the bonds behind the mortgages plummet as a whole.
Insurers and hedge funds that have played key roles in the $35 trillion (shrinking daily for the first time since its invention) global derivatives market are scratching their heads wondering which institutional investors are going to wind up taking the biggest whacks to their balance sheets as the SEC scrutinizes the entire industry from top to bottom.
For beleaguered homeowners, a short sale is better for their credit rating than going through a foreclosure. Still, unless some sort of safety pressure valve is added to the tax laws, they will end up owing extra taxes on the deal.
In many cases, if you owe $1,000,000 on your mortgage and the lender allows a short sale for $500,000, the IRS expects you to pay taxes as if you "earned" the $500,000 forgiven on the loan. Legislation is pending in Congress that could change that rule. If the law is changed as proposed, many more lenders would go out of business than are already doing so and they would have to reinvent the entire industry to prevent the same debacle from happening again.
One proposal being bandied about is to revoke the tax breaks to middle class homeowners or any homeowner for that matter, and replace the mortgage interest deduction with a tax credit for principal reduction provided the homeowner does not go back into any kind of mortgage debt for a period of at least five years after paying his mortgage off. The bill would encourage real home ownership. Right now, the Houses of America, almost all of them, are owned by the Investment Bankers, not by home debtors or the servicing institutions that appear to own them.
Bankers, builders and mortgage brokers, many of whom will not be around a year from now, are lining up to oppose any type of legislation that would knuckle them under. But the general public now views the entire profession as worse than car salesman, lawyers and even foreign speaking cab drivers who don't understand directions spoken in English. It will be difficult for them to get Congress not to do anything, no matter how much money they create out of thin air to pay for their lobbying efforts.
For real estate investors, short sales may yield some major bargains as long as you don't catch the knife while it is still falling. While banks are not in the business of giving away money, neither are they in the property management business despite attempts by the industry to thin the line between true financial operations and what is known as subsidiaries which operate as real estate developers, realtors and mortgage origination bucket shops.
Many realtors and even new home builders have already crossed the line by being both real estate agents and mortgage brokers but their numbers are rapidly declining as the industry shrivels from a record $3 trillion in sales in one year less than five years ago to less than a trillion dollars in mortgage sales in 2008.
The impact of a 66% drop in sales has not quite registered on the financial statements of most publicly traded banks, insurance companies and real estate investment trusts yet. That is going to exacerbate the falling knife, speeding its' velocity at double the default rates currently being experienced.
While the knife falls, before it finally lands on the floor, investors can be assured that short-sale properties are not going for their true market value if they are priced at values based on anything that has sold within the last five years.
That means there is still room for the knife to fall and the most intelligent investors are waiting till property prices settle at more than 50% off list price or comparable sales during the past year at least.
Some times a short-sale property is priced to move. And they do have the advantage of weeding out competing buyers who don't have the financial prowess to go through the process. Many mortgage brokers and bankers who are in the know are trying to make more money buying properties using short sales and then flipping them for the profits.
These are the same people who originated the liar loans that created the global mess in the first place. If these people had lived in the 1850's in America, they would have been hung at sunrise or at the very least, tarred and feathered and run out of the country and put on some deserted island in some far off corner of the earth.
Instead, they are given three square meals and a bed if they are prosecuted and brought to justice by the FBI's crack anti-fraud and financial terrorism unit. Imagine, the definition of a financial terrorist being someone who contributed to a global depression because they lied on a mortgage loan application? Sounds like chaos theory - butterfly flaps its' wings and causes a tsunami in the Pacific ocean. Lenders and borrowers lie and cause a global meltdown of confidence in the mortgage backed securities market which leads to a collapse of the dollar and the U.S. Treasury market and global depression ensues. Who benefits from that scenario?
For banks, short sales represent a way to cut their losses on rotten mortgages more quickly than going through the protracted foreclosure process, especially when fraud is in plain sight.
Some borrowers in foreclosure are seeking ways to sue the lenders that gave them the loans in the first place arguing they were coerced into lying in order to obtain the loan by the loan broker.
