My sister buys houses.

She gets the list of foreclosures in her area and sends the homeowners a handwritten note to tell them to call her if they want to sell. If one calls and wants to sell she sets them up so that she short-sells the house and pays off their mortgage. She is usually able to get the bank to write off any second mortgages, like an equity line. At the end of the process they are free and clear of any debt associated with the house. The foreclosure still shows up on their credit rating, but it also shows that the loan was paid off. Their credit rating will be back to normal after 2 years.

She can also tell her clients that they can probably stay in the house for 30 - 60 days after the sale.

I don't know why I am conflicted about this. Yeah, she is making money off of other people's misfortune, but she is also able to provide her clients with a way out of an untenable situation without a sheriff showing up at the door to tell them to get out NOW. She told me that it is really emotional the first time she meets with a client at their home, but they are relieved to finally have a way out. No one is forcing them to work with my sister.

So... :thumbsup: or :thumbsdown: ??

It also helps salvage the property values for comps/neighbors.

I have no problem with what she does.

What are their alternatives? She's just stepping in and taking advantage of a horrendous situation, giving people some time, and making some money.

It does a whiff of exploitation about it, and I completely understand (and applaud) your conflicted thinking about this.

But, in the cold light of reality, what would happen to these people if she didn't do that? So, what is it - the lesser of two evils?

It's a tough one, really.

But she is usually able to sell quickly enough that the cash is not an issue.

The bank is satisfied, the home owners are out of their dilemma and your sister is able to make a little money.

I see nothing bad about this, unless she becomes a predator.

Others don't. The ones who don't probably wouldn't be calling your sister. IMO, I would be grateful if I were in the situation of being strapped down by a mortgage I could no longer afford, and someone came along who could help me get out of this situation with little to no penalty.

If the house is a "short sale", that generally implies that there is no equity. Is the homeowner paying her a fee up front? Who holds title of the property at the end of your sister's process?

You also say she is "usually" able to get banks to write off second mortgages, etc. What happens if she is not able to get that write-off?

And she is apparently making her money on the resale. She is partnered with an investor who is buying properties from her.

She told me that the only second she has not been able to get discharge required the client to agree to pay off $10,000 over 15 years. Seemed kind of silly to me, but the bank wanted to show something, I guess.

i've seen my neighbor removed from her home, it's not a pretty thing to witness.

because it isn't. A short sale is negotiated to PREVENT a foreclosure.

because, you are right, the property was not actually foreclosed on.

It's when people have missed enough payments to put them in a foreclosure category and the preliminary paperwork gets filed at the courthouse. I'd bet anything that this is the category of houses that your sister is dealing with.

(of any debt associated with the house)

Some banks will waive their right to subsequently file for a deficiency judgment, some won't. Of those that won't, only some actually pursue it. However, it's important to realize that the bank can file for one unless it's specifically prohibited in the contract.

to look up a Lis Pendens (filed at the commencement of a foreclosure) in a fairly populous county in Florida, knowing only the owner's name and that the foreclosure was filed in December of 2007. When I had to leave the office I was at #985 of the actions filed that month and had only gotten to the middle of the month in the computerized records.

and having a poor credit rating haunt you for years on end.

that he's lending agaist ACTUALLY IN HIS BANK VAULT! (and if not 'gold' ~ actual ASSETS of some kind)

He/she DOESN'T and THAT's what they - the bankers - , despite all of their hubris, are AFRAID OF people finding out!

Please watch this fascinating video to understand how it all works:

http://video.google.com/videoplay?docid=-9050474362583451279

This won't work in many areas in that you would not be able to find a new buyer. Also, if you have a primary with Wells Fargo and a second mortgage with say Wachovia - why would Wachovia write it off? I don't get it. Discount maybe, writing it off is a real surprise.

is buying the properties. I don't think she has had a client with a second with a different bank, so I am not sure what she would be able to do in that situation.

So, there MUST be some positive aspect to the property or the investor would not be interested.

I still haven't heard exactly HOW she makes her money or who pays her. You refer to the homeowners as her "clients". Why are they her clients? Does she represent them?

Edit: sorry, you clearly said she made money on the resale to the investor.

I may make a trip up to see her to see if she can show me how it really works.

I think that the whole fuzziness about the money flow is what is causing the unease I am feeling about what she is doing.

Let's just assume that your sister does it the perfectly legal and ethical way. She goes in, she is completely above board, she tells the homeowners she can help them out of a bad situation, and give them some breathing room. (By the way, I am assuming that she IS NOT a licensed real estate agent, but a private citizen acting on her own behalf. Most state licensing boards are filled with regulations about certain steps licensed agents have to take if they are working on their own behalf)

The bad way, or what is called "equity stripping" is when predators seek out desperate and uneducated homeowners who HAVE equity in their properties, offer them an untenable lease-back situation under the pretense that they can keep their homes, and have them sign over their interest in the property to the predator who then sells at a profit.

Like I said, I'm sure your sister wouldn't be doing that. A LOT of states are onto this and are passing all kinds of laws to keep real estate predators from victimizing people who are already victims of bad fortune.

If anything, she may be a bit naive.

I have no idea whether your sister is a bad person at heart, but this is one of the industries populated by the scum of the earth.

She is not helping anybody but herself and the investor who is avoiding having to bid against other interested parties at auction. The former owners still lose all of their equity and get to walk away with nothing but bad credit in order for your sister and her sponsor to make a lot of money.

This is completely legal, but at least be honest about what she is doing, making a good living preying on other's misfortune.

and it seems she has found a way to help people who are getting screwed by the system get out from under and make a good living at the same time.

Sounds like a great idea, and I'm glad it's working out for her.

mark

I'm unemployed and just stopped paying my mortgage because it's become a choice between eat or that. I would definitely prefer a short sale to a foreclosure.

It's not her fault we are in this situation and I say good on her for offering a way to ameliorate it.

She's simply buying the house for its first lien, it sounds, and doing so on houses whose value exceeds the first lien. It's shrewd, and it fills a need. Otherwise, the clumsy, cumbersome, inefficient mortgage and banking industries' practices mean foreclosed properties languishing unattended and without occupants.

It's a needed service, and does all of us a favor, even the departing borrower/homeowners.

I salute her.

unethical in other ways, it can be a good deal for the seller.

There was a townhouse across the street from my girlfriend's place that had a wonderful view of the harbor. I was told by neighbors the owner was getting foreclosed on. I approached him and offered to buy for a fair price. He turned me down. Six months later we find he *had* been foreclosed on and lost the house. We ended up buying from a flipper but paying much, much more than was necessary ($167k as opposed to less than $100k. (It is in a unique location or we wouldn't have bothered.) The idiot could have preserved his credit rating and walked away with $5-10,000 in his pocket.

I have personally bought five townhouses in Baltimore from wholesalers. Two I am renting; one I sold. Two I just bought and am planning to do some cosmetic work and resell. Some of the deals on the market are amazing -- the new ones are two nice townhouses that need mostly flooring, painting, and some appliances for about $80k each. They are worth almost twice that. I have no ethical problem with it because the owners couldn't pay and they were legitimately taken back by the bank.

There are absolutely predators who prey on the uneducated, but it is a gray area. I tried to sell my house once to a "we buy houses" person who wrote a nice letter promising they would offer a fair price. They ended up doing what they all do -- looking at public records of what I paid for the house and offering $2k more. I was very angry with them because they promised not to do that.