Short Sale FAIL

barbies to the oven. burning man 2009After eight unsuccessful months trying to sell our Somersett McMansion for $525,000, we raised the price to $572,000. No, we’re not crazy. The bank is.

For those who may not know me, I started this blog in late 2005. I was also a Realtor, a top producer in my office even as the downturn began to take hold, thanks largely to the success of this forum.

But in January 2008, a full pipeline of possibilities dried up almost overnight when banks stopped lending.

Thanks to my compulsion for examining local sales data every month looking for truth rather than happy-talk, a commitment to considering dissenting opinions on my own blog from so-called naysayers, and a curiosity beyond our local market into larger macroeconomic issues… I recognized the wake-up call.

Real estate had hit an iceberg. Reno, Vegas and a bunch of boomtown cities in Florida, California and Arizona were the strike points. Intuitively, it felt like the Titanic. I happened to be on deck watching events unfold, I knew the ship was going down, and if I didn’t find a lifeboat, my family would drown.

As the primary breadwinner for my household at the time, I realized that unless I morphed into Short Sale/REO Listing Queen (not a good match for my skills, interest or sanity) more and more of my time would be wasted, spinning wheels on fruitless activity in a declining market where I’d be lucky to make minimum wage after scrambling night and day. This was not the life for me.

I sat the hubby down for a serious talk. He’s a high-level software development architect who never, ever found employment locally… his periodic consulting gigs and start-up opportunities were mostly Bay Area-based.

I said, look, this market is melting down. I can no longer support us. You need to get back into high tech full-time, even if it moves us to Timbuktu.

Of course our preference was for a telecommuting option that allowed us to stay, but it was more important that he maximize security with a steady job, good pay and full benefits if we were to survive these next few years. Otherwise, I could see it’d be a slow and painful descent into bankruptcy, foreclosure homelessness and destitution.

Real estate agents are independent contractors, not employees. There’s no 79-week unemployment check (or whatever the benefit is now) waiting for us at the end of the rainbow. If business dries up, we have to figure something else out.

We also work on contingency, meaning we work for free in hopes that your best interests lead to a deal that actually pay us for our efforts in the end. It takes a lot of faith, confidence and chutzpah to work like this, not to mention a sharp instinct as to the probability around what might work and what won’t. 

I could only see the odds getting worse.

After a lengthy job hunt, the hubby came through with a great offer from a big, stable, well-managed company working on something entirely new, but the job required that we move back to the Bay Area at our own expense. Telecommuting was not an option.

Since our house was worth significantly less than we owed, a short sale seemed like the right thing to do. We chose a short sale specialist as our Realtor, who informed us that to even get the bank to talk to us we had to be behind on our mortgage payments, so we stopped paying in May.

We listed the house for $545,000 and two weeks later got two offers at about the same time. Both were for around $500,000. We presented the least encumbered offer to the bank. The bank took 3-4 weeks to finally respond. They said they wanted more money. I think they were looking to net $525,000, which meant the price would need to be around $570,000 to cover expenses.

I wondered if they were getting their valuations from Zillow, whose algorithms think my house is worth far more than real people with money will actually pay. But no, an actual appraiser came out and told the bank who-knows-what.

The first buyer said no way and walked. The second buyer also walked. I’m sure they all laughed over dinner. So the house was back on the market in early summer.

We received a couple of other offers as the weeks wore on, but before the bank could respond the buyers withdrew. One because of last year’s earthquakes. The other gave no reason, they just spooked and ran.

By the end of the summer I was thinking this thing would never sell, and it would be Foreclosureville for sure. We formally requested a Deed in Lieu of Foreclosure in writing from the bank but never heard anything back, so I guess they weren’t interested in that option either. 

Then along came Miracle Cash Buyer, who also offered $500,000. And bonus, he could close in two weeks.

I knew this was as good as it gets. If the bank didn’t take this offer, it was game over. Prices would continue to fall, no one would ever offer anything more, and our beloved albatross was destined for the courthouse steps.

Every short sale offer entails a mountain of paperwork for the seller (not to mention the agents), which meant, for the third or fourth time, I had to update numerous forms, provide up-to-the-minute paystubs, financial statements, updated tax returns, hardship letters and other paperwork that had to be copied, faxed, emailed, signed, notarized and mailed with receipts so that we had a paper trail in case something got lost.

In the beginning you don’t mind because you naively think it will all work out, but as time goes on and you hit the bank reality wall of no or inexplicable response, you become ever more grumpy, cynical and less apt to respond as quickly because some large institution staffed by overworked, underpaid employees outsourced to India obviously doesn’t give a crap, why should we?

 I feel for the agents involved. They put up with so much BS from these giant bureaucracies in hopes of getting buyer, seller and behemoth, disinterested third-party together in hopes of maybe getting paid for their services, which they often don’t. I wonder how much longer their good faith will last.

As the bank sat on our paperwork, Miracle Cash Buyer ended up selling his primary residence more quickly than expected and asked if he could rent our house until the bank made a decision, because we all knew this could take forever. At least this way he could settle in and wouldn’t have to move twice.

We said sure. As we’re still on the hook for property taxes, special assessments, the HOA, maintenance, repairs, winterization and all the rest, it would help offset these expenses while the bank spent possibly months making up its collective mind.

But it turned out we couldn’t do this. Nevada Law considers renting your home while in default on your mortgage, fraud.

Okay, I get it. If we collect rent, banks should get all of it (market rent, by the way, would be only about half our mortgage payment anyway).

And yet, as banks dilly-dally around, not responding to live people who want to give them real cash to take losing assets off their books, we the people are still on the hook, waiting in limbo, racking up penalty fees, as they the banks get bailouts from Washington on the backs of us the taxpayers, now and for generations to come.

Oops, sorry, I digress…

After two months of waiting, the bank finally responded. And though five months had passed since the last offer in our steadily worsening market, not to mention moving squarely into the slower fall season, they came back with the same number. They needed to net $525,000.

Their negotiator I guess wasn’t interested in counter offers because she failed to return multiple phone calls from both agents. If Miracle Cash Buyer didn’t come up with their number in seven days then she would close the file, end of story.

Well, you can imagine the MCB’s response. So the house is up for sale again, this time at the bank’s price including all transaction costs, thus the $572,000 price tag.