It doesn't mean banks are enthusiastic about short sales -- or even familiar with them. They would rather sell at retail market prices but there really has not been a wholesale market for real estate for more than a decade because every house wife, taxi driver and person who could hold their breath long enough to sign a fraudulent loan application and close on a fraudulently conveyed loan document either became a real estate speculating investor bidding up prices higher and higher from the cheap free money being thrown at the market by the 22 major wall street banks in New York City.
Now they have all gone into hiding, but many of the realtors who also double as mortgage brokers have to survive, so like professional traders on Wall Street, they find ways to make money in any kind of market, even while it is falling apart at every seamy angle.
Instead of trying to sell inflated property with the notion that it will go up into ever more stratospheric heights, they are now trying to sell bargains that are not really bargains unless you know what a real bargain is in this market.
"Eleven years ago when I got my license, we were in a market similar to now and short sales were much more common," said one California broker-owner of a Windermere franchise. "Banks would preapprove them.
Now it's been so long that we've had such a good market, banks are not set up to deal with them. The longer we're in this falling market, the sooner banks will realize they have to step up to the plate, start sharpening their pencils and take those necessary hair cuts, lest they wind up with no tools to create more money with."
All listing agents for short-sale properties are required to disclose that the homes are being sold "subject to lender approval" or that they are a short sale or whether the property is already bank owned. That information generally shows up only in parts of the MLS reserved for real estate agents, such as the "confidential remarks" section or the line for "special assessments and other disclosures", but most agents, being interested only in their commissions and profits, try to keep the best deals for their own or close family and relatives.
Agents in the past have tried to snatch these properties off the market before they would hit, but the sheer volume of defaults and pending foreclosures has mushroomed beyond the ability of the vulture investors to absorb the entire inventory.
Pocket listings of foreclosure properties or houses pending default is so common, it's almost as if the real estate agent had a piece of gold in his pocket trying not to show its' glow to the flow of hungry vulture investors circling the far flung exploded carcass of the mortgage industry.
Builders are hemorrhaging left and right and their lenders are getting more and more concerned to the point where any day it is expected that a major publicly traded builder will be forced into bankruptcy because their credit covenants are violated and their lines of credit are called in by one or more of their bankers.
The top investment bankers will know which ones are going out and which ones will be forced to merge before the public ever gets wind of it and of course it all has to be kept secret and confidential but they make money even while publicly traded mortgage companies go from prices as high as $24 a share and less than two months later trade at less than fifty cents a share as did American Home Mortgage just before it was announced it was bankrupted.
More than half of the homes for sale in America in the coming months will be short sales or foreclosures. What investors pay for those properties will determine where the market prices for housing finally settle in, but the excesses could take a decade to clear out.
Many realtors and investors do not have the time or the patience to wait it out and will still over pay for properties while the market continues to crater.
Many who represent buyers who make offers on short-sale properties only to walk away when they could not get a response from the lender, do not have the delayed gratification concept built into their sales philosophies and so will continue to delusionally mislead potential naïve buyers into the greater fool theory.
There will always be a greater fool than the U.S. government when it comes to selling air rights to real estate equity. Lord knows the Japanese and Central Banks in Asia have all been sold enough hot air from American mortgage backed securities that they are fools to continue to buy them when in fact they are a falling asset and too risky for men of prudence.
Most lenders are reluctant to agree to short sales mostly because it makes them look bad to investors. The entire mortgage banking industry has lost face with the rest of the global investment community and the tarnish is not going to wear off any time soon. The mud is just now being readied to sling at those who are responsible.
Some lenders and mortgage servicers consider such short sales a necessary evil, and because they involve a loss for them, it becomes more difficult for them to sell portfolios to investors because confidence has been shattered. If a borrower defaults, there can only be three reasons - death, unemployment or fraud.
Most lenders can actuarially determine the death and unemployment rates, but they cannot predict widespread fraud and this is where the entire industry has been run aground and is stuck in a dismally fast paced death spiral.
The biggest stumbling block to securing a wholesale price on real estate through the short sale process is that 70 per cent of all mortgages in the United States are owned by foreign investors who have hired the Wall Street Investment banks to manage their money for them.
Some of these investors are beginning to move their money quietly out of the mortgage backed securities market but even at the rate of $250 billion a month, it is not quite quiet enough.
Because the financial world is such a tiny place as a result of technologically advanced communications, bad news travels much faster than good.
