Foreclosures are going to go up before they go down,” according to Craig Nickerson, president of the National Community Stabilization Trust.

Nickerson says estimates put foreclosure tallies at 850,000 this year, as high as 1.5 million in 2013, and then back to the levels we’re at today by 2015.

With all these distressed properties potentially making their way to an already stressed marketplace, Nickerson, along with a panel of industry professionals at the inaugural MPact Conference advocated for bulk short sales.

Tyler Smith, VP of Wells Fargo’s REO disposition team, noted that managing investor participation with communities’ neighborhood stabilization efforts “can sometimes be a conflict of interest.”

According to Jerome Devadoss, manager of alternative dispositions for Fannie Mae’s REO sales operation, it’s important to engage community-minded investors to work alongside local nonprofits toward neighborhood stabilization, whether it’s through short sales or any other loss mitigation strategy.

Jim O’Donnell, manager of the West Coast REO Revitalization Program at Chase, says his company is exploring ways to facilitate short sales to nonprofit organizations. Chase is looking to make short sales and distressed portfolios part of its “First Look” program.

Short sales are increasingly making their way into the conversation as a practicable solution to support neighborhood stabilization.

Investors should buy short sales

With all the negative press surrounding real estate investors and short sales these days, it’s refreshing to read a clear, concise explanation of what we as investors really ad to equation of boosting the weak housing market by purchasing properties that require the “buy down” or short sale of the lender’s loan amount.

I don’t usually post articles written by others that often, but the following exerts from an open letter written by Ben Pargman to Freddie Mac, is a real summation of what we bring to the table as investors and how detrimental it can and will be if government organizations like FreddiMac  falsely mislead the public into believing that investors who buy short sale properties at a lower price than market with CASH and then flip them (after all the liens and other issues have been resolved) for a profit are somehow breaking the law; then the housing market will definitely feel the pinch.

Mr. Pargman begins his letter to Freddie Mac by stating: Last week you published an article on your website “Emerging Fraud Trends: Short Payoff Fraud.”  Absent further clarification, your letter could cause serious damage to the already struggling housing market, compromise the Administration’s goals of reducing foreclosures, and increase losses to lenders and investors such as Freddie Mac.  I’m sure that was not your intent, so the following is offered to assist in a clarification that must be forthcoming.

You expand the definition of mortgage fraud to include misrepresentations or omissions by the borrower or buyer made to a lender in the context of a short sale.  You then specifically mention ‘a subsequent transaction at a higher price’ as one such misrepresentation.

Here’s what I think you’re missing: A property with debts that exceed its value does not have clear and marketable title and cannot be sold until such time as a short sale approval is obtained.  Obtaining a successful short sale approval is a complicated, frustrating, and lengthy process.  This reality is reflected in market pricing: properties that do not have clear and marketable title command less from the market than those that have clear and marketable title the same way that a house with structural foundation issues will command less than the same house without the defect.

Accordingly, a potential short sale property commands a lower-than-retail price which may be attractive to a wholesale investor looking to purchase a property at a discount and later reselling for a profit.  You recognized this appropriately in your October Sellers & Servicers Bulletin:

Property flips are not inherently illegal and not all transactions involving a rapid purchase and resale are improper. Legitimate property flips are acceptable transactions in connection with loans purchased by Freddie Mac. Some indications of property flip transactions that may be legitimate include: . . . Sales of properties that the property seller acquired at below market value after purchasing as a result of a distress sale (i.e . . . . short sale . . .), where any increase in the sales price over the property seller’s acquisition cost can be clearly shown to be a result of the difference (if any) in the market’s reaction to distress sales and typical arms-length market sales.

Best Practices for Loans Involving Possible Property Flips, Freddie Mac Bulletin, NUMBER: 2009-24, Attachment A (October 9, 2009)

There you got it right and recognize the legitimacy of a flip from a lower distress short sale value to a higher typical market sale.  Your October Bulletin recognizes that opportunities to buy low, add value, and resell for a profit are the very foundation of our market economy.