Our esteemed lender, American Home Mortgage, was one of those high-flying superstars back in the day, and one of the first to succumb to bankruptcy in August 2007. American Home Mortgage Servicing is the servicing arm that collects payments and determines how they’ll work with troubled borrowers, if at all. Go ahead, click on the link and scroll down to the customer comments… that’s the best part.

I’m sure that AHMSI won’t take less than $525,000 because it’s more profitable to foreclose on my house and stick it to the investors who bought my sliced, diced, and tranched-to-the-max Alt-A loan with all the extra fees they can legitimately charge per the terms of their contract. I understand. They’re a business, they survive on profit.

They don’t care about helping underwater homeowners or investors who bought their bankrupt parent company’s crappy loans by liquidating the underlying asset now, while it’s still worth something, as opposed to next year when it’s abandoned, run-down and worth far less to everybody in the transaction and the community. AHMSI doesn’t care because there’s no money in it for them, totally understandable.

So think about that. The real reason lenders rarely cooperate with short sales and generally prefer foreclosures is because they make more money with foreclosures. Read this report from National Consumer Law which explains everything in excruciating detail.

Lots of people get all wrapped-up in morality issues with their mortgages, but really, it’s a legal contract with ramifications for non-performance. Due to economic circumstances beyond our control, we were no longer able to perform on our contract, so we accept the penalties per the agreement. The credit hit on our formerly pristine scores is a painful but acceptable loss.

We will not be able to borrow money to buy a home for years to come, fine. I never want to borrow another cent as long as I live anyway, so who cares. Lesson learned. If I don’t have the cash to pay for something, then WOW, maybe I shouldn’t buy it. 

When you strip away emotion, it’s a simple business decision, a rational choice, much like the commercial property owners who choose not to pay on their obligations to force a workout, or my very own bank that chooses not to cooperate in a short sale for less than a certain amount.

I am not too big to fail. In fact, I prefer to accept my failures immediately, sort them out pronto, take my penalties and move on. Sometimes it’s better to puke it all out.

Right before Thanksgiving, AHMSI finally recorded our Notice of Default, almost three months late. Okay, at least we’re moving forward.

But given what’s going on in our country, I can’t help but wonder… does this former superstar bank and/or its assigns still have my original note?  They no-doubt tossed my vintage 2006 loan into the MERS paper processor to be sliced, diced, tranched and pooled into some amazing mortgage-backed security sold to big-name investment banks then resold to mystery investors worldwide in a cloak of confidentiality. But who REALLY owns my loan? Can they produce the note? And if not, do they have the legal right to foreclose?

Before Miracle Cash Buyer finally walked, we learned that our second, a HELOC, which was only about a third drawn down for the sole purpose of landscaping the backyard as required by the HOA (SNAP! I should have bought exotic vacations and a brand-new SUV) was unwilling to cooperate with a short sale because they noted on our financial statement that we had some modest retirement savings and a brokerage account set aside for our kids’ college education (both of which, by the way, are severely underfunded for their intended purposes, still working to build those). So even if MCB had miraculously come up to the bank’s number, our HELOC, originated with American Home Mortgage then quickly sold to GMAC soon after origination, would have refused to cooperate anyway.

(Hmm, GMAC, sounds familiar… Didn’t they just get another nice, big, fat-ass American taxpayer bailout?)

Yes, locking ourselves into the purchase of our shiny, new American dream home in 2004, then waiting a year and half for the developer to build it, was a bad financial move in hindsight. We did not see the train wreck coming. We planned to live there for at least 10 years until the kids went to college, but, you know, life has a way of throwing curve balls when least expected.

We lost $100K in real money on this house, which is 100% of our equity investment. I’m not counting mortgage payments, taxes, assessments, HOA, maintenance and the other costs/tax benefits of living there. I’m just counting cash into the deal, not refinanced out.

You might think that given we’ve lost 100% of our investment, the primary lender would be willing to write off 30% to get their 70% back now, before the market further deteriorates. And you might think the second, entirely junior to the first, would take 10% rather than nothing. After all, as I understood it, these were loans were secured against the property as collateral. These were not personally guaranteed loans, an entirely different contractual animal.

But, these are the banks’ business decisions to make, so I must accept them. We’ve tried to do the responsible thing to bring the matter to resolution. If they don’t want to play, so be it.

I guess our next best option, since the primary has refused to accept three good offers in more than half a year’s time, and since the secondary doesn’t see any reason to cooperate, is to request mediation through the new State of Nevada Foreclosure Mediation Program. Part of the process requires that the lender actually show up with the original or a certified copy of the deed of trust, the mortgage note, and each assignment of the deed of trust and mortgage note, with the goal being some resolution other than foreclosure. I’ll keep you posted on how it all goes, but thanks in advance to local lawmakers for even organizing this option… I’m glad someone still cares about the individual taxpayer.

I was taught in the fourth grade that we have three branches of government, each designed to balance and check the other. Unfortunately at the federal level, it seems that the Legislative and Executive Branches of our government have been bought and paid for by big business, lobbyists and other special interests. Maybe the Judicial Branch, that one place still seemingly beyond buyouts, bullshit and bailouts, can stand up for the American people and bring back the integrity of our Constitution.

I voted for change, but I see no change. I fear that we as a country have gone so far astray, only a total and complete economic collapse ala Soviet style will flush the system and allow the reboot that we so desperately need.

Regardless of how my personal situation ends up, however, this blog has saved me, and I can’t thank each and every contributor enough for their insightful conversation over the years. You taught me to question assumption and to see through faulty mental models. You opened my eyes to subtle economic realities churning beneath the surface, pointing out causes that would lead to unimaginable effects, which we are only now beginning to see today. You gave me the gift of insight.

Thanks to you, I now recognize the voice of truth.

Nobody wants to admit that our country is bankrupt, that government spending is out of control, that our debt to foreigners is so large as to be incomprehensible, that we as a nation are losing influence worldwide, that the value of your dollar is dropping rapidly and will continue to drop more and more precipitously as the government prints more money to pay for programs we can’t afford to keep the voters happy so that the politicians will be re-elected regardless of long-term consequences. Nobody wants to admit that an elite oligarchy of government and corporate insiders are robbing the American people blind.

But I say this… The emperor has no clothes.