The banks that "service" loans -- collecting the mortgage payments on behalf of the investors -- cannot make the final decision in short sales. That adds another layer of complexity.
It is the foreign investors who are collecting the payments from their Wall Street appointed agents who decide whether or not they can afford to lose between 50 and 80% of their principal and in the case of billions of dollars of home equity lines of credit which have been securitized, major wipeout hits of 99% are not uncommon because if the first goes into default, the second lien holder can either buy the first and foreclose himself or he has to accept that his principal has been totally wiped out.
Now if you are a foreign central bank, this might be a loss you could absorb, because you have the sovereign right to create any system of money and investment you so desire, but if you are an institutional investor that must answer to stockholders and the general welfare of the public as a fiduciary investor on their behalf, you become accountable for those losses and eventually you will either be ousted or lose your job as a money manager because the entire world's financial system is built not on cooperation and mutual beneficence but by greedy people competing for more and more profits.
Chase Bank services $500 billion of home mortgages for other institutions. A spokesman for Chase said that it seeks approval from the investors who own a mortgage when a short sale is requested. It takes 45 to 60 days to get a decision, and each investor has separate rules about how it handles short sales.
At other banks, who have not securitized their loans to Wall Street, such as local community bankers who place more value on the customer than on the money, short sales can be approved usually in one day by the Real Estate Owned Department Head. It would take 5,000 small community banks to replace Chase in the market place.
Some lenders will use as a key consideration making sure that a short-sale home is going for fair market value, as determined by an independent appraiser. Unfortunately most appraisers who are on the approved list of the lenders are the same ones who contributed to the false increases in home values during the past five years. As an investor you cannot rely on the opinion of an appraiser to tell you, the savvy investor, what a property is really worth to you. Only you know what is really a bargain for you, not the realtor, lender or his appraiser.
If you know you can make $20,000 in one moth by buying a property for $400,000 and selling it immediately for $420,000 then you can play the game of monopoly without getting caught with your pants down as the knife gently passes by your most delicate zone.
However, if you are planning to buy and hold after getting ten percent off the asking price - think again. Next month the property might be worth another ten percent less than what you paid for it - that is how fast property prices are falling...much faster than the decade it took to inflate them. The trick is in finding the greater fool to take the risk of buying it from you before the knife falls on your lap and cuts off your family's jewels.
Of course if the buyer is a user, not a speculator, and the buyer is sincerely motivated to pay off whatever they need to borrow to buy, then you have what the market was supposed to cater to, a legitimate home owner. Speculators from all sides of the housing industry have destroyed the qualified home buyer - there are none left.
The market has been completely over saturated to the point that there are now five extra houses on the market for every serious and legitimate potential home buyer. The smart homebuyer is not buying into any of it any more. It is the exact opposite of the market where you had five multiple offers on the same property the same day because the speculators had whipped prices into a frenzied upward spiral that the game then was all about getting your offer in first.
Now it's those who get their offers in last who will be the biggest bonanza winners. Patience always pays more than haste.
Some institutional lenders want to make sure the buyer isn't selling to someone they know in a "sweetheart deal", They say they are trying to protect the investor who owns the loans but in reality are trying to save as much face as possible when going back to the investor and fessing up to the truth.
"Hey, we are very sorry. We said this collateral was good, this character was good, and this credit was good, but we failed to mention that we threw out the three C's as basics of banking for the sheer volume of numbers we could generate so we could keep telling stockholders how great our company was and now, we must accept these low bids on our defaulted loans because we paid all those appraisers to inflate the values so we could make a decent living, buy yachts, planes and race cars, dump our stock before it tanked, retire and mingle with the Hollywood jet set."
No domestic or foreign investor would ever invest another penny in the mortgage industry if the truth were really told and known far and wide.
One vice president of research and economics at the Mortgage Bankers Association in Washington, echoes the propaganda being bandied around by soft shoe peddlers who want to calm fears and not roil the markets any further.
Every investor is looking for the sweet heart deal...the bargain in the basement...that hidden gem of an antique that is valued at twice what you can get it for. And the lenders may say they are looking out to prevent the brother-in-law a deal, a deal where the family member of someone close to the situation is actually acting as a straw buyer - but they cannot as lenders invest the time and due diligence it takes to really determine the honesty of the actual buyer because all greed needs to grow is dishonesty at some level.
