Strategic default.....sounds good until your character is questioned....

I overheard an interesting conversation in the office yesterday. Apparently, an agent showed a rental property that was listed by another agent in the office. Of course, the listing agent asked about feedback and the showing agent excitedly mentioned that his clients were interested in the property. Their conversation quickly changed to the reasons why the prospective tenants are now choosing to rent and he mentioned that they were doing a strategic default on their home.....WHAT????

Do you mean to tell me..... that the individuals who are now breaking a contractual obligation just based upon a "strategy" has now decided to enter into a contract with my client????

A strategic default sounds good in theory...and I understand that it all boils down to a business decision. However, there are ramifications involved and if your client doesn't have to worry about their character being questioned, then it's fine. There are so many other options available to homeowners today besides a strategic default. There are many short sale options available as well. Yes, there's a lot of time and effort involved, but it gives the impression that the homeowner made an attempt to mitigate the loss to themselves and to their lender. Shoot, even a deed-in-lieu sounds better on paper than a flat-out strategic default.

People really should begin to think past the "here-and-now" because there really are after-affects.

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Comment by Phillip Allen on May 3, 2013 at 3:27pm

Ben, if you do not have the time to read my comments please choose to be silent rather post babel... 

my actual comment (which can be read just three (3) post below) says...

"My wife and I have been involved in the business since the early 70's; we've closed tens-of-thousands of transactions with probably hundreds-of-thousands of satisfied clients over those 40+ years..."

I did not reference the word "Agent"; who's being "intellectually dishonest"...? 

BTW - I know a colleague who was the #1 mortgage originator for GWS here in California; she originated thousands of credit-card equity lines of credit using a VISA/MC; she too thought she was "kicking butt" until she was found guilty of lender fraud... served 18-months in a federal prison in CA.  Ben, be wise with your business savvy; be careful...!!!

Comment by Ben Benita on May 3, 2013 at 1:47pm

Philip - I appreciate a good debate, BUT it is called "intellectually dishonesty"

You posted here as an "agent" that had done 10,000+ plus transactions......

I like you, respect you and your opinions, HOWEVER, we should just agree to disagree.

I think a strategic default is a BRILLIANT business decision by any homeowner, has nothing at all to do with character and is only about being business savvy.

NO ONE can argue that it does NOT make financial sense to get out of ANY bad investment, legally of course and as agreed by all parties.

End of the day the bank either agrees or disagrees to the "strategic default", and, you either agree or disagree.......

Regardless, Sellers will continue to do them, I will keep kicking butt in the short sale arena and I certainly wish you continued success......

Again, 40+ years IS very impressive!!!!

If you are ever here in the Washington DC area look me up!!!!

Comment by Phillip Allen on May 3, 2013 at 1:30pm

Ben, the "point" began & remains the discussion topic Vanessa posted regarding the consequences that may affect ones Character after making a poor decision (i.e. strategic default). I agreed with Vanessa and furthered the discussion regarding the correct definition of a "strategic default"; and the potential liability of a licensee offering consultation to a seller regarding the decision of using a strategic default to better their financial status. (which no one in the discussion wants to address)

BTW - the post remains at the top of the blog page for review each and every time anyone adds a comment. 

As far as the validity of my combined experience in the closing of "tens-of-thousands" of transactions; we (my wife) have been employed/managed/owned real estate enterprises such as mortgage/svgs&loan/escrow entities for over 40-years.  You think 250 closings per year is unattainable think again young man; Ben, there was a time back when you were just a sparkle in your Dad's eye when closing 200-400 transaction each month was not unusual...!

If you had taken the time to do a little research BEFORE you challenged my statements you would now not look so foolish...!!!

My wife has always been a high-volume producer; hell, her first real test as an escrow officer was working in the “Special Projects Division” of Lawyers Title; the project which came to be known as ‘the Phillips Deal’involving Phillips Petroleum Corp., Southland Corp., TOSCO Corp., and GATX Tank Storage Terminals Corp. The transaction involved 760 properties located in California, Oregon, Washington, and Nevada; 45 various counties in California; 85 title officers and over 2,000 documents. On April 1, 1976, Lawyers Title Insurance Corporation celebrated its 12th anniversary by closing the $225 million dollar deal; twice the number of transactions that LTIC offices in the state closed in their entire year of operation. (Ben, look it up... it's of public record)

Ben, I married up; I'm a piker next to her... however, when I managed the South Bay branch of American Savings & Loan we were the top producing & most profitable mortgage operation in the country; 5 of my 12 loan officers were multi-million dollar producers...! We closed "thousands" of transactions...!!!

To answer your last comment implying me as being disingenuous... think again...!!!

And, I am awfully good & awfully busy.....

 

Comment by Ben Benita on May 3, 2013 at 12:03pm

Philip.....would love to debate with you but like you, I too am busy and nothing good is going to result from all this.

You seem to totally be missing point.....AGAIN.

Kudos on having been in the biz for 40 or so years, BUT, you say you have done "tens of thousands" of transactions....REALLY????

Not necessarily to call you out, but ASSUMING you have "only" done 10,000 in your 40 year career, that is 250 closing per year on average for 40 years, or a closing every 1.46 days.......hhhhmmmmm??????

You are awfully good or awfully busy.....

