Happy New Year! If you thought 2008 was big for Short Sales, you haven’t seen anything yet! In fact, there were several forces at play in 2008 that actually slowed Short Sales down a bit.
Yesterday, Citigroup came forward in a deal with Senate leaders to support legislation that would allow bankruptcy judges to alter home loans in an effort to prevent foreclosures. Other lenders are expected to follow. The so-called “cramdown” proposal has been kicked around for a while now but has not yet made its way into law. It appears as if the legislation to make this change will find its way into President Elect Obama’s stimulus package and may become law soon.
Personally, I think this is bad public policy – if a borrower and a lender enter into a loan, and the borrower defaults, the lender should have a choice to work out a deal with that borrower or avail itself of the remedies available to it – which include foreclosure.
However, my personal public policy opinions aside – should the “cramdown” provisions make their way into bankruptcy law, this will result in a greater volume of Short Sales approved by lenders. When a borrower reaches the Short-Sale-Stop-of-Last-Resort (I always assume a borrower has pursued every other available option in an effort to stay in their house before considering a Short Sale) the only options left are Short Sale or Bankruptcy.
In evaluating whether or not to accept a Short Sale offer, Lenders are not motivated by the threat of bankruptcy as they can easily obtain a Motion for Relief of Stay and then proceed with the foreclosure action. Currently, a Bankruptcy serves to delay a foreclosure, but other than the delay, a bankruptcy has very little impact on a lender’s decision to accept or deny a Short Sale offer.
However, if the Bankruptcy court has the ability to force modified terms on a Lender, it seem that Lenders would place more value on the short offer in hand rather than risking what possible draconian terms may be crammed down their throats by judge’s order. As the majority of creditors fail out of their bankruptcy plans to begin with, forced modifications through the courts will not solve the housing crisis for borrowers, lenders, or the economy.
However, for those of us with an interest in Short Sales, the threat of bankruptcy cramdowns is likely to make 2009 “your best year ever!”
For more information on how Short Sales can be utilized effectively to create win-win-win transactions that help heal the economic crisis one mortgage, one house, and one family at a time without a burden on the bankruptcy courts, simply ask for my FREE CD on Short Sale Basics, and we’ll cram one out your way.