The decline of the American Empire has begun. You can deny it, mock it, ignore it and eventually go down with the ship, or you can accept reality, make a plan, and do your best to survive and maybe even prosper through the challenges ahead. As we enter the Fourth Turning, I hope you choose to prepare.

As for me, all I want is closure.
Just give me what I lawfully deserve, and I’ll be on my way.

 

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86 Responses to Short Sale FAIL

  1. Avatar Sully says:

    Wow Diane, powerful! Too bad you’re not up to running for Congress. California could use someone to speak up for them once in a while.

  2. Avatar FutureRenoHomebuyer says:

    Diane, wow.

    Can’t really express my gratitude to for your above contribution and for creating this blog in the first place. As a newbie, I now understand why BB, Smarten, RI, Wazoo, and others speak of you with such reverance. It’s deserved.

    I can only hope that you provide more insightful commentary in the future. Unfortunately, I agree with you on all counts regarding the political, social, and economic asides.

    Thank you and best wishes.

  3. Avatar smarten says:

    Wow Diane. And I thought I was the only one willing to share his/her dirty laundry!

    You state, “just give me what I lawfully deserve, and I’ll be on my way.” So here’s my recommendation: bankruptcy. I know it’s not a pretty word but based upon what you and your family have been throughl and what you may have to go through in the coming months; it might just be the best option. It sounds like most of the assets you’ve mentioned either are or can easily be repackaged into property exempt from execution [which means you get to keep it rather than give it to your creditors].

    Bankruptcy will wipe the slate clean of debt and give you a new beginning. Wash your hands of the whole “short sale” thing and let your lenders do as they wish with the home.

    But don’t take my word for it; go see a competent bankruptcy attorney so you can start to position yourself for B-Day. If you can’t find someone you’re comfortable with, send me an e-mail and I’ll try to point you in the right direction.

    Good luck Diane!

  4. Avatar takkguy says:

    I will be the 4th to say WOW!!

    Rarely do we hear such a call to arms, pitchfork and torch in hand. I want to know when BB hijacked Diane.. and replaced the realtor Kool aid with pure straight up American populist vitriol. Careful Diane, that path leads to truth.. and G20 protests in the streets, black anarchist hooded sweatshirts, and a lifetime of voting for candidates who on a good day might get 2% of the vote, mostly write ins. Awesome.

  5. Avatar Laurel says:

    I appreciate your sharing. You are definitely seeing the ugly side.

    I’ve been wondering what’s happening with the water pipes of all the vacant houses in town with our below zero temperatures this week.

  6. Avatar renonewbie says:

    Diane,
    As a career Wall Street person (this is Rich, Andrea’s husband) who reads constantly about what is going on, I thank you for your insights, which I think are right on. One of the fall outs of “too big to fail” financial institutions is this resulting morass, which you describe. Had those bankrupt institutions failed, the assets would have been purchased by others at dimes on the dollar perhaps, but they would have then been looking to monetize those assets, to your and others benefits. Alas, not to be. Unfortunately, the whole system is infiltrated with special interests who are morally bankrupt. I think it will require a flushing out of the entire system…which may include bankruptcy of the US govt…or inflation, which would produce the same thing. Do what you need to do to get it over with, I say, and go on with your lives. We moved here a year and a third ago, are renting, and see no advantage to buying now. There is a lot more bad stuff to come, alt-a and option arm mortgages, commercial real estate weakness, higher unemployment, higher interest rates imposed by foreign Treasury debt buyers, which further spins the housing market down in its spiral. Yikes! is all I can say.

  7. Avatar Bull says:

    Just like the way Geroge Akerlof puts it: current crisis is partly caused by “snake oil” in the market. Capitalism does not just produce what people want (as long as firms make profits). Capitalism produces what people think they want (as long as firms make profits).

    I think we have only ourselves and Government to blame – We wanted snake oil (houses we couldn’t afford) and Government didn’t stop us. Bankers? They just gave what we want (as long as they make profit).

    From Geroge Akerlof’s speech:

    “It is true that capitalism will produce what people really want, as long as firms can make a profit. But, more subtly, and more generally, capitalism also produces what people think they want, as long as firms can make a profit. Unregulated capitalism may produce good medicines that cure our ills.

    I believe it will. But unregulated capitalism also produces snake oil that does not cure our ills. It may even find it profitable to produce the desire for the snake oil itself. In fact that is one major reason for the Food and Drug Administration in the United States. It protects us against buying snake oil medicine.

    The principal of snake oil has special relevance for asset markets. Assets to most people are only pieces of paper. Most investors surmise the value of financial assets from what others, such as accountants and rating agencies, tell about them. These accounting and rating agencies also have their own incentives. And those incentives are not fully aligned with the public’s interest. And so when people are overconfident, financial markets tend to produce assets that take advantage of that overconfidence. If unprotected by effective regulation, people will be sold snake oil assets. And an industry will arise to produce them.”

  8. Avatar Reno Ignoramus says:

    Well, my friend, it’s so nice to hear from you. For all of us old timers on the blog, it is reminiscent of the kind of discussions we used to have here.

    I hope this post manages to somehow go national. I hope some of the big national real estate blogs pick this up. There was time when this little real estate blog in Reno, NV could have gone toe to toe with any of the big dog blogs, bar none.
    Your style, your honesty, your integrity, comes through just as much here as it did 4 years ago when you started this blog (almost to the day).

    I miss you, my friend.

  9. Avatar Downtownjunkie says:

    Diane,

    I thank you for your honesty and humility. I hope you find closure and move on for the better.

  10. Avatar BanteringBear says:

    That’s my gal! Awesome post. First off, there’s NOTHING wrong with walking away from that behemoth. It wasn’t your intention when you bought the place, and you had skin in the game. $100k is a big hit. Kick that f***ing bank in the crotch. I’d like to see you make them produce the note. Wouldn’t it be sweet if they couldn’t? It’s certainly a long shot, but it’s happened before. Maybe good karma will catch up to you for having the courage to speak out as an honest and objective REALTOR in an industry fraught with slime and sleaze.

