[quote=urbanrealtor]First, this is speculation but it makes sense given the existing incentive structure.
On its face, it would seem really obvious that a bank would want a short sale rather than a foreclosure.
This is because a bank incurs significant additional outlays when it becomes a landlord:
-trash outs
-key change
-attorneys
-repairs
-deed recordings
-tenant negotiations (usually a few thousand just in cash-for-keys) . . . [/quote]
UR, I’m sure you’ve seen, as I have, even the defaulting trustor as well as their tenants obtaining cash for keys (avg of $3K).
Offhand, I can think of at least two large “eviction mills” here in SD County who would NOT charge as much as $3K to evict a defaulting trustor or their tenant, acc to the law, ESP if the lender used the SAME law office for every defaulted property they had in that county. There is also an inexpensive small claim remedy (of up to $7500 in losses) to obtain a judgment for “trash outs, key changes and stolen appls.” Bank officers themselves could show up in SC Court and obtain up to 20 judgments in one morning. I’ve seen this done by HOA property mgrs.
The key is to begin TIMELY foreclosure proceedings after the statutory 90 days delinquency.
These lenders are losing too much because of their own complacency. Before this most recent “RE bubble,” they usually always began foreclosure proceedings on time.
There have ALWAYS been repairs, recording and trustee fees for a foreclosing bene. These expenses were minimized, however, by a TIMELY filing of the NOD and NOS and by not granting a postponement unless served with a BK filing by the defaulting trustor.
A second TD holder (whether recourse or purchase $$) has ALWAYS had the right to bid the opening bid on the steps for the property and often did so. The reason the opening bids are so high now, again, is due to the complacency of the foreclosing lender (usually the 1st TD holder), due to offering too many months of “free living.”
I maintain that timely non-judicial foreclosure is the fastest, cheapest and most pain-free route (for everyone) in moving thru this huge amount of defaulted-upon inventory in CA.
Those defaulting trustors with outstanding 2nds/HELOCs which were NOT purchase money do not deserve to be absolved of their debts (w/o having to file a Chapter 7 BK) AFTER having purchased luxury cars, college tuition and fancy vacations with the “funny money” or “mattressed” it while the rest of us homeowners “kept our heads down.” This is typically what happens in a short sale when the subordinate TD holder agrees to “sign off” their position in exchange for a few thousand.
I agree that this whole problem would not reappear in the future if ALL loans encumbering real property were recourse, but this is not likely to happen in CA. Given the choice, I would rather not have any change in our current laws, that is, retain our “non-judicial foreclosure” status where the collateral must satisfy the amount of purchase money lent.
There is nothing wrong with CA’s current non-judicial foreclosure legislation. These laws are in place for a REASON and they WORK … that is . . . when they are actually INVOKED :=]
