Lesson #4. Mathematical example of moral hazard (why taxpayers r screwed)

W67: I think your basic point is valid, but your illustration is flawed. (Rhymes with "fraud", but there the similarities end, no matter what the troll in the corner may think.)

It's very unlikely that any bank/servicer would approve that short sale without a much more vigorous, verifiable attempt to market the property at a higher price.

Won't the bank get an independent appraisal at least? If the appraisal comes back around $1.8, then why would the back agree to a short sale at $1.4mm. If the appraisal comes back around $1.4mm, the friend potentiall just lost $100k to the seller in the deal on day one.

A bank is not a regular owner. If the idea is to get rid of a property, lets say, at the end of the year, to take it off the books, they might accept 1.4m. They might also accept a cut if the buyer pays cash and they think financing might be hard. They are not attached to a property. They dont´ want to be 1 year with a listing in the market and paying taxess...absorption rate this days is not small...

mimi, I can understand if the bank is willing to take $1.7mm - $1.75mm when the house is appraised for $1.8mm, but I can't imagine they would accept $1.4mm.

Well, there was a short sale I know of. The debt was 1.8m. Sold for 695k. Not everybody stomachs the wait and stress of a short sale. It can take months just to have an accepted offer. It usually commands a discount. A cut of 1.8 to 1.75m sounds from another era, not in this kind of market. .

1) border patrol gets paid $ to look the other way all the time, u think all appraisals are 'independent?' 2) when bid and ask are so apart, $200k swings either way is not unheard of ESP. When u are dealings with millions of units
and 3) don't think bank depts can't be bought? ESP, if their mandate is to clear the decks?

What happened to all this talk about appraisal coming lower than the bid? If the appraisal is at $1.8mm, no way is a bank going to approve a short sale for $1.4mm. $1.6mm maybe... $1.5mm, not impossible... The further it moves away from 1.4mm and closer to current market value, the less of a deal it is for 'the friend.'

mimi, in your example, "The debt was 1.8m. Sold for 695k.", the missing key information is what was the appraised value of the house at the time of the short sale?

Sounds like an expensive way to lose friends. I doubt too many owners have enough friends out there to pull off such a trick, considering many of their friends are likely in the same boat.

Where are lessons 1, 2, and 3, prof?

Sunday, I dont know about the appraisal, but I can assure was way above. The comps are not good enough in a lot of cases. Some areas have been selling very slowly. The appraisers are, in some cases, from out of town. I was making a point about the difference between the debt and the sale price. Appraisals dont mean you´ll sell it tomorrow for that price.

Hey Mimi.

Lesson one was 'fisherman and farmer' lesson 2 was 'NYC 1991, rentals' thread. I skipped three cause I felt like it ; )

I can't wait to hear about all the abuse thatz going down with all the paper on the banks books. It's gonna be some good reads in a few years.

I agree that there can be a huge gap between debt to short sale price.
I also understand that appraisal doesn't equal actual sale price. However, banks make decisions based on the appraisals. I can even be convinced that the bank could accept the $1.4mm in the OP's example, but that would only be because the bank believe the actual sale price could be around $1.4mm in the near future for whatever reason. If the bank believe that, again, 'the friend' isn't getting a great deal...

One other thing, let's say arms length deal. I WAS willing to pay $1.8mm, but I approach seller and say I want another $100k off, go get it from the bank. So a seller that might have done a straight up deal stops paying mortgage for 2 months and says 'i'm toast got a buyer but the buyer wants $100k off'...... 'let's do short sale.'????

What do you think its the price cut you would want for waiting 6 months not even knowing if they´ll accept your offer

For inonada
http://streeteasy.com/nyc/talk/discussion/14172-1991-nyc-re-rental-market-a-refresher-course
http://streeteasy.com/nyc/talk/discussion/11615-a-fisherman-and-farmer

mimi, if a short sale is good, bk sale is =>

; ) Patience little one...

"$2MM condo bought 12-2007, with 5% down ($100K) at risk 90% loan, 5% heloc.

Mkt in 2009, $1.8MM. Equity is toast. Owner can no longer hang on and has written off $100K. owner gets 3 friends to bid $1.4MM... goes to bank show bona-fide sale contract, says take as a short sale or take keys. Bank bites, Owner gets a kick back from the actual buyer for $100K. Bank/taxpayer is short $500K. Original owner is whole, 2nd "friend" buyer got $300K "equity" cushion to ride out storm.

multiply by millions, 1/1000 prosecution, 1/10,000 actual go to jail... no brainer... I'd do the short sale...."

There aren't "millions" of multimillion dollar properties in existence, let alone in danger of short sales.

They're right, w67th. You are delusional if you think that top-tick condo is only down 10%; 30% is more realistic, so $1.4M IS the market price. Taxpayer is toast irregardlessnessly.

hfscomm1
about 2 hours ago
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Don't throw reality into w67thstreet's brilliance.
Or that for each $2MM condo, there are 3 friends who are better off and want to get into a business deal with that underwater condo owner to cheat a bank just to make $100K each.