    It takes guts to put yourself out there like you have and I have nothing but respect and admiration for you. When I first happened upon your blog I was perplexed, yet fascinated. You weren’t fitting the mould. There’s little doubt that you’ve saved many, many people money and spared them the grief which you now endure, and for that you should be commended. You’ve been missed by many, and here’s hoping that you, at some point, resume blogging. You’re a writer, and it’d be a shame if that talent was wasted. With your links as evidence, the worst is yet to come, and this is much bigger than housing. The country needs voices like yours to be heard. I wish you and your family the best as you navigate your way through these difficult times.

    Fresh off the press:

    “House eases restrictions on derivatives trades”

    “WASHINGTON – A bipartisan coalition in the House voted late Thursday to make it easier for corporations to engage in complex derivatives trades without government restrictions, eroding the reach of proposed regulations to govern Wall Street.

    Democratic attempts to toughen the legislation failed.”

    As Americans, we can’t just sit back and allow this. This is beyond reckless. It’s evil. These people need to be stopped.

  11. Avatar Tow says:

    WOW! why again did you buy a house that you clearly couldn’t afford? perhaps you mistakenly assumed that the “BOOM” would last forever? Or at least 30 years?

  12. Avatar Tow says:

    OH NO! the end of the world is coming!

    Hey, I lost WELL over $600,000 in the recent market collapse. I accepted the risk BEFORE I bought anything!

    and yet I don’t blame anyone but myself!

  13. Avatar John Newell says:

    Thank you for sharing, Diane. I agree with BB that you are an effective writer, and I have missed reading your blog entries.

    I also agree with your assessment regarding the banks’ motivation to work with borrowers. As I have mentioned here before, I am representing the estate of my wife’s uncle, and I have been trying to sell a piece of probate property in Fernley for well over a year now. I have encountered frustration with the bank at every turn.

    The decedent died intestate and was not married, and no one in the family wanted to be administrator, so I had a special administrator appointed to secure the assets of the estate. The special administrator did not have the authority to sell the property. During this time, I tried to work out a plan with the bank. However, for six months, no one at the bank would even discuss options with me. I never spoke with the same person at the bank more than once in those first six months, and I was shunted around to five different departments, all of which needed me to send them copies of the death certificate, letters of special administration, etc., as each department was unable to access the documents I had provided to other departments. After six months of frustration, the estate received a NOD on the house.

    After the NOD was issued, I finally convinced a family member of the decedent to become administrator, and we put the property on the market once permanent letters of administration were issued. At that point, we still believed we could complete and equity sale of the property. I then spent the next three months explaining to the bank and the trustee that, under the Nevada probate code, I could obtain an injunction against a trustee’s sale of the house so as to preserve the assets of the estate. No one I spoke with believed that I could do this, so they ignored my requests to delay the auction and work out a time frame for attempting to sell the house. I requested to be contacted by the bank’s legal department, as I was confident they would understand the situation. To date, I have never spoken directly with the bank’s legal department.

    In October of last year, after a NOS had been issued, the estate obtained a temporary restraining order against the bank and the trustee. At that point, an attorney for the trustee contacted me to advise me that the trustee would not contest the TRO and would not appear at a scheduled hearing regarding the issuance of an injunction. The bank, once I was able to serve them the TRO application and order (a considerably problematic venture, as the entity named on the NOD and NOS as the beneficiary under the deed of trust was not registered in Nevada as a foreign corporation and had no resident agent in Nevada, despite the fact that the bank is one of the top five largest banks in the U.S.), hired a Las Vegas law firm to represent them. The bank agreed to allow the estate six months to sell the property as an equity sale.

    The property has not sold, and the six months elapsed many months ago. The current value is far below what is owed on the property, and the estate has no interest in attempting short sale. I have tried to negotiate a resolution under which the estate would bear the cost to advertise a sale at auction and the trustee would auction the house, but the bank has never provided its attorney with an answer to that proposal. The Nevada probate code also contains a provision under which a beneficiary of a deed of trust can elect to buy back real property without the proceeds of the sale becoming part of the probate estate, and I have proposed this solution as well, but no response has been forthcoming.
    Last month, the estate and the bank agreed to a stipulation under which the TRO will be dismissed. This will allow the estate to directly contact the bank again, as there will no longer be a pending legal matter (other than the probate in general, which would have been unnecessary save for the real property), and I will no longer have to go through the bank’s local counsel. I do not have hope (yet) that we will resolve anything soon, but I am encouraged that the bank has now at least acknowledged my existence.

    To put this matter in perspective, my wife’s uncle passed away more than a year and a half ago, and no payments have been made on the property since March of 2008. It has been vacant all that time, losing even more value in what is perhaps the worst market in all of Nevada. The decedent’s family has put a few thousand dollars into probate costs and the attempt to sell the property, and it is not likely that money will be recovered. Personally, I have put quite a bit of time and effort toward this, for which I am not being paid, and I too have contributed personal funds to try to resolve this matter. This situation is a net loss for all concerned (other than the Las Vegas law firm).

    The frustration all of this has caused me is likely only a fraction of what you have experienced, Diane, as my situation is not personal and my personal financial loss is comparatively inconsequential. You have my sympathy, and I wish you the best.

  14. Avatar Tom says:

    Well, TOW, I’m not sure that your investment loss is analagous, as you weren’t living with your spouse and kids in your portfolio–it was wholly an investment, right? So that is not quite the same as Diane’s summary of facts.

    I do have empathy for her situation, or for any working family who had tried to buy a home and got caught up in the real estate circumstances of the past four years or so.

    As to something which was always a pure investment, however, I would agree with you on assumption of risk at the outset. Example: my Fleet Allied colt bowed a tendon at Hollywood Park, and Bam, that entire investment and a year of training expense was gone in seconds. We sold him to the dressage crowd, and some teenaged girl in a black tux is probably showing him somewhere this weekend. But I knew that going in, and like you, I can only fault myself, and I move on. However, I would say my loss and yours are not the same as Diane’s situation, don’t you agree?

  15. Avatar Move to Reno says:

    Diane, thanks for that post. I know that it has been very difficult for you and wish you and your family the very best of luck in dealing with this financial mess.

    Yes, I would visit with a bankruptcy attorney so that I would know exactly my options at this point.

    However, I don’t think that things in general are as bad as you think they are. Plenty of people have their homes paid off and are living life pretty much the way they did before the financial meltdown. The people who are hurting are those who used debt to finance a life style that they could not have paid for on their cash flow. I think that you have painfully learned the lesson that one has to live within ones means and that means cash on the barrel head.

