Tuesday, August 19, 2008
My Landlord Is Still Dumb
So my landlord said to me last week, "I've got good news for you."
Sure, I thought. When was the last time a tenant got exciting news from their landlord?
"You like my house right? Well, I would like to short sell it to you", he gleefully announced.
A short sale is when an upside-down (owes more than current market value) property is sold to a buyer. Before it can be finalized, as the mortgage lender holds the title, the bank/lender/vulture hedgefund has to approve the sale and accept a loss on their loan.
In other words, my landlord owes $1.2 million on the house I rent; market value is probably no more than 600k right now; so in order for him to sell it to me at that price, the bank (GMAC, WaMu, or CountryWide) would have to consent.
Was I interested in buying the house? Sure. At 375k I told my landlord - as diplomatically as I could.
First of all, banks generally ARE NOT approving short sales. It's no more complicated than this - lender management HOPES to indefinitely put off recognizing any and all losses. Even if the fair market value of the house in question was say 450k, it's highly unlikely that any bank would approve a sale at 600k. They simply do not want to have to recognize any losses; they do not want to have to mark their loan portfolios to market.
Further complicating any potential short sale of my house is the fact that the landlord has two liens, two mortgages on the property. He has a primary and a secondary (home equity type of loan) each for 600k. His loans are split up by two of the three banks I listed above. Since a sale at a mere 600k would wipe out all the equity of the second lien holder, they would do what they could to block a short sale. Although they can't completely veto a short sale, they do have some preemptive rights.
And they especially have veto power when the borrower is currently paying his monthly bills - as I believe my landlord is doing.
From what I have read, banks will only consider *loan modification* and short sales when payments have been suspended. I don't blame them. Otherwise, without any palpable signs of distress, they'd be open to manipulation. Borrowers who have no problem making their monthly payments might try to procure money, loan modifications, or a cheap real estate exit from unsuspecting lenders.
And all of this I have repeatedly told my landlord. So long as he foolishly keeps making payments in some asinine attempt to protect his "credit score" he loses all leverage with the banks. He's going to lose his homes (all four of them) in either 8 months or 18 months. The only variable is - is he going to have 100k left in his bank or zilch?
From another angle, if you were me, why would you pay *fair market value* be it 600k or whatever on a home:
1) That rents cheaper than it would cost to own ($2,500 versus about $3,000 per month).
2) That you KNOW is on a one-way, downhill skid to foreclosure.
Now he could still try to short sale the house to another buyer even though I have a signed lease through next August. BUT, he's waaaay to stupid to realize that. He mistakenly thinks that I am the only one he could short sell to.
It's all quite beside the point as the banks are going to appraise the property above what it's worth - probably $650,000 or higher.
There's far more than one Moron in this picture!