Oohhh. Hfs you are slipping. Your whole persona doesn't work if you start actually having a discussion. Let's parse out your stmt. 'friend' is anyone willing to 'play.' let's say a buyer wants just below mkt deal (given the current spread, and th fact there are indeed other sellers who are 'short' selling), the buyer goes to a higher floor unit that is not yet a short sale and says, there's a short sale unit 5 flrs down, but I like your view and will bid 10% lower ( i also don't have a broker). I know you are toast, but in order to compete you 'need' to be a short sale also.

No mention of kickbacks, no illegal maneuvers, just a straigt up negotiating tactic. Ya think a seller who has been paying his mortgage might bite now? What'd ya think SE? What would you do if I approached you and you needed to sell? Would ya at least call the bank and say, firm bid but a little short, or would ya let the short sale set the bar, and then hope for a higher price in your bldg/hood? See you don't even need $2mm example, not even 2 'friends', not even a brain to negotiate in this mkt.

ps, explain these two incongruous statements:

1 - "No mention of kickbacks, no illegal maneuvers"

2 - " 1/1000 prosecution, 1/10,000 actual go to jail"

Not illegal but still a risk of prosecution and jail?

I think that the people who get mortgage reductions in principal should have a claw back if they sell same property for a profit at any time in the future. I consider this bullshit court sanctified fraud.

W67th called a Xmas day truce on the alls of youse. He will be back with a vengance in two hours to slaps the alls of youse into shape. Enjoy the reprieve.

No sir, I would not.

so w67th, still no answer why you suggested something illegal, and then all of a sudden it is no longer illegal?

so w67th, still no answer?

no answer?

w67th?

hello?

important to limit my "trolling" but to keep w67thstreet's advocacy of illegal activity ... is it because he flip flopped and when called out it is suddenly no longer illegal?

hfscomm1
12 days ago
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ps, explain these two incongruous statements:
1 - "No mention of kickbacks, no illegal maneuvers"
2 - " 1/1000 prosecution, 1/10,000 actual go to jail"
Not illegal but still a risk of prosecution and jail?

Interesting, a whole thread where I'm hidden, but w67thstreet, one of SE's most offensive posters is still here.

Remember his posts about groping female brokers?

Remember when he advocated a full annihilation death match in the middle east that was swiftly removed from streeteasy?

Not to mention this advocacy of fraud and conspiracy.

Oh, that's right, silly me, mimi thinks w67th is funny so ... ok?

Did you Lose a digit? What happened? Poor gal.

In my yacht club, NOONE is allowed to fish off the docks. I do it with my kids all the time. All the help, dockmates, and board members either look the other way or come over and tell me it's alright ( as long as I don't 'abuse' it). But I've seen others get chewed out. But itz usually bc they don't like 'that' member.

http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html?hp

"Probably, mortgagees also labor under a delusion that their homes will quickly return to value." Thatz the "money" quote.

i wonder when enough ppl read this, how many will actually try and "stick" it to their banks by asking for a bid that is way below mkt so they can go to the bank and say "take it or lv it??" makes ya wonder.....

so who is more "moraler"?

Is that an answer?

http://streeteasy.com/nyc/talk/discussion/17663-moral-dilemma-if-you-knew-your-neighbor-was-selling-as-a-short-sale-even-though-they-could-afford-to-pay-difference-would-it-incentivize-you-to-do-the-same-if-you-had-the-same-mortgage-holderservicer

after all this time, still no answer?

hfscomm1
about 2 weeks ago
ignore this person
report abuse ps, explain these two incongruous statements:

1 - "No mention of kickbacks, no illegal maneuvers"

2 - " 1/1000 prosecution, 1/10,000 actual go to jail"

Not illegal but still a risk of prosecution and jail?

after all this time, still no answer from w67th?

hfscomm1
about 2 weeks ago
ignore this person
report abuse ps, explain these two incongruous statements:

1 - "No mention of kickbacks, no illegal maneuvers"

2 - " 1/1000 prosecution, 1/10,000 actual go to jail"

Not illegal but still a risk of prosecution and jail?

still no answer from w67th?

Whatever happened here?

Whatever happened here, no answer on illegalities from w67thstreet?

What about recourse? Unless the original owner goes bankrupt, the bank can go after their assets in NY (or at least they should instead of joe renter paying for a bailout. Joe renter has no upside from risky 5% down payment purchases, but all the downside. Joe purchaser has all the upside but just 5% downside downside, doesn't seem right.)

And I don't want to hear that the banks are stuck. Just sell some shares, there is a risk when you make a bad loan, and equity dilution is one of them. didn't Bank of America, Wells Fargo and Citigroup all do big secondaries recently, their prices have not moved much because of it.

I forgot about this discussion. Where's mimi to defend w67thstreet lately?

Wow. A groupie that I can't see. What r u typing little man? Flmao.

Back to op. Crazy azzed moral harzard issues coming at everyone very soon. Ppl will go to jail for all the shenanigans that are primed and waiting for that one bad apple to start fungating the process.

So you are doing illegal things, suggesting illegal activities, or just making note of others' illegal activities? Unclear to me.

Hfs. I'm really flattered you changed handles. flw67ao (f'king laughing with 67th ass off?) is also hidden. Can you hit the 'unhide' button for me? Hey you know that 'easy' button from staples. For kwanzaa I'm sending you an 'unhide' button m'okay.

w67th?