  16. Avatar smarten says:

    Just curious John. Was the lender Citibank/CitiMortgage? The reason I ask is because I had a different type of problem with Citibank which resulted in the filing of a small claims action when I did a search for their in state agent registered to accept service of process. To my shock, I learned there was none. I also learned Citibank was not registered in Nevada as a foreign corporation authorized to conduct business in this state which meant they had no capacity to appear in nor oppose any type of Nevada court proceeding. I couldn’t believe!

    I ended up speaking to their corporate division in St. Louis and when faced with these facts, the dispute got resolved. Stupid, stupid, stupid.

    Again not directly on point but I had a different recent frustrating problem with Chase Home Finance which had assumed a former WAMU mortgage [I’m not going to go into detail because it was a different problem than Diane’s]. But again, the right hand didn’t know what the left hand was doing; there was no one to be transferred to who could do anything; and in the meantime, this Chase mortgage was falling farther and farther into default. Again, stupid, stupid, stupid.

    Financial institutions like these [and I am of the opinion that most are exactly like these] deserve no public bailouts because they’re stupid, stupid, stupid in dealing with responsible prophylactic actions like Diane’s, yours and mine. Yet in the end they end up being accountable to no one.

    Getting back to Diane, let’s assume she came up with a short sale buyer willing to pay the bank’s $575K asking price. Was she going to get a complete release from liability as part of the deal? Probably not. And since nothing would be left over to pay to the holder of her HELOC second, would she get any kind of release from liability from that institution [again, undoubtedly not]? What about her HOA? Her/her husband’s obligation to pay HOA dues IS personal. That means the HOA can, if it so chooses, seek a personal judgment against she/her husband. So would Diane secure a HOA release from liability if a short sale were perfected [again, undoubtedly not]?

    For all these reasons, IMO there’s no good outcome in sight for Diane/her husband – certainly not in the short run. So if she just wants “closure” and what she “lawfully deserves” so she can be “on [her] way,” I’ve made a suggestion that ends up being “lawful.”

    BTW TOW, I can’t believe I’m the first one to be critical of your comments. Diane didn’t purchase something she couldn’t afford. Through no fault of hers, her profession experienced a melt down. Notwithstanding, Diane attempted to responsibly address her mortgage obligations [rather than simply walking away], but to no avail. IMO Diane should not to be criticized. Few on this board [especially those who champion “simply walking away”] would have done a fraction of what Diane tells us she did in an attempt to act responsibly.

  17. Avatar BanteringBear says:

    In all my haste, I forgot to include the link to the article I quoted. What’s funny is that the article is no longer available- at least on Yahoo. I had to find it somewhere else. Anyway, hope this one works.

    http://abcnews.go.com/Business/wireStory?id=9298636

  18. Avatar John Newell says:

    Smarten,

    The bank is Chase, specifically Chase Home Finance, LLC (which is now Chase Home Mortgage, LLC). However, Chase Home Finance is not among the Chase entities that are registered as foreign corporations doing business in Nevada. A progenitor of Chase Home Finance, Chase Mortgage Services, Inc., was registered as a foreign corporation doing business in Nevada (until 2005). I attempted service on The Corporation Trust Company of Nevada, as it is resident agent for other JPMorgan Chase Bank entities doing business in Nevada, including the defunct Chase Mortgage Services, Inc. Service was refused, which I had expected, but at least I was able to show the court that the estate had attempted service. Chase’s local attorneys contacted me, and accepted service, after the trustee forwarded the TRO to Chase.

  19. Avatar Joe says:

    Diane, Thank you for the blog and for the continued honesty over the years. I wish you the best and hope you’re through this soon. I can honestly say that because of your blog, my family and I have been able to avoid this housing mess. It was 2006, shortly after moving here to NV, and I’d just talked to countrywide for a pre-approval. Just couldn’t feel good about spending so much money on a house, so I googled Reno real estate to see if I was the only one with cold feet, and found your blog. I’ve probably read almost all the posts/comments since that time, and we’ve been comfortable renting a home for the last 3 and a half years. So thanks, Diane, for the blog and also for allowing RI, BB, Gotlots (I always thought they were the same person), and others for posting their enlightened, yet unpopular at the time, postings because it save me and probably hundreds of others.

    Your short sale experience made me really think as I was giving advice to one of my hygienists going to list her home as a short sale this week. They paid $420k few years ago, now going to list for $255k. Her realtor apparently has her convinced that once someone offers that amount, it’s a done deal. Nothing concerning the second mortgage, the lender not agreeing or requiring her to come up with part of the difference, her credit score…
    I referred her to your blog archive, as it’s full of valuable info. Maybe more realtors should read it. I wonder how many of the short sale listings on the mls right now have sellors/realtors as clueless about the requirements and outcomes as she is.

    So thank you again, Diane, from all of us who were clueless about real estate; you helped us dodge a huge bullet.

  20. Avatar John Newell says:

    Diane,

    I forgot to mention in my earlier post that I too would encourage you to speak with a bankruptcy attorney, if you have not done so already.

  21. Avatar billddrummer says:

    Thank you Diane.

    You have articulated most effectively the frustration that people feel when thrust against the immovable objects that are too big to fail, too slow to respond, too massive to understand, and too indifferent to care.

    Thank you so much for starting this blog, and for checking in with us as your journey proceeds.

  22. Avatar disenfranchised says:

    Diane is absolutely right, there is no balance of powers, as corporate America has purchased all the powers and put them on the payroll. The only way to claim back this country is to kick out every incumbent politician beholden to corporate interests (95% of them).

    Republicans? Democrats? They are all crooks and need the boot until they once again serve the people. Campaign finance limits and term limits are one possible hope. Create your own term limit law by voting against the incumbent.

    GMAC, Goldman Sachs, Citibank, BofA all get bailed while the backbone of this country — hardworking families like Diane’s — get screwed. Why? Because Diane didn’t make $100k contributions to Barney Frank’s, Chris Dodd’s, or John Ensign’s campaign.

