SEATTLE, Washington - We the public continue to receive news every month about the percentage of homeowners who are behind on their mortgage payments or in foreclosure. The impression usually given is that every one of these parties just needs a helping hand - that they're scouring through the couch cushions and hitting up relatives for a few bucks, just so they can scrape a payment together. Can't we as a society help these people? Who could possibly want to miss a mortgage payment?
Turns out, a lot of people. I already discussed people intentionally getting foreclosed and making a few bucks in the process last month. Now there's more: a long Time piece on Las Vegas real estate presents another variation of such a strategy. This variation involves short selling (which is the lender agreeing to let a house be sold for less than the value of the loan and letting this amount fully satisfy the borrower's obligation) and is being promoted by Vegas agent Brooke Boemio:
Boemio specializes in short selling, in a particularly Vegas way. Basically, she finds clients who owe more on their house than the house is worth (and that's about 60% of homeowners in Las Vegas) and sells them a new house similar to the one they've been living in at half the price they paid for their old house. Then she tells them to stop paying the mortgage on their old place until the bank becomes so fed up that it's willing to let the owner sell the house at a huge loss rather than dragging everyone through foreclosure. Since that takes about nine months, many of the owners even rent out their old house in the interim, pocketing a profit.There you go. Creative, perhaps even profitable - but is it ethical?
It's an entire city of John Dillingers, feeling guiltless for stealing from the banks. Boemio is well aware that short selling isn't ethical [emphasis mine - jmr] and is exacerbating Vegas' economic problems. People, she believes, should make their payments, accept their paper losses and ride out the crash. "Guess what, a______s of Las Vegas. That's what gambling is about. That's what investing is about," she says. "It's greedy. But we're all doing it. Because why not?" It's very hard, she says, to suffer as the one honest person in a town of successful con artists.I'm not a real estate guru but I've been researching and googling this and I'm not really seeing what's inherently unethical about short selling. First of all, the lender has to agree to it - it's their choice to just go ahead with a foreclosure if they so choose. From the seller's perspective, it's their choice to pursue a short sale and there is damage to their credit (albeit not as bad as a foreclosure) but as the article notes, under the Boemio strategy, "they just bought a new house, so they don't care."
There do seem to be some "ethical" concerns around short selling, in such areas as how and when to disclose to the buyer that the property is a short sale, when to list the short offer as "pending" in the MLS, and the fact that some lenders will drag their feet on approval of a short offer, hoping for a slightly better offer to materialize. I don't think any of this renders the whole concept inherently unethical.
Notice what's missing from this picture? No government "rescue" of borrowers, no posturing politicians, no snouts in the trough - just a resolution of the bloat in real estate using existing processes. The banks may take some losses and try to stick their noses in the trough, and unfortunately they'll probably succeed. Still, let's not think of every borrower behind on their payments as a helpless victim.
Found @ The Conspiracy to Keep You Poor and Stupid