Foreclosures and short sales

I attended a packed meeting of realtors and lawyers this morning on the subject of mortgage foreclosures and short sales. A foreclosure, whether by auction of “strict”, where the borrower’s right of redemption is judicially extinguished, ends up with full title in the bank. A short sale happens when the owner sells to a buyer full title to the property, with the bank signing on for less than it’s owed. Either way, the borrower/owner loses his house, but what are you going to do?

There was talk of a mortgage mediation program, on which I’ll write later. Of interest for now is that mortgage foreclosures have doubled the past year, with no end in sight. And short sales? As Gene Marconi, chief counsel for the Connecticut Association of Realtors said, “I grew up in Torrington and cut my teeth on short sales. never, not once in my career, did I ever think I’d be here in Greenwich discussing short sales.” Well now he is. There are some interesting opportunities for buyers out there, and more coming each day.

And as an aside, before I receive any more angry comments deploring bottom feeders profiting on other’s misery, please read this Bloomberg article on cash-rich companies swallowing their weaker competitors whole. IBM, for instance, is bidding for Sun Microsystems.

March 18 (Bloomberg) — U.S. mergers and acquisitions may stage an unexpected recovery as International Business Machines Corp. and companies with cash prey on rivals struggling with depressed stock prices, bankers and lawyers said.

“Clearly this is the time to make an acquisition if you are a company that has the cash,” said Frank Aquila, a partner at Sullivan & Cromwell LLP in New York. “The best returns have come from acquisitions done during an economic downturn.”

It’s not nice, but if you’re solvent when much of the world isn’t, why not take advantage of your good fortune?


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7 responses to “Foreclosures and short sales

  1. anonymous

    May natural selection prevail….capitalism at its best

  2. CEA

    Everyone says “I never thought….” about Greenwich. It’s a fairly big town. Look at the past week – short sales, foreclosures, gang fights. I would be very curious to know the number of single and two-family homes (not condos/coops) that are <$800,000 in this town. Assume there’s 4 people/house. Then add on the Armstrong/Wilbur Peck/etc. housing, and there are thousands and thousands of non-McMansion-dwellers.

    I think I once heard there are about 15,000 houses in G’wich? I bet a good chunk are not dad-works-in-finance-mom-has-streaked-blonde-hair-and-stays-home set.

  3. While the 2007 Mortgage Relief Act provides tax relief for primary residences, the IRS code still allows the bank to issue a 1099 to the short seller for its loss, which becomes his ordinary income. This would greatly impact builders and investment selling short, rather than taking the foreclosure route. It hardly seems to be win-win.


  4. New Buyer

    What are people saying about “bottom feeders” and what is their definition of the term?

    If it’s “Bottom Feeders = Buyers who refuses to absorb the losses of Sellers who overpaid in the height of the market” then print me a T-Shirt with that logo and I’ll proudly sport it about town. (Do you think I’ll run the risk of getting pummeled by a Greenwich gang?)

  5. Front Row Phil

    To New Buyer —

    I’m printing the t-shirt now.

    Clearly, perspective is everything. Sellers see bottom feeders as opportunists taking advantage of others misfortune. Bottom feeders see themselves as, well, opportunists taking advantage of others misfortune. Either way, bottom feeders are vital if we’re gonna jump-start the housing market and crawl our way out of this mess. God bless bottom feeders.

  6. CEA

    Buying lousy land for $3 mil, to knock down a house and build a monstrosity for another $4 mil, is not “others’ misfortune”. That is “others’ folly”.

    How about the builder who did two houses next to each other on Wynnwood? He thought it a good idea to simultaneously have $15-$16 million “at risk”? That is not “misfortune”. That is plain, out-and-out bad business management. Period.

    Bottom-feeders, say you.
    Good investors, say I.

  7. Anonymous

    Short sales are beneficial to the buyer, who purchases a property at a good price, but they are more beneficial to the seller. The seller is able to get out of a house that he can’t afford. The bank absorbs a loss (not a bad outcome since they probably made a loan that they shouldn’t have made in the first place). The impact on surrounding home prices is not as severe as a foreclosure. Most importantly, the seller does not have a foreclosure on his record and can get on with his financial life. A buyer in a short sale transaction has nothing to be embarassed about. He is providing a blood transfusion to a distressed seller.