    Too big too fail obviously means too big to operate rationally as well, as witnessed by the ineptitude of Diane’s bank, and Chase/Citibank as referenced in the comments. Yet, the fat, incumbent politicians continue to find ways of fooling the public that they are reforming everything while keeping those companies chugging along, same as it ever was, same as it ever was.

    If this were the 60’s, there’d be demonstrations in every city. Are we all just too well fed, entertained (cable TV), shopped up (Costco, Walmart), transported (SUVs), and drugged (paxil, oxycontin, xanax) to give a rat’s behind about the politico-financial oligarchs leading us down the road to ruin?

    Capitalism? HA! Try corporate-socialism. Now go back to your Walmart and Home Depot, and minimum wage casino jobs and shut up!

  23. Avatar DownButNotOut says:

    Diane – thanks for putting your story out there. It really brings home what’s happening to all those families trying to get closure.

    And thanks for starting this blog. Reading here has kept me from making numerous RE mistakes.

    Somebody mentioned this blog should go national – well it should.There is more truth told here than any other blog I looked at.

    To everybody reading; If you believe what Diane has said about government VOTE THEM OUT!

  24. Avatar ATSchwitters says:

    Diane,

    That was the most comprehensive and accurate portrayal of the impossible position that the mortgage crisis put Americans in. Its a chilling reality check that all this talk from the banks about working things out is a complete farce. Hearing it first person drives the point home.

    I think you did the right thing for you and your family. Thanks for having the guts to share your story with us.

  25. Avatar Casa de Dolor says:

    Thank you Diane for your all your efforts, I will always be grateful for the RRB. Let me also add my voice to the chorus suggesting that you contact a BK lawyer, particularly in light of the “Mitchell” decision out of Las Vegas. If your loans are MERS, this decision could significantly impact your future.

  26. Avatar Diane Cohn says:

    Hey everyone, thanks so much for your feedback, ideas and support. Sharing this wasn’t easy, but I think as more Americans face tough choices (no matter how they end up on the corner of Rock and Hard Place) it’s helpful to see a first-person view in the context of what’s going on around us. Yes, we got ourselves into this mess, and we’re getting ourselves out. It’s a long, bumpy road, but we’ll get there. I’m just glad we started sooner rather than later.

  27. Avatar RRB Fan says:

    Diane … thanks so much for sharing your story. It helps put into perspective what is going on from the banks side of things. Now I know why so may short sale fall through multiple times.

    I guess the banks have nothing to loose assuming they only service the paper. I bet lending standards would be different as well as motivation to get rid of depreciating assets it regulations forced them to be portfolio lender and hold the notes they originated.

  28. Avatar Move to Reno says:

    Only 1 out of 11 attempted short sales in Nevada are successful.

  29. Avatar durhamdude says:

    Talk to bankruptcy attorney.

  30. Avatar MikeZ says:

    Diane! You’ve gone from one extreme to the other. There *is* a middle ground, you know: credit is good, used wisely and the United States’ economy is not about to crumble like the Soviet Union’s.

    Peace.

  31. Avatar MikeZ says:

    Diane, your Castlehawk listing has Guy’s name but YOUR picture. Probably wanna fix that …

  32. Avatar Paul says:

    Hey Diane, thanks for your story. One of the public policy changes that should be advocated for in Nevada is an anti-deficiency statute similar to California’s. In CA, purchase money lenders (on owner-occupied 1-4 unit dwellings)are barred by statute from pursuing the borrower for any deficiency after foreclosure.
    Before the free-market purists jump down my throat, consider this – reasonable consumer protections like anti-deficiency statutes help the market by giving consumers confidence that their financial lives won’t be ruined by buying shelter for their families at the wrong time in the market cycle. Nevada law currently is so one- sidedly pro-lender as to be unreasonably cruel to working families in this economic crisis. Other factors being equal, I would be much more reluctant to sign a note and TD in Nevada as opposed to CA, given the volatility of the market and the lack of consumer rights here, and I’m sure that I’m not alone in that thinking.

  33. Avatar Grand Wazoo says:

    Thank you MikeZ.

    When Diane said “banks just stopped lending” Diane might have said “banks just stopped lending to people who could obviously not afford the transaction” – you know those types – two concurrent loans to buy the property or no/slim documented income. How about that? Responsible lending practices, not seen in Reno for quite some time, return and torpedo an entire industry – real estate.

    Let me ask any of the real estate agents out there (so I’m not beating up on Diane) these questions:

    – Have you ever said to a client “are you sure you can really afford this house”?

    – Have you ever said to a client “wow, are you sure this place is really worth this much?”

    – Have you ever taken a referral commission from a mortgage broker?

    Diane is why we’re all here, and I’m truly sorry her story is heading into the tank. On the other hand, for a former bubble real estate broker to suddenly be concerned that the world as we know it is ending because of the lending bubble is sort of like the guy down the street who smokes in bed but cautions the youngsters about the dangers of fire.

  34. Avatar Inthe No says:

    Paul what you say is, in theory, true. However, there is nobody in the real estate/mortgage/title business in Reno who can cite even one instance in the last 30 years of an institutional lender pursuing a deficiency judgment against a residential borrower.
    Pursuing a commercial borrower, yes.
    A non-institutional lender, such as a ‘hard money’ private lender pursuing a deficiency, yes.

    But a bank pursuing a residential borrower? No.
    It simply just does not happen.

  35. Avatar tow says:

    ” Through no fault of hers, her profession experienced a melt down.”

    actually it experienced a BOOM BEFORE the MELTDOWN. To assume the RE market boom would last forever or at least 30 years is completely foolish IMO.

    Do you really think diane would have bought a house like that, with a “normal” real estate market? My guess is NO. it was a gamble and it didn’t pay off.

  36. Avatar tow says:

    I love it how people refuse to take responsibility for their risk taking.

    btw Smarten I bought my house in the “sweet” part of the market, you bought yours in the part of the market that is still declining DAILY.

    big difference! then again I bought A house I could afford, not something to impress other people with.

  37. Avatar Paul says:

    In the No, I have heard that very few institutional lenders are pursuing deficiency actions against foreclosed borrowers right now. Additionally, there is only a six month window after the foreclosure in which they can file. Given this situation, how exactly would bankruptcy benefit Diane and her family? Perhaps Smarten could speculate on this one.