Comment by Phillip Allen on May 3, 2013 at 2:56am

Hi everyone, I was distracted from the discussion the past couple of days needing to complete some necessary work.

Where were we...

I just had this same topic come up in another one of my discussion groups... 

Well, let me simply reply to the point regarding the original article written by Vanessa, "strategic default" is irrespective of the result; it's not in lieu of a short sale, for example as stated in the article, but rather a reference to deliberately falling behind on the mortgage payment when potentially unnecessary. Those successfully completing a short sale can still be guilty of this and I don't believe that the lender waives any rights regarding the default.  

That said, I often have Agents ask if they could be held liable for fraud if their client bought a new home and then immediately defaulted on their existing home. As with most new loans there are certain risks of exposure due to an affidavit that would need to be signed stating this would not happen. If the investor purchasing the securitized loan (or any other party down the road) determined there was a change in the credit profile of the borrower since the time of loan origination, it could jeopardize the transfer of the loan, as just one exemplary implication. As such, if the change in credit worthiness was investigated and found to be a strategic default, all parties involved could be held responsible. 

This is a concise elaboration to avoid writing 6 paragraphs, but the point is that fraud can be interpreted, and/or detected, in many ways so Agents need to think carefully about how important a commission is before acting. 

Back to Vanessa's comments in the article - yes, for the Agent in her anecdote, it is not a good reflection of their seller's character to someone being asked to venture into a new agreement with them... character does matter!!!

Mike, I respect most of what I have reviewed in your writings; in reply to "being nice", I apologize; I am often a little too blunt. Ben has difficulty staying on topic; he tends to wander just a bit... with all his knowledge and experience regarding short sales; he does not understand the meaning of "one being judged by their actions; or by their character". He does not see the correlation between a decision, followed by one's actions which are reflected in their character resulting not in others "pre-judging" them, rather others will make a "judgement" whether to do business with them... as Venessa stated so clearly; there really are after-affects.  

Ben is incorrect again in his understanding of the definition of a "strategic default"; more importantly, he, like so many other Agents do not comprehend the possible ramifications of not having a clear arm's length relationship with a seller requesting consultation with a licensee regarding the use of a "strategic default" and a "business decision" as a viable option.

As far as my comparative experience in the real estate industry; it's not a fair comparison. My wife and I have been involved in the business since the early 70's; we've closed tens-of-thousands of transaction with probably hundreds-of-thousands of satisfied clients over those 40+ years...

Ben's just a 'novas' in the industry... but we all gain a greater respect of others as experience matures each of us... I wish him well...!   I'mjustsayin'...!!!

       

 

Comment by Mike Linkenauger on May 2, 2013 at 5:18pm
Play nice everyone! And Ben is
Known around as one of
The best negotiators in the country. He knows his stuff and there are not many around tha have closed as many as him.
Comment by Vanessa Calhoun on May 2, 2013 at 4:19pm

@ Philliip...Although we may not agree with each other on this position, we still must maintain a level of respect for each other. I don't think that Ben is a stupid individual. His opinion just happens to differ from ours.

Comment by Vanessa Calhoun on May 2, 2013 at 4:08pm

Ben, I'm so sorry, but I'm done discussing this with you. You are totally missing my point. I did not pre-judge the tenant because 1) it wasn't my rental listing (as noted in the original post), so I had absolutely nothing to do with the final decision, and 2) the facts were given by the potential tenants' agent. The decision was based upon the factual evidence as supplied by their agent...there was no "pre-judging" at all. A short sale is a negotiated settlement between the homeowner and their lienholder. Walking away from a contractual obligation without making attempts to modify or settle the contract (via short sale or modification) is an indication of character. It is also a basis in which future credit decisions regarding the homeowner is based....just as it was in this scenario. I've tried to break it down to you as plain and simple as I possibly could. At this point, I have to go because I have plenty of work to do....ON MY SHORT SALES! Lol!

Comment by Ben Benita on May 2, 2013 at 3:52pm

Vanessa - seems YOU are missing MY point.

1)  You CLEARLY pre-judged the potential renter.  My point about the brick and the car is that EVERYONE pre-judges others...not sure how I could have possibly made that more clear?

2)  Strategic default - as I understand it is NOT just walking away and letting the home go to foreclosure (maybe that is where our disconnect is)?  

A strategic default by definition IS completing a short sale when you can afford the payments and sometimes when you have the cash to make up the shortage.  

Assuming my definition to be correct, it has nothing to do with character and ONLY to do with being financially savvy, i.e., smart enough to realize waiting 10, 15, or 20 years for the market to come back is just foolish when you could otherwise building equity.

Also, a strategic default, NOT A FORECLOSURE, MUST be agreed to by both parties, just like when the contract was first signed.  NO BANK is forced to accept a strategic default, it is merely an offer of settlement against a debt that is owed.....

AGAIN, IT HAS NOTHING TO DO WITH ONE'S CHARACTER......

All this aside, I do appreciate we have a chance to share our opinion here!!!!

Comment by Ben Benita on May 2, 2013 at 3:47pm

Phillip - your childish dig is pretty pathetic.

ANYTIME you want to compare short sale knowledge  - BRING IT MY FRIEND!!!

Would LOVE LOVE LOVE to do it here or ANY other public forum!!!

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