The wholesale investor invests the time, energy, and expertise to obtain the short sale approval from the seller’s lender together with other short sale agreements and lien releases as may be necessary.  (Most short sales transactions involve multiple mortgages, liens, homeowner association dues, back taxes and other title exceptions that must be cleared – it’s not easy stuff and often involves a significant amount of work.)

Completing this non-physical repair work to create clear and marketable title increases the value of the property from the prior “non marketable title/distress sale” value.  The increase in value is not a product of a fraud or misrepresentation.

Here’s where your recent article causes some troubling confusion.  The increase in property value from repairing clear and marketable title by securing a short sale takes place between the time of the buyer’s original contract (at the lower value) and the eve-of a closing usually several months later at which point the wholesale investor, through the efforts of clearing title including obtaining the short sale, has created an asset that can now be re-sold at a higher price.

If by the statement “misrepresentations in these schemes may include…a subsequent transaction at a higher price” you are suggesting that it is fraudulent for a short sale buyer to resell properties for increased prices resulting from their efforts to clear title through short sales, then you are attempting to create new law of an affirmative duty that does not otherwise exist while simultaneously bringing about a dramatic decrease in the number of short sales that are successfully closed.

Realize that every lender currently has the ability (absent your newly fabricated duty) to control their short sales and shut out investors.  The short sale is entirely at the discretion of the lender to approve or deny.  If the short sale lender does not like the offer from the investor (because it is too low), it is entirely within the lender’s prerogative to reject the offer, counter at a higher price, request other offers, or simply foreclose.  The entire process is always within the complete control of the lender.

The lender has always been able to make requests for information from their borrowers, require a signed statement from a buyer at closing, or put restricting language in a short sale approval that would prohibit subsequent transactions.  (Such efforts foolishly disregard the value the wholesale investor brings to the lender in advancing a product that does not have clear and marketable title but for the investor’s involvement and compromises the Administration’s goals of promoting short sales to reduce the foreclosure rate; however, it is certainly within the lender’s prerogative to take such actions should they choose to.)

However, above and beyond any such requests or restrictions by the short selling lender, if you are asserting that once a lender has accepted a short sale offer and the buyer then attempts to resell at a higher price, that the buyer has an affirmative duty to reveal its sales price of a subsequent transaction and that the difference between the short sale approved price and the subsequent sales price is somehow a fraudulently obtained unjust enrichment, then . . . geez . . . will the last Gd fearing American grab the flag on the way out!

If that is really what you mean, you will further damage the housing market, dramatically increase foreclosures, vastly reduce the number of successful short sales, and impose a chilling effect on the free market that will likely have serious ramification beyond the housing market.  You would be setting a precedent that wholesalers, anyone who owns stocks, equities or commodities, sales persons, importers, and any other entrepreneur who buys, creates value and sells products or services somehow has an affirmative duty (even if not asked) to get permission from their seller to resell an asset at a higher price prior to completing their purchase?

You can’t really mean that?  You would have:

• Car dealers get permission from new car buyers to resell their trade at a higher price before closing the deal?
• Anyone who buys a stock or commodity having to get the approval of the stock seller before reselling the asset at a higher price?
• Fruit wholesalers required to obtain the permission from the farmer to resell their crop to a grocery store at higher price?
• Importers getting permission from China before Wal-Mart could sell a t-shirt?

No.  You can’t possibly mean that!

You had it right in your October Bulletin when you recognized the legitimacy of these transactions.   In addition, the FBI makes it very clear what current law considers mortgage fraud involving a short sale:

In a typical short sale scheme, the perpetrator uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage. The mortgage is secured with fraudulent documentation and information regarding the straw buyer. Payments are not made on the property loan causing the mortgage to default. Prior to the foreclosure sale, the perpetrator offers to purchase the property from the lender in a short-sale agreement. The lender agrees without knowing that the short sale was premeditated.

Mortgage Fraud Report “Year in Review”, Federal Bureau of Investigation (2008).  Yes, now that’s mortgage fraud!

