I’m in San Francisco for the third ReBarCamp. As a result I got to hang out this weekend with my friend and partner  Ginger Wilcox, and spend time with her children and my friends Todd Carpenter and Andy Kaufman.

While we were having breakfast this morning Ginger asked me to read the latest post on her awesome “Blog by the Bay“. The title was “Is It wrong to Walk Away from an Underwater Mortgage”, written by George Crowe. The topic of the post was strategic default. The topic is interesting enough and struck a strong enough chord within me to require a response here ( for me, even if not for you )

If you don’t know what a strategic default is, it is a term used by people to apologize for their failure to live up to an obligation they created contractually. In other words, it describes people who are walking away from mortgage loans that they are capable of repaying.The key here is that the borrower has the ability to make the payments required by the loan, but they choose not to.

I am not a fan of strategic defaults. I can understand that people are stressed financially, but the mortgage documents don’t say that you can don’t have to pay if you get upset. I understand that the banks are being seen as the bad guys in the current economic climate, but the documents don’t say you don’t have to pay if you don’t like the actions of the lender. You borrowed the money, you bought something with it, and you’re supposed to pay back the loan.  George quotes a New York Times article:

Back in January Roger Lowenstein argued the case for strategic default in The New York Times Magazine, and he made some pretty good points:

“Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.”

I am not as familiar with mortgage lending in California or New York as I am in Pennsylvania where we sign a mortgage and a note. The mortgage document is the pledge of real property for the repayment of  debt, and the note is our personal pledge to repay the loan. Under the terms of those documents, the borrower might be liable for a deficiency judgment to return to the bank the funds that they do not recover through the foreclosure process.  But in any case, that is not a discussion of what is right or wrong, only what might be financially expedient.

Then there is the idea that “its only business” which seems to me to be another excuse. When people tell me something is business, not personal, it’s always because they are about to do something unpleasant, and they want to distance themselves from the moral responsibility for their actions. In this case, the term is being used to indicate that the decision here is a financial one, not a moral or legal one. And that’s just not the case. You can’t be moral only when its easy, or you have no real sense of right or wrong.

I don’t pretend to be able to stand in judgement of others or their actions. And I can understand the temptation to walk away from a loan because of the pressures of the economy, but your reaction to that temptation is what determines who you are.
When my late wife’s father passed away, her mom was left with debts from his business. She didn’t own a house, and was not responsible for his debts, but she worked for years to pay off each debtor. Tillie Rosen is an stand up human being. As a widow with limited resources, having only recently returned to the work force in a low paying clerical job, she made good on the obligations of her late husband (only one of e reasons I love and respect her). She could have chosen strategic default to benefit her family but she chose to scrimp and save to pay off the obligations of her late husband because she knew that was the right thing to do .

In a market like that in Marin County where Ginger works and lives, people are struggling to pay mortgages that are currently in excess of the value of their property. That’s a really tough problem, but the property was worth more when they bought it, and will probably be worth more again some time in the future.  Obviously, there is a financial benefit to the borrower if they walk away from the property and then buy another property back at the new lower value and wait for the recovery of the marketplace. But that is a financial decision, not a moral decision.  I wouldn’t blame a homeowner who was underwater and unable to make the payments for defaulting, or for “giving the keys” back to the bank through a deed in lieu of foreclosure. Those are cases of bowing to the inevitable. But for a member of the privileged class, who has a loan that they don’t want to pay, because the thing they bought went down in value? That’s just not right, at least in my opinion. Its not fun, but living up to the promises you make in life is always the right thing to do .

In closing his post George says:

If you buy into the argument that it was the irresponsible and greedy behavior of the banks that brought about the housing bubble and corresponding bust, then maybe it’s fair that they’re left holding the bag. It’s a tough question with no easy answer. What do you think?

Since the banks were not  partners in profit when  properties went up in value during the boom they should not be expected to be partners in the loss of value today. They are lenders, and they lent money to willing borrowers, who in these cases were and are able to make the payments under the terms they agreed to – even if it isn’t the most expedient thing to do, it is the right thing to do.

Related articles by Zemanta

• Fannie Mae Intensifies Penalties for Strategic Defaulters (faarforum.com)
• Most Mortgages in Default Held by the Wealthy (news.firedoglake.com)
• Study: Nearly One in Five Mortgage Defaults Are ‘Strategic’ (blogs.wsj.com)
• Richest homeowners making most defaults (commercialappeal.com)

In January I returned from the Inman Connect Conference and the ReBarCamp in New York City and had the opportunity to talk to people from all over the country about the real estate industry.

As is the case in a lot of conferences, there was substantial social interaction as well as business networking, but since its January and we’re all creatures of habit – the first question on everyone’s lips was “How did you do last year?”. My answer was always the same, “We’re doing better, but its still not where I want it to be”.

I had to leave the Inman Conference and return to Philadelphia because I had a meeting today with our company’s Sales Managers. In preparation I did a little research so we could talk about how to improve our company’s productivity for the coming year. And I received quite a shock. I found out that I had unwittingly told a little white lie – and because being truthful is really important to me  I want to take the opportunity to apologize right here and right now to my team at CENTURY 21 Adantage Gold.

