No question, many mistakes have been made over the last several years in the real estate
and lending arena.  Anyone who does not think we all have quite a mess on our hands
needs to wake up.  Soon the recasting of Payment Option ARMs will severely escalate with
predictions of foreclosures doubling or even tripling from today’s levels (July 2008).    We
have big trouble coming.

Real estate and lending is an essential part of the economy and it will return to health.
Sadly, too many are focused on trying to call a “bottom” or say “the worst is behind us” and
in doing so, they miss the point of the problem before them.  We all need to acknowledge,
the market is bad… real bad… and its going to get worse.  Once admitting this as a fact,
we can stop worrying about “bottoms” and craft solutions.

Those in the real estate and finance community are having a tough time with deals.  They
are few; they are difficult and quite honestly, most are beyond the understanding of real
estate and finance professionals.  That stretch of understanding has the potential to create
long term problems for real estate and loan agents.  Such as:

Short Sales:

An agent has a client who owes $400,000.00 on his house and after they do their analysis,
thinks it will sell for $300,000.00.  After allowing for commissions and closing costs, they
may net $270,000.00 for them towards that $400,000.00.  Agent may think… “hmmm…  I
could help them by negotiating a short sale with the lender… or maybe I should send them
to a short sale negotiator who is good at hammering lenders on short sales.”

Want some advice?  STOP AND STOP NOW!

Sure, IF the transaction meets the requirements of the new tax law, it might not be a taxable
event but that needs to be analyzed by someone in the know. More important… substantial
technical defects and legal remedies are available in half of the loans out there that MUST
be explored before ever advising someone to take a short sale. Equally important, that
agent may be setting his/her client up for legal liability based on what they did in the
original loan (i.e. lied about their income).

NOT ONE SHOULD RECOMMEND A SHORT SALE OR TALK TO A LENDER before they
have explored these tax and legal elements.  No question, if an agent does not and it is
later found those remedies existed that agent can have substantial legal liability.

Foreclosure:

An agent is asked to list a house that the owner is in foreclosure and they essentially have
a “gun pointed at their head.”  Somehow the agent is now tasked with selling the home in
this difficult market in a short period of time.  Usual stance… drop the price and negotiate
with the lender.

Some more advice???  You guessed it… STOP AND STOP NOW!

We may be able to find substantial technical defects or legal remedies and they MUST be
explored before ever advising someone on how to sell their home in foreclosure. These
defects may give the client months or even a year to wrap up a better sale and may even
create more equity for the owner.   In effect, looking at all the angles can remove the “gun
from their head.”

DO NOT RECOMMEND ANYTHING OR TALK TO A LENDER before they have explored
these legal elements.  

Refinance Request:

A loan agent is being asked to assist a borrower with a refinance of their home.  They see
that they do not have enough equity.  Loan agent turns them away and informs them that
he/she cannot help them.

Again with the advice?  You are catching on well… STOP AND STOP NOW!

Again, substantial technical defects or legal remedies may be available and MUST be
explored before ever advising someone that they cannot refinance their loan.  Those
defects may drop the loan balance to a level that a refinance is possible or create some
other area of advantage.

This only touches the surface of the complex issues before the legal profession today.  
More important, while things like bankruptcy, short sale negotiations or renegotiating
payments and rates for consumers may be options for clients, they should be viewed as
the options of last resort.  That may be counter to what you have heard.  A new industry of
negotiators has come around making all kinds of promises.  Sadly, it is not a regulated
industry (in California may violate the Foreclosure Consultants statutes), much of what they
say is a half truth and the legal and tax pitfalls of their advice, when discovered, are usually
way too late.  

The final advice?  BE CAREFUL!  Please make sure that your clients have gotten sound
legal and tax advice before proceeding.  This is not the generic “Miranda warning” given on
all routine matters; we are talking about REALLY getting them to do it.  It can save them
tens to hundreds of thousands of dollars.


(c) 2008, David A. Pereira
Making the Mortgage Crisis Worse For the Industry?
By David A. Pereira (July 2008)
A mission statement
or quote about the
firm.
Law Office of Kimberlee A. Rode
- Mortgage Litigation Consultants -