Yet the policy suggested in your article goes well beyond this clear example to potentially include any resell of a property where a buyer does not go above and beyond to reveal the subsequent resale of a property at a higher price.

I believe in my heart of hearts that the work that I do together with thousands of hard working, honest, proud American entrepreneurs creates win-win-win transactions that add value to the U.S. economy, the housing market, sellers, and Freddie Mac while supporting the Administration’s objective of promoting short sales and reducing foreclosures.  I offer these thoughts to further these mutual objectives.

Together with other real estate investors, educators, and entrepreneurs, I would be eager to contribute to a dialogue to help distinguish truly fraudulent actions from what is good honest entrepreneurial work essential to the Administration’s objectives of healing our troubled housing market.

Reference: “Open Letter to Freddie Mac” by Ben Pargman. Published April 19, 2010.

In laymen’s terms: why are so many home owners walking away from their houses in droves? That’s the provocative question posed by Brent T. White, a University of Arizona law professor whose academic paper on the fast-spreading “strategic default” phenomenon last year drew sharp criticism from lenders and Wall Street, who viewed him as the Pied Piper of the walk-away movement.

Now White has published a new paper, based on the personal accounts of 356 strategic defaulters and homeowners on the verge of doing the same. His finding: People who intentionally default on their loans are not as calculating in their decision-making as widely believed.

In fact, he says, their decisions to pull the plug “may not turn out to be economically rational.” But they walk anyway, in large part because they are at the end of their emotional rope. They’ve transitioned from feelings of anxiety and hopelessness to outright anger at their lenders, the government and/or a financial system they consider to be unfair. Boy, I have to agree with them on this one!

White published his latest paper in Arizona Legal Studies, the law school journal. Following his initial study last year, which argued that far larger numbers of underwater borrowers should stick it to their lenders, (That would make a great website! wouldn’t it? StickItToYourLender.com!) White says he was inundated with e-mails and calls from homeowners saddled with negative equity. Many provided him with extensive details of their own financial situations and their difficulties in dealing with their lenders; the latter issue is where the borrowers are really fed up?

Negative equity continues to be a massive and corrosive problem, according to real estate analytics firm CoreLogic. During the first quarter of this year, 11.2 million homeowners nationwide owed more on their mortgages than their properties were worth. Fellow investors, brokers and agents; please see this opportunity to help people and help the economy rebound and you make a profit- it’s Ok!

In Las Vegas, 75% of all mortgaged homes and condos are underwater. In Phoenix, 550,000 homeowners have negative equity — 58% of all houses with loans. Florida’s rate of negative equity is 48%, followed by Michigan at 39% and California at 34%. Nationwide, nearly one out of every four mortgaged houses is in a negative-equity position, according to CoreLogic.

White and other academic researchers believe that severe negative equity is the essential spark that prompts owners to consider walking away — even those who feel it’s morally wrong to default.

Based on the personal accounts shared by strategic defaulters, White says they often have high FICO credit scores, sterling payment histories and solid incomes. As one underwater homeowner put it in an e-mail to White: Considering their previous credit performance, “there isn’t a lender out there who wouldn’t give us a loan.”

But staring at hundreds of thousands of dollars of negative equity, owners turn anxious, then pessimistic, about their financial futures. Older owners with severe negative equity worry about their ability to stay afloat in their retirement years if they keep paying their mortgage today.

Lenders and loan servicers often play crucial — if inadvertent — roles in motivating owners to walk away, White says. Of the 356 homeowners’ situations he analyzed, 100% reported contacting their lenders to work out some solution before they defaulted.

Many say they were rebuffed by servicers who refused to discuss modifications with anyone still current on loan payments. (THINK ABOUT THE LOGIC IN THAT STATEMENT!!! NO WONDER THE DEFAULTS ARE WAY UP!!) Other owners told White that they tried to qualify for one of the Obama administration’s foreclosure prevention programs but either got snagged by rigid income-to-payment rules or nonresponsive servicers, or were told they were simply too deeply underwater to obtain assistance of any sort.

