Dean speaks about home short sales on KGO with Michael Finney: June 25, 2011

KGO News Talk 810 I’m Michael Finney, this is Consumer Talk. We were talking about a short sale a little while ago.  A guy called in from Danville, his daughter and son-in-law have lost their jobs - they’re going to lose their home. They had talked to the bank, they were going to do a short sale then he was going to come in and buy the house; I didn’t like the sound of that a lot, but talked to a couple of real estate agents - they go: “Hey, it can be done, here’s how you do it”.  And now we go Dean on the line, he’s a real estate attorney out of Palo Alto, hey Dean, I really appreciate you calling in, thank you.

Dean: Thank you, Michael. I listen to you regularly and I appreciate your consumer advocacy.

Michael: Oh thanks, you know, short sales, I don’t think I ever talked to anyone who went through it who liked the process.

Dean: You know what there needs to be more explained about a short sale is that it’s a tricky transaction and I have to tell you, we have the best legislature money can buy.

(laughs)

Dean: But, what has happened is, I think there is a promotion of the persons who have helped those people in the legislature, which we will not name, lobbyists probably, but they got a code section passed, and in a way you have to look at it.  It’s California Civil Code 580 E, it’s a code section that says: you are not liable for a deficiency in a short sale. That’s good for people that are owners in a short sale.

Michael: Right.

Dean: So, when people come into our office, and they say, “this person called me and they, or she, want me to do a short sale.  I say, “Okay, what are you getting out of the transaction.”  And some of them are honest enough to tell me, thank goodness, the person I cannot name; it’s confidential, indeed, you cannot get any money out of a short sale, as an owner.  As an owner, you just simply get nothing.

Michael: Right, right, you sit there and you do all the work of selling the house, often the bank will reject the offers.

Dean: Correct, it’s a benefit perhaps for the bank, the only benefit there can be but the realtor is the ultimate beneficiary of the whole transaction, because they get, possibly, four, five or six percent.

Michael: Right

Dean: So, they are coming out ahead in the transaction so they have a motivation.  When I look at a transaction, Michael, I always look to see who benefits in a transaction. How does the money flow? When I look at that motive: are they honest in this transaction, and sometimes they’ll misrepresent to make that four, five or six percent. Because that’s what they’re living on and I understand where they’re coming from and that’s rational, nothing wrong with that.

Michael: Sure.

Dean:  But, what does the owner get?  That’s the ultimate question for the consumer.  They get nothing. They tend to get nothing, if they get something, it’s there in the transaction, so therefore the owner gets nothing. So, let us go down, now two callers called in, one of them called in and said something sort of important to the issue they said, “hey, don’t say anything, wait till the end of the transaction”.  I think that’s wrong.  Here’s what I would advise as an attorney for an owner: I’d say, “Look, my father, or my mother, who may or may not be a relative, wants to help me in this transaction.  However, they do want to pay fair market value. They don’t want their transaction set aside because it’s some sort of interfamily transaction.  However, advertise it, find potential purchasers, find people who’ll give fair market value.  And if there is somebody who comes in at a number, they’ll match the number. See now we have a fair market arms length transaction.  And that’s the way it should be.  I would not do it like the realtors do, say nothing, come at the end, and say, “Oh, this is my father” or “my mother”. 

Michael: Right, now lets… my understanding is that your credit is going to take just about as big of a hit by doing a short sale, now it doesn’t hang around quite as long…

Dean: Michael, that’s the way it used to be, that’s correct. See what happens is: on a short sale you have a demerit or a mark, it’s called an adverse mark in the credit world, if you went through a short sale or a foreclosure, but now it doesn’t under the new code section; you have no deficiency, no liability for deficiency.  It started January, 01, 2011 and I think it sort of helps owners in a way. It helps realtors dramatically.

(laughs)

Dean: Because now you have a reason to do a short sale.  And you know what, okay, it’s great, okay.

Michael: So, but I’m saying: if you just go for a foreclosure, when you’re advising someone, and if you go for a foreclosure, you’re probably going to live in the house free for about a year, for sure: six months maybe about a year, I mean I know people who have been living in houses free for three years now.

Dean: Michael, I’m a bankruptcy lawyer and a real estate lawyer. 

(laughs)

Michael:  Oh, okay so you live there, for three years, free, and then they finally kick you out and then you leave, and if you’re just looking as just simply a business deal and no moral obligation, I mean why not just do that, I mean why sit around and sell the house that’s dragging you down? I have a hard time with that.

Dean: Yes, yes, you’ve got a good point, Michael, and I’m a real estate lawyer and a bankruptcy lawyer so generally we do a Chapter 13 and then we move on with the Chapter 13 to a loan modification – we strip off the second mortgages and that sort of thing. 

Michael: Right.

Dean:  And we are well known for that sort of activity and it benefits people who bought in 2005 and 2006: way over paid for their house at the 80/20 loans, you remember the 80/20 loans?

Michael:  Right.

Dean: 20 percent down…

Michael: So you get rid of the 20 one and try to modify the other one?

Dean:  Yes.

Michael: Do you have any luck?

Dean: What we do: we strip off the second in a Chapter 13 and then we come and do a loan modification on the first and that’s a very rational thing because these poor people they got sucked in by realtors…

Michael: Yeah…

Dean: …and they got sucked in by loan brokers: even worse than a realtor.

Michael: Well, and banks, and banks! They knew what was going on.

Dean: The banks knew what was going on; we got rid of the good ol’ Glass–Steagall Act. There was no responsibility anymore, they sold these mortgages on the so called “market”, the securities market, securitized these trust deeds and they didn’t care!  The banks didn’t care, the realtors didn’t care the brokers didn’t care, nobody cared and when nobody cares: everything goes to foul.

Michael:  Right, yeah then you know it always rolls downhill.  Hey, I’ve got to run, Dean I appreciate you calling in though.

Dean:  Well, thank you Michael, I appreciate you letting me on and that’s really more or less what’s really the world of mortgage going on out there.

Michael: Perfect, that you Dean. You know none of these transactions are easy, none of them.