When I checked the Century 21 corporate web site to see how our company had performed in the comparison to other Century 21 firms in the country, I found that what I thought was actually wrong – we were doing pretty well in a challenging market.;

1. We were in the Top 5 companies in Pennsylvania based upon the amount of Gross Commission earned,
2. We were in the Top 3 companies in Pennsylvania based upon the number of properties we sold.
3. We were in the Top 100 Century 21 companies in the entire country based upon the amount of Gross Commission earned, and
4. We were in the top 67 Century 21 companies in the entire country based upon the amount of properties sold (out of a system with thousands of companies across the United States)

I wasn’t really displeased with the reality, I am just upset that I spoke without having the facts at my disposal. I am really big about writing what you know, not what you think when it comes to blogging , and the same rule should apply to all of our communication. When we speak from impressions rather than facts, we create false impressions – not the least of which take root in our own thoughts impacting our actions and decisions.

As we approach the end of the Tax Credit (About 34 days are left for people to buy), I wonder what we will learn on May 1, 2010. Will we learn that the tax credit was supporting our current activity? Will we learn that the market has recovered enough for the spring to have a reasonable aactivity level of its own? Will we learn that there are enough investors buying homes again that the REO inventory will diminish? What is reality telling you in your market?

Its the middle of a really busy work day, so obviously I need to check out what my friends are doing on Facebook (I am after all an American). And there is the lovely Brandie Young on my live feed Asking

Like this? Want to do something about homelessness in Austin, San Antonio, New Orleans, Providence, and Nashville?

Because that’s really a hard question to say “No” to (and Brandie is the type of woman who just makes you want to say “Yes” to her requests) I clicked on her link and saw the slideshow below – a compelling story I think.

Then when I looked even further, I found out that Brandie (who still totally rocks) had built this awesome slide show at the request of Lani Rosales who had aksed a number of people to step up and participate in a unique event. But let me have her tell you about it in her own words from her New Media Labs Blog

PLEASE use one of these slideshows in your own blog:

For the first ever social charity presentation roundup, several people (even some not in Austin!) stepped up to bat to put together various slideshows based on facts provided by Alan Graham of local non profit organization, Mobile Loaves and Fishes, serving the needs of the homeless.

Now I told you Brandie Young ROCKS, and this new information did nothing more than remind me that Lani Rosales also TOTALLY ROCKS.  Makes you feel good to know that two women who are totally adorable and smart, and hot, are also so thoughtful , generous, and gracious… (Dontcha Wish you knew them too?)

Now go out and do something to make them feel good about this..

In a recent search, I noticed a post by another brokerage firm about a relationship with RealtyTrac that was promulgated by their national franchise. .

It reminded me why I hate salespeople sometimes.

This post would indicate to a real estate consumer that the agent and firm had some benefit through the publication of their third party information, and that this would make them some kind of foreclosure experts. And while the writer is a pleasant enough person, and just trying to create a business advantage for themselves, its just nonsense, and its frankly misleading – though I will give them the benefit of the doubt and assume that it is unintentionally misleading.

I have been selling foreclosures for 21 years in Philadelphia, Bucks, Montgomery, Delaware and Chester Counties, and for the past year or two also in Burlington, Camden and Gloucester counties in New Jersey. I have also been an active real estate investor for even longer than that, so I think that I would be considered an expert in the marketing, purchase and sale of foreclosure properties. From my experience I know that , for the most part third party relationships like the one touted by this broker don’t work. And I know that for the past 21 years, most of the calls from services like these that I received were from people that were calling on outdated properties that were published long after they were sold and settled.

Third party listings of foreclosures have a number of problems. As I mentioned, their information is often outdated.They often provide too much information seeming to provide value but muddying the waters for most consumers – for example “pre-foreclosure” data which is useless to most of their subscribers. The source of the information is not disclosed in many instances, and is therefore questionable. For real estate professionals, the third party information is less accurate than the Multiple Listing Service .

I understand the need for the third party company to sell subscriptions, and their right to advertise and boast about their services to do so. And I understand the need for the national franchise to create affiliate relationships to obtain income opportunities and to position themselves as providing value to their franchisees, I even understand the writer pimping this out as a benefit to the public – but it is indicative of their lack of understanding about the product and the foreclosure product that they even do so. It just burns me up that they are so busy posting something to appear at the front of the pack, that they don’t take the time to actually determine if it accomplishes that before they publish.

As salespeople I think we have an obligation to balance our need to market with the need to be genuine and transparent. Its too easy to lay claim to expertise when you’re writing alone in your home or office. Don’t just claim a position, have the position. Be the expert you claim to be – or claim to be the expert you are.

Image via Wikipedia

If you follow me in the world of social media, you know that I am a Twitter person. I listen, I comment, and I enjoy watching the stream This morning someone wrote “If Realtors are really successful, why are so many homes on the market. Either you can sell or you can’t. ”

I don’t understand what he is talking about, or the correlation of inventory with the impact of using a REALