Saturday, December 30, 2006

Moral Hazard, Here We come

It's called the Short Sale. It's the hot item in the suffering real estate market.

Find yourself with a few "Late Payment" letters? Fearing bankruptcy and/or the loss of your credit and reputation?

devil on my shoulder
[Thanks to for the image.]

Try this:

Find a buyer willing to make an offer a bit below market and below what you owe on your house. Present the buyer to the bank, and tell the bank:

"Either you accept this lower offer or I'll go bankrupt."

The bank will think twice before saying no, because the cost of foreclosure, refitting and resale is higher than you'd think.

There is still some question as to whether the lender can pursue you after such a sale for the money they lost; but obviously, you'll work language to protect yourself into the sales agreement.

Does this sound like blackmail? Yes it does. Then again, the bank should never have lent you, an obvious spendthrift, the extra money in the first place; and this is simply their just desserts -- at least, that's what the little devil on your shoulder will whisper in your ear.

For an informative piece on the subject, see this.


Anonymous Anonymous said...

I thought banks didn't hold the mortgages. So if the bank doesn't hold it how does one negotiate such a deal?

9:28 PM  
Blogger Katy said...

Some banks and mortgage institutions do hold onto their mortgages. For those that don't, the acquiring institutions will have become the party with whom one would be negotiating.

In other words, it's the company that is the payee on the mortgage payment check that would be the current proprietor of the debt, in most cases anyway, and hence would be the negotiating partner. (If they are an agent, they would presumably refer you to the proper place.)

It goes without saying, I hope, that anyone intending to look into this should see their tax and legal advisers first.

9:48 PM  
Anonymous Anonymous said...

Thanks Katy. I just discovered your blog and I think it's great!

6:27 AM  

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