  38. Avatar TD says:

    Effective October 1, 2009, Nevada becomes a limited recourse state similar to California. Loans made after October 1, 2009; by a financial institution to a borrower who continuously occupies the property as a primary residence are nonrecourse. This means that the lender may not pursue a foreclosed borrower to recover a deficiency.

  39. Avatar smarten says:

    Paul –

    Here’s why BK helps Diane, IMO.

    Diane wants closure NOW; not 6 months from 24 days from 3 months or more from now. She wants to get on with her life without looking back nor expending more energy.

    Furthermore, I don’t know where ITN gets his/her data re deficiency actions. Although most institutional lenders may not be pursuing deficiencies, there’s no guaranty her first mortgagee will not. And besides, Diane doesn’t want to take the risk – for her peace of mind, she has told us she wants closure NOW.

    Furthermore, Diane wants COMPLETE closure. She has a HELOC second mortgage. The holder of this mortgage need do NOTHING and its right [or someone else’s right as an assignee] to pursue Diane personally for the next 6 years [assuming that’s the S/L] continues. If the second mortgage gets wiped out by the senior mortgagee’s foreclosure, it becomes a sold out junior who may pursue [or assign to someone else (or if it becomes liquidated its liquidator/trustee in BK)] its note as an unsecured creditor. Again, no closure NOW.

    Furthermore, Diane’s indebtedness to her HOA is personal. Therefore regardless of what happens with her first mortgage, the HOA can pursue its unsecured claim again, for the next 6 years [assuming that’s the S/L]. Again, no closure NOW.

    There are two additional reasons, IMO. First, I am aware of at least one BK case where the judge downgraded a mortgage holder to an unsecured creditor because it wasn’t able to produce evidence of the underlying obligation. If by some quirk Diane’s first mortgagee can’t come up with evidence of her underlying secured obligation [i.e., her note], who know what might happen? She has everything to gain and very little to lose.

    Second and somewhat related, just because you file BK DOESN’T mean you have to actually go bankrupt. The mere filing of a BK petition just might provide the hammer Diane requires to force one or more of her mortgagees to agree to a short sale or mortgage modification. If she is successful in her efforts, she can always dismiss her BK petition – no harm, no foul. And again, Diane would have everything to gain and little to lose.

    And to TOW, I guess if you had been a worker in the automobile manufacturing sector of the economy, it would be foolish to purchase anything relying upon the anticipation of future earnings? Or same thing in the steel industry? Or same thing in the entertainment industry? Or same thing in the banking industry? No Diane wasn’t foolish in anticipating she would continue to earn commissions on real estate sales merely because the industry had been successful [according to you] for the last thirty years! She got dragged into the mess just the way most of us have been dragged into it.

    Finally TOW, congrats on your purchase. Except according to many on this blog, there is NO “sweet” part of the market. And assuming they’re wrong and you’re right, remember this: one man’s “sweet” is another’s spouse.

  40. Avatar Reno Ignoramus says:

    TD,

    Are you saying that Nevada has adopted anti-deficiency legislation? I was unaware of that. Could you refer me to the NRS provision that contains this significant change in Nevada law?

    Thanks.

  41. Avatar TD says:

    Sec. 2. NRS 40.455 is hereby amended to read as follows:
    40.455 1. [Upon] Except as otherwise provided in
    subsection 3, upon application of the judgment creditor or the beneficiary of the deed of trust within 6 months after the date of the
    foreclosure sale or the trustee’s sale held pursuant to NRS 107.080, respectively, and after the required hearing, the court shall award a
    deficiency judgment to the judgment creditor or the beneficiary of the deed of trust if it appears from the sheriff’s return or the recital
    of consideration in the trustee’s deed that there is a deficiency of the proceeds of the sale and a balance remaining due to the judgment
    creditor or the beneficiary of the deed of trust, respectively.
    2. If the indebtedness is secured by more than one parcel of real property, more than one interest in the real property or more
    than one mortgage or deed of trust, the 6-month period begins to run after the date of the foreclosure sale or trustee’s sale of the last
    parcel or other interest in the real property securing the indebtedness, but in no event may the application be filed more than 2 years after the initial foreclosure sale or trustee’s sale.
    3. If the judgment creditor or the beneficiary of the deed of trust is a financial institution, the court may not award a deficiency judgment to the judgment creditor or the beneficiary of
    the deed of trust, even if there is a deficiency of the proceeds of the sale and a balance remaining due the judgment creditor or beneficiary of the deed of trust, if:
    (a) The real property is a single-family dwelling and the debtor
    or grantor was the owner of the real property at the time of the
    foreclosure sale or trustee’s sale;
    (b) The debtor or grantor used the amount for which the real
    property was secured by the mortgage or deed of trust to purchase the real property;
    (c) The debtor or grantor continuously occupied the real property as his principal residence after securing the mortgage or deed of trust; and
    (d) The debtor or grantor did not refinance the mortgage or deed of trust after securing it.
    4. As used in this section, “financial institution” has the meaning ascribed to it in NRS 363A.050. Sec. 3. The amendatory provisions of this act apply only to an obligation secured by a mortgage, deed of trust or other encumbrance upon real property on or after October 1, 2009.

  42. Avatar Lynne Black says:

    Smarten wrote: “Diane’s indebtedness to her HOA is personal. Therefore regardless of what happens with her first mortgage, the HOA can pursue its unsecured claim”
    You are wrong, non-payment of HOA assessments creates a priority lien against the property NRS 116.3116
    In my opinion, unless a judgment has been filed against the debtor which makes most assets vulnerable to seizure, filing bankruptcy just gives you a 10 year black eye, rather than a 7 year one by just not paying your bills.

  43. Avatar smarten says:

    Sorry Lynn, what I cited is law in CA.

    Notwithstanding, NRS 116.3116(6) states that, “this section does NOT prohibit actions to recover sums for which subsection 1 creates a lien [n]or [does it] prohibit an association from taking a deed in lieu of foreclosure.”

    Further NRS 116.3116(2) states that, “a lien under this section is prior to all other liens and encumbrances on a unit EXCEPT:… (b) a first security interest on the unit recorded before the date on which the assessment sought to be enforced became delinquent…”

    So let’s assume Diane’s predecessor in title was current on its HOA dues at the time her purchase money first mortgage was recorded. And let’s assume she remained current in paying her HOA dues for several years thereafter. Would not the HOA’s “lien” for delinquent HOA dues then be junior to Diane’s foreclosing first mortgagee? And if so and if there’s no equity in the property, why would the HOA foreclose [just like why would the HELOC junior mortgagee foreclose] on its lien?