White says there can be no effective answer to the walk-away trend as long as lenders and government fail to intervene early and address underwater borrowers’ needs and emotions.

One possibility: much deeper principal-reduction efforts for owners who have severely negative equity and see no way out.

Still another, says White: Create a “rent-based loan program” that allows underwater owners the option of refinancing their balances to an interest rate that would bring their monthly payments in line with the rental cost for a comparable house. It sounds to me like it’s time for investors to also revive the LEASE OPTION as a viable investment strategy- the opportunities are endless. Get in the game!

Opportunity for investors like us and yes, solutions for upside down homeowners. The best thing about these opportunities, is that we are investing in houses that otherwise would go straight to foreclosure. We are stopping the foreclosure in its tracks and saving the homeowner from a massive blow to their credit, clearing up the liens on the properties and delivering them to new home buyers at affordable, lower prices.

The state of Arizona’s foreclosure rate moved from the nation’s third-highest to second-highest, according to new data from RealtyTrac Inc.

One in every 169 Arizona housing units received a notice of default, scheduled auction or bank repossession in April; more than twice the national average. In all, 16,088 residences received notices. That’s down 15 percent from March, but just 1 percent from April 2009.

Nationwide, Nevada posted the highest foreclosure rate for the 40th consecutive month, with one in every 69 housing units receiving a notice in April; more than five times the national average.

Nationwide, there were 333,837 foreclosure actions in April, a 9 percent decline from the month before and 2.4 percent below April 2009 levels.

Florida continued to hold on to the No. 3 positionin the country, RealtyTrac reported. The state recorded 48,384 foreclosure notices in April, involving about one out of every 182 homes; down 18 percent from last month and 25 percent from the same time last year.

Our investment company; Property Results, LLC is actively purchasing preforeclosure, short sale properties in the Phoenix, Arizona metropolitan area in both Maricopa and Pinal counties; as well as in the Las Vegas, NV area in Clark County.

Attention Real Estate Agents in Phoenix, AZ and Las Vegas, NV: We need more short sale properties to purchase! Call or e-mail us today! also visit us for more short sale investing strategies at http://www.successroads.com

Irvine, Calif.-based RealtyTrac’s U.S. Foreclosure Market Report collects data from more than 2,200 counties nationwide, accounting for more than 90 percent of the U.S. population

This may be the single worst piece of advice I have ever read published in such a well respected association and qualified professional news source for Realtors and real estate professionals. First, for purposes of full disclosure; I am a full time investor and do invest in purchasing short sale properties and I am also a full time licensed real estate broker in the state of Arizona and have been for 18 years; and our firm does represent distressed sellers, as well as in many cases, our own investment company as buyers of those same short sale properties with the obvious written dual agency disclosure to the seller and also the third party lender who ultimately approves the sale.  The advice I am referring to was written by Scott Thompson with ServiceLink, a national lender platform in Rancho Cordova, CA. in the April 2010 edition of Realtor magazine, published by the National Association of Realtors. www.realtor.org/realtormag The name of the article was “Short Sales Ethics: 6 Temptations to Avoid” and number 4. is titled: “Selling to Flippers” It states: ” Unless the investor in a flip is prepared to add substantial value by fixing up the property, don’t participate in a flip. Short sale flips benefit only the investor, who’s clipping off moneythat could go to an already bleeding lender.”

