The Great Short Sale Debate As a preamble, allow me to share that online healthy debates can be productive; however, “flame wars” raged between individuals lurking in their electronic caverns are a total waste of time. In many debates regarding various business methods and practices, there are often good people on both sides of the debate. I do not anticipate being able to persuade those whose minds are firmly made up in opposition to my position. Rather, I wish them the best in their lives and ask that if they choose, they may share, in a professional and healthy way, their perspective on certain real estate matters. Each person is responsible for his or her own due diligence and assessment of the facts before conducting business activities. In no way am I interested in engaging in any sort of name calling or derogatory conduct. In fact, the person who resorts to direct or implied character assassination is displaying that he or she has either a poor ability to communicate or a weak set of facts supporting his or her position. Has the world of real estate, particularly short sales, changed dramatically in the last few years? Absolutely. Was I blessed to be in the right place at the right time and around the right people? Yes. Do I appreciate it when individuals, often total strangers, come up to me at various events and meetings and share with me how they were able to use some of the documents, systems and ideas of which I had a part in contributing to the marketplace to help distressed homeowners escape an otherwise desperate situation? Yes, that brings great joy to me. Does it bother me when one or more disgruntled, unhappy individuals say unkind or unpleasant things about me? Not really. In my occupation, I add somebody every day to that list of individuals who either don’t like me or don’t agree with me. It’s part of being a lawyer and practicing law. The fundamental questions that those who are looking at short sales for the first time should ask themselves may be some of the following: • By what authority do failed financial institutions such as Freddie Mac and Fannie Mae have the right to dictate or shape national housing policies, particularly since they are now insolvent and under the jurisdiction of the Federal Housing Finance Agency? • What was the exact legal source referenced in the Freddie Mac bulletins published in February and March 2010 equating short-sale flipping with mortgage fraud? Was there a specific section of the United States Code cited? No. Was there a specific federal court decision cited? No. Was there the name of a preeminent legal scholar cited? No. • How many people are aware that upon focused inquiry, it was finally conceded in writing by in-house legal counsel for Freddie Mac that the February and March 2010 bulletins equating short-sale flipping as mortgage fraud were not based on a legal opinion, but rather the opinion of their business unit? Before progressing further, let me be clear. It is possible to commit fraud in any type of real estate transaction, including a short sale or a short-sale flip. It has often been said that “buyers are liars and sellers are worse.” Why is that? Because everyone is usually looking out for his or her own self-interest in any sort of business transaction. Nevertheless, I believe everyone can agree that honest and ethical people who believe in and practice within a defined set of moral values can agree upon standards and methodologies upon which a transaction is both legal and forthright. Please note that I did not use the word “fair.” As we all know, life is not fair. In the most recent distressed property transaction that I handled, fairness had absolutely nothing to do with why a single mom, whose business was failing and whose husband had left her and the baby, needed to sell. Going back to Freddie Mac, the struggle that I have is reconciling the inconsistencies and discrepancies coming from Freddie Mac. First, we had a Sellers and Servicers Bulletin back in 2009 which was not complimentary of short-sale option contracts. That bulletin clearly did articulate that distressed property sold for less than non-distressed property, and flips were legitimate if done properly. Yet within a year’s time of Freddie Mac putting that out, it apparently did a 180° reversal based upon its own business unit’s desires and policies. Fast forward to 2012. Under the tutelage of the Federal Housing Finance Agency, Freddie Mac and Fannie Mae are forced to adopt the new National Standard Short Sale Program. Lo and behold, short-sale flips are once again legitimately recognized. Granted, it’s not the same day or the next day, but a thirty-one day resale has now not only been recognized, but has actually been built into deed language. For those people who used to say that anytime you quickly resell a property after buying it that it’s fraud, well, apparently not. Do I claim to be the smartest guy in the room when it comes to short sales? Absolutely not. Like I said before, I have been in the right place at the right time. It has been a tremendous privilege and honor to meet with senior staff of the Colorado Real Estate Commission and discuss short sales and short-sale flips in great detail. It has also been a tremendous honor to be asked by a member of the Florida delegation to the United States Congress to brief his legislative director and policy advisor on short sales. I have also had the tremendous opportunity to work with other key members of Congress on developing the new National Standard Short Sale Policy. It has been an honor to be consulted by a number of lawyers from various jurisdictions regarding difficult short-sale transactions or litigation arising out of short sales. From 2007 until now, have I always recommended that short sales be conducted the exact same way? Absolutely not. Has business changed in the last six years? Absolutely. Has the economy changed? Absolutely. I believe we all recognize that those who fail to adapt and adjust will not survive. As for my latest proposal regarding short-sale transactions, do I believe it is the only way to do short sales? No, but I believe it is a very good way to do short sales. Allow me to explain. This particular method (Flip Free Profits 2.0) of doing short sales is designed around the new National Standard Short Sale Policy and is specifically designed to comply with both the short-sale addendums and recently revised short-sale affidavits that may be submitted at the last moment by the servicers. As any good business person will tell you, if you know what’s coming, you might as well plan on handling it from the very beginning. Without going into all the details and nuances of my most recent proposal for how short-sale transactions can be conducted, allow me to ask two questions. If the details of the A-to-C transaction are fully disclosed in writing, is that good? I say “yes.” When required, if the amount of money being paid to an investor to step out of an A-to-C transaction is documented in writing on the HUD-1 Settlement Statement, is that disclosure? When determining why a person has a certain opinion, belief or position, you should try to figure out the basis or origin for that opinion. Sometimes it is as simple as following the money. Taking that simple rule and applying it here leads me to see why a licensed real estate agent may be an avid fan and follower of Freddie Mac despite that institution’s less-than-stellar track record in the housing arena. Allow me to explain. Real estate agents get paid when people buy houses. The higher the sale price, the more for the agent ($). Most people have to borrow money in order to be able to buy a house. Despite being delisted on the Stock Exchange, insolvent and placed in a receivership under FHFA, Freddie Mac is still originating mortgages and buying others. If your livelihood is dependent upon people getting loans from institutions affiliated with Freddie Mac in order to be able to buy real estate, then you are going to be inherently biased towards those sources of money. That’s where your paycheck ultimately comes from. That may be, in and of itself, neither good nor bad, but it is something of which you should be aware. Turning that same line of inquiry back upon myself, it would be wise for me to acknowledge and paraphrase the late, great Abraham Lincoln: A lawyer’s time, knowledge and reputation are his only stock in trade. I believe in getting paid to solve problems, not cause them.
Posted on: Thu, 13 Jun 2013 21:30:18 +0000
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