Borrowers can avoid this exit with a short sale!

The short sale has and will always be, a much better alternative for the banks. In many cases, when modification isn’t an option, a short sale is better for the existing homeowners  as well.

It’s good for the banks because it’s the fastest way to bring down their massive backlog of foreclosures.

Now that more and more foreclosures are lingering in the courts, banks now realize its the simplest way to get these homes back on the market, sometimes in just a few months.

They may not get back the full value of the home but their losses are about 15 percent less than if the home was foreclosed on, according to Bloomberg News.

It’s good for the borrower because they can walk away, legally, with little or no debt at all. Some banks are even offering cash incentives, as much as $35,000 in some cases, to entice homeowners to sell back their homes.

It’s win-win! In fact, it’s better than that. It’s win-win-win! The stress, the headaches, the months and years of inaction, can be put to bed with a short sale.

A short sale, in short, is quite simple. A distressed homeowner can sell the bank their home for less than what they originally owe. Banks will often agree to not go after a deficiency judgement if borrowers agree to a short sale.

JP Morgan, who approves about 5,000 short sales a month,  is giving the largest incentives, but more and more lenders are now agreeing to them.

There’s a ripple effect here that’s good for everyone. The seller gets to leave foreclosure hell once and for all, and can get money to help them transition into a rental and start fresh.

A new family gets to buy the home at a nice discount, and the neighbors don’t have to live next to an abandoned home or deal with having a non-caring faceless entity, namely the banks as their neighbor.

The lawn guy, the bug guy get back to work, and the new owners buy new furniture, new drapes, and suddenly the economy is bouncing back!

Banks might have thought foreclosing was the right idea. It wasn’t then, it isn’t now, and it will never be.

Maybe its is just me, but what I am seeing over and over again during these turbulent economic times is a general sense of a lack of personal responsibility. It is truly becoming a sign of the times and until we figure out how to properly correct it, our very foundation will be continuously questioned if not threatened.

The examples are now running amuck.

AIDS at the VA

First we hear this past week about the VA literally spreading AIDS in a VA hospital in Miami and elsewhere by not properly cleaning certain “sensitive” equipment used in colonoscopies. Hello!! Are they STUPID? Would we ever hear of such an idiotic situation at a private facility where the Dr. and his partners would lose their license and be sued to the moon if this happened? No! Of course not, but at the VA no one will ever be held personally accountable.

In fact if the person who received AIDS is still on active duty he may not even be allowed to sue the VA. But even if the innocent victims do sue, who will actually be paying the damages: you and me the taxpayer. Not the manager of the facility, or the person responsible for cleaning the tubes. Certainly the President won’t ask the Secretary of the VA to step down because it wasn’t “his fault.” Well whose fault was it is the real question and how do we create a system that prevents these kinds of unbelievable mistakes? I am not sure but the list continues.

JPMorgan and Madoff

The NYT on Saturday reported that a Florida latecomer to Madoff’s investment scheme sued JPMorgan Chase in NY because as the bank that handled Madoff’s checking account they knew or should have known that something was wrong in late October 2008 when billions of dollars kept rapidly flowing in out of certain Madoff accounts. In Fact, the bank now acknowledges that it indeed removed $250 million from a Madoff feeder fund around the same time. So in other words while JPMorgan Chase continued to enjoy the revenue it earned from helping Madoff facilitate his operation, they themselves took $250 million off the table.

Thus, maybe just maybe with this new lawsuit we are starting to see a glimmer of the application of the doctrine of enterprise liability. It is a legal construct that lets courts look at an entire enterprise regardless of various subsidiaries and divisions and say “as an enterprise you committed, fraud, a tort or negligence by hurting someone else and thus must be held accountable.” A well-known example of its application is in the 80’s against Union Carbide. The parent company was held responsible for a terrible accident that killed scores of people at a facility in Bhopal, India that one of its subsidiaries ran or managed even though the parent company had no day-today responsibility concerning the plant’s operation.

Naturally, JPMorgan denies it is not responsible for the loss of the investor’s money with Madoff. Would we expect otherwise? But then why did JPMorgan Chase decide to move $250 million out of its own investments with Madoff? Should they not be held accountable for sleeping at the switch yet benefiting from their own knowledge? We will see… won’t we?

Foreclosure Crisis

So, how does enterprise liability relate to mortgage foreclosures?? The answer is simple. Can the same banking enterprises that know it is accepting liar loans, no income verification loans, offering mortgage brokers incentives to ensure that borrowers would be enticed to initially take a loan with certain terms even though it was obvious that soon the borrower would be unable to make the payments, and then reselling such loans as graded securities to unsuspecting investors around the world, yet buying insurance products should the loans fail, be held accountable for creating a house of cards that would take down the entire economy and require each family in the US to spend about $350,0000 to bail out the system? Some folks are saying it is impossible to hold any organization to that standard.

I say if we permit these trillion dollar organizations to dominate our lives without the notion of personal responsibility and accountability we are all doomed. These large trans-national organizations and their employees are permitted to take risks that no one individual would ever do if they knew they would lose their house or personal net worth. Yet these “too big to fail” enterprises” knew if they took the risk and failed they would have our government and economy by the short hairs and could demand a bail-out for if they didn’t get it, they would take us all down with them. That is not what I call personal responsibility. I call that extortion or blackmail- plain and simple.

And let’s not forget what happens to these poor folks who made these bad decisions. They still got to keep all their bonuses. Maybe a few lost their jobs, but they assume no responsibility. They maybe have to get a new job or career, but they are not being sued, not being chased by debt collectors, not having their credit scores destroyed like the folks who were mislead by over zealous mortgage brokers. Nothing, nada. In fact, some will end of working for the government either for the Department of Treasury or the FDIC under the premise that they understand the system. Boy do they!