Where do I start? First of all, an investor is NOT the only one who benefits! What about the homeowner/seller? Our goal is to get them out of the house and the situation they are in and close the short verses letting the house go into foreclosure and devastating their credit and/or potentially force them into personal bankruptcy.  The SELLER WINS! Oh and by the way, what about the lender? They have a solid cash buyer, us, who will do what we say we will and close the deal as per the contract and on time therefore mitigating the lender’s loss tremendously.  The LENDER WINS! Also, not another run down vacant house on the block sitting there for sale for months, only to sell for LESS as an REO , which would have hurt the lender much more and brought down sales comps. The NEIGHBORHOOD WINS! Also; the new buyer, soon to be new homeowner, now buys the property at STILL  a HUGE discount (that’s AFTER the investor’s evil profit!) and can now make an offer and close quickly because ALL the hassles of the former seller’s transaction and their lender were solved by that nasty investor who clipped  off  money from the poor lender. NEW BUYER WINS!  And; don’t forget about the real estate agents; they make a well deserved commission from the hard work that really does go into getting all the parties to a short sale to the table to close an almost always difficult transaction. The AGENTS WIN! The agents/brokers like us that pay the dues to the (NAR) the National Association of Realtors. Investors and brokers/agents are of the same breed; we are all entrepreneurs who are out working for ourselves, taking risks to feed our families and many times working many hours on transactions that we may never get paid from. So let’s don’t forget that investors often times drive our markets and make the deals close that otherwise would not and our involvement in the process benefits ALL parties involved, NOT just the investors! Without investors, free capitalism and those of us willing to work the hard deals, this market we are in would slow to a screeching halt. So I believe strongly that it is grossly irresponsible to encourage real agents to NOT sell to a Flipper (basically slang for an investor who resells for profit – God forbid!) and slant the advice toward being unethical is certainly an insult to all investors and brokers/agents of the world.

To encourage HAFA participation, the Treasury Department raised financial incentives under the program in late March. Borrowers are now eligible for $3,000 in relocation assistance, and servicers (banks) will receive $1,500 to cover administrative and processing costs for a short sale or deed-in-lieu completed under the program. In addition, the banks will be paid as much as $2,000 for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders. (you know the ones.. those uncooperative 2^nd mortgage holders who do nothing but screw up the shorts sales for all parties when they choose to “play hard ball” and refuse offers and then get nothing while costing the banks hundreds of thousands of dollars and force the owners into foreclosure!) For the 2^nd lien holders to receive their incentive from the banks in first position, they must release their liens and waive all future claims against the borrower. (as they should have been doing all along, again, instead they chose to take nothing) According to Treasury, the foreclosure alternative options offered under HAFA reduce the need for potentially lengthy and expensive foreclosure proceedings and also help preserve the condition and value of the property by minimizing the time a property is vacant and subject to vandalism and deterioration. The collective thinking, now even in the government, is that short sales and deeds-in-lieu generally provide a substantially better outcome than a foreclosure sale for borrowers, investors, and communities. As investors, we all have known this to true, but getting the home owners a few bucks for their efforts and helping them with the burden of relocating, is great news in my book!

HAFA (which means “I have HAFA mind to never pay another mortgage payment again!”) Kidding!!! Actually it is part of the Home Affordable Modification Program (HAMP) that aims to help homeowners who are unable to qualify for a loan modification under HAMP by providing them with the option to pursue a short sale or deed-in-lieu. Under the program, financial incentives are provided to servicers (banks) and borrowers (now you’re talking!) who utilize these foreclosure alternatives. As of April 5, 2010, the program is now in action and according to the guidelines, once a borrower is determined to be ineligible for a HAMP modification, the bank must consider that borrower for HAFA within 30 days. Every potential eligible borrower must be considered for the program before the borrower’s loan is referred to foreclosure or the bank allows a pending foreclosure sale to be conducted. If the bank determines that the borrower is eligible, the short sale or deed-in-lieu process will begin. Qualified borrowers will be given pre-approved short sale terms before the property is listed, and once an offer is made, banks/mortgage servicers will have 10 days to approve or reject the sale.

It’s no secret they are on the rise and for obvious reasons. First; negative equity! The second reason is President Obama’s soon-to-be-announced plan to encourage principal reduction. If the plan is structured so that it gives incentives to default in order to secure principal forgiveness, which it will, expect defaults to spike. This does not mean mailing your keys to the bank and walking away. It may simply mean a borrower choosing to stop payments to the bank when economic incentives would have him do so. Its a no brainer to me!