    So at that juncture unless the HOA wanted to simply walk away, why wouldn’t it bring a personal action against Diane to recover delinquent HOA dues, notwithstanding its junior secured status pursuant to NRS 116.3116(6)?

    I keep trying to point out that there can be an obligation without there being security, but the opposite cannot exist. Additionally, a secured creditor always has the option to waive his/her/its security and to proceed directly under its underlying obligation. It appears NRS 116.3116(6) specifically recognizes this right.

    I stand by my observation and recommendation.

  44. Avatar smarten says:

    Thanks for the heads up TD. I wasn’t aware of the change in law.

    However if your recitation is accurate [and I have no reason to doubt it], doesn’t the anti-deficiency judgment bar apply to mortgages pre-dating October 1, 2009 as long as:
    (a) The real property is a single-family dwelling and the debtor or grantor was the owner of the real property at the time of the foreclosure sale or trustee’s sale;
    (b) The debtor or grantor used the amount for which the real property was secured by the mortgage or deed of trust to purchase the real property;
    (c) The debtor or grantor continuously occupied the real property as his/her principal residence after securing the mortgage or deed of trust; and,
    (d) The debtor or grantor did not refinance the mortgage or deed of trust after securing it?

    I can anticipate you might respond that legislation cannot impair contractual relations pre-dating adoption of that legislation. But how is that any different than Congress adopting “cram down” legislation which would allow a judge to reduce a secured debtor’s obligation to no greater than the value of that security?

  45. Avatar MikeZ says:

    smarten’s post is a classic example of why ANYONE in a situation similar to Diane’s needs to talk to an ATTORNEY who understands the law and the future ramifications of every possible decision.

    I know everyone likes to makes the “First, kill all the lawyers” joke, but the fact is, when you need sound legal advice, you need a lawyer.

    Thanks for explaining, smarten.

  46. Avatar Reno Ignoramus says:

    To TD;

    Thanks so much for the info.

    To Smarten:

    The difference is that the US Congress can adopt legislation pursuant to the bankrupcy Clause of the US Constitution that grants to the US bankruptcy courts the ability to impair contracts existing prior to the adoption of the legislation. There is a Ninth Circuit case directly on point that was cited on this blog several months ago in a similar discussion. The Nevada legislature has no such power, and so the new legislation will apply only to trust deeds executed after October 1, 2009.

    This is a significant change in the law, although I suppose as a practical matter one with not so much impact on the actual practice in the industry. The poster above who said that deficiency actions brought by institutional lenders against residential borrowers are nonexistent is correct.

  47. Avatar Surrey says:

    I work for a title company whose name shall go unmentioned.
    It is correct that the new anti-deficiency legislation will have basically zero impact on the industry. I have worked in the title business here in Reno for 13 years, and I am unaware of even one deficiency action ever having been filed by a bank against a residential borrower in all that time. I am not saying that that I have personal knowledge of the entire industry, but it is what I do for a living, and I believe I am aware of the state of the industry. The new legislation has far more symbolic value than anyting else. In essence, the legislature went and prohibited a practice that has not happened even one time in at least the last 13 years here in Reno.

  48. Avatar John Newell says:

    Lynn,

    You wrote:

    “In my opinion, unless a judgment has been filed against the debtor which makes most assets vulnerable to seizure, filing bankruptcy just gives you a 10 year black eye, rather than a 7 year one by just not paying your bills.”

    For some debtors, the certainty of a bankruptcy outweighs the additional three years reporting period. You are right that Diane’s situation may not warrant bankruptcy protection if her only debts in default are as put forth above, but as is also pointed out above, the presence of a BK filing might be incentive for her creditors to settle outstanding debts. Furthermore, as you and I do not know all the details of Diane’s financial situation, I personally would not presume to offer Diane advice, and I maintain that it would be in her interest to consult a bankruptcy attorney who could help her and her husband review all their debts to determine what would be the best course for them.

    I have not personally represented a client in a BK since the 2005 BK Reform Act was passed (and before October 2005, I only represented clients in Chapter 7 as the population I was working with had no reason to pursue a Chapter 13), so I am not a BK expert. However, in the past I have advised clients to talk to a BK attorney if they want/need the certainty of knowing that their creditors are barred from collecting on discharged debts.

    Furthermore, a Chapter 7 (which may not be an option for Diane, although we cannot tell this from what she had shared above) will in some situations aid in the repair of credit. Some creditors are (or were, at least) more willing to take a risk on a potential debtor with a CH 7 BK because the debtor will not be able to file for another CH 7 BK again until after eight years have elapsed (and cannot file for CH 13 for four years after a CH 7), whereas “just not paying your bills” presents more of a risk because BK protection is available immediately if the debtor so chooses. So, a creditor may be more willing to lend to a person with a BK rather than a person with just bad debts, all other things being equal, because a recent BK gives the creditor some certainty that it can try to collect if the debt goes bad before the debtor is able to file for BK again.

    In the case of mortgage lending, two years after a BK discharge, debtors are eligible for mortgage loans on the same terms as other applicants with the same financial profile who have not filed for BK. This protection is not available for someone who just did not pay their bills, so if a debtor in default plans to purchase a house within two to five years, a BK may be a better option even though it will remain on a credit report longer.

    A BK is certainly not right for all situations, but for situations in which the benefits of BK protection outweigh the presence of the BK on a credit report for an additional three years, it should at least be considered.

  49. Avatar TD says:

    I recently had a friend that completed a short sale process on her primary residence. The lender, who held both a 1st and 2nd, reported the uncollected balance as a “charge off” on her credit report. She’s been told that basically this means the remaining “debt” has been, or will be, sold to a collection agency that will hound her until it’s paid off. Does anyone have any experience with this or understand what she can expect in the future? While not a deficiency judgment doesn’t this process potentially have the same outcome assuming she’s being given the correct information on what a “charge off” is?

    As far as deficiency judgments I have read of recent cases in Clark County where the underlying mortgage insurance companies have filed suit for deficiency judgments.

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