Other consideration for lenders is how far along a house is in the multi-month foreclosure process. Foreclosures cost banks easily $30,000 to $40,000, but in higher priced California, those costs can escalate to as much as $100,000 so the average according to some industry watchers is around $50,000 per house.
Those cost estimates include the missed mortgage payments, the lost interest, the lost late fees, the fix-up costs for neglected property, all the legal and filing fees, and various carrying costs, commissions and other hidden fees buried in the closing statement.
For every million dollars in loans being serviced on defaulted loans, many banks are losing about $10,000 a month plus the loss of value as the property market spirals inward on its dwindling integrity and corrupt viruses which have infected the entire industry. That is a serious implosion.
If an investor has already incurred most of the expenses and is ready to foreclose anyway, it could say, 'We're not going to recover any money here with a short sale", and if they are not covered by mortgage insurance, they will not go for it.
Most loans with higher than 80% loan to value ratios when they were originated had to have mortgage insurance on them if they were bought by institutional federally chartered savings and loans or FDIC insured banks.
Unfortunately when Wall Street stepped in to take over the entire sub prime lending market, mortgage insurance went out the window along with the three C's of smart lending practices. Now there are over a trillion dollars in defaulting loans that have nothing behind them to pay the investor except some derivative instrument which has been fractionalized out amongst hundreds if not thousands of institutional portfolio investors, making collecting bad bets well nigh impossible.
It can take as long as 16 weeks to get an answer from the bank because of this bureaucracy which has surrounded the mortgage banking industry for decades. In short sales do not expect that lowball offers will get results. Most lenders are arrogant enough to laugh in your face or simply humbly tell you no, or as in most cases, they don't even respond, giving you the false impression that you have somehow insulted them with your lowball offer.
"As a buyer, you can't get a fair price going with the asking price because the lender is looking at comparables that have since dwindled in value. Bankers say they do not really want to have the property; they want to have a fair price, but what is fair in today's market is what would really be fair in a pre-inflated market.
In fact, there may appear to be less room for negotiation in a short sale, because the seller is "a person in another state with paperwork usually between one and two feet thick. They generally don't go looking in person at the condition of the property and rely mostly on other peoples reports and opinions, so when you present your offer, if you have pictures and evidence to back up why you are offering such a lowball amount - your chances of convincing the smartest of lenders on the selling end are much better if you provide as much independent market research as possible.
The wisest lenders are not going to rely on realtors, appraisers and accountants to tell them what property in their real estate owned portfolios are worth - they will rely on the best bid they can get, in the shortest possible amount of time and as the supply of properties for sale increases - you will see more and more lenders willing to cut and run just so they can go back to the trough and relend that money that was lost for their investors.
After all, all banks nowadays create their money out of thin air using an electronic debit credit system designed by the Federal Reserve, and under the fractional reserve system of banking, they can create twelve new dollars for every dollar they have in equity capital or deposits from consumers. If they are a federally chartered savings and loan they can lend up to thirty three times the amount of capital and deposits on hand. No wonder property prices spiraled out of control.
Imagine having to borrow trillions of dollars just so you can stay ahead of accelerating deflation? That is what the Federal government is now being faced with. The prospect of over a trillion dollars of imaginary money circulated through the electronic blip system of high finance having now disappeared into thin air from whence it came requiring monthly infusions of billions over the next year just to prevent the deflation from becoming too obvious to the most savvy of investors who are making killings shorting the dollar, shorting mortgages, shorting the bond markets, and shorting real estate industry (builders, realtors, insurers, mortgage bag holders) publicly traded stocks.
If you could combine all the investing knowledge contained in the world, you would realize that those who had the best information, the most advanced knowledge, and the most sophisticated intelligence systems, were the same one's who created the bubble, caused it to burst, and made money all the while the hot air was blowing in your face.
Many of you thanked the bankers for getting you into this fine mess when they handed you the keys to the house you are now hung out to dry with. These bankers are very good at screwing you with smiles on their faces.
The smartest of us took advantage of the foolish financial fakery and fended for ourselves by cashing in on the bonanza resulting from learning how to make a killing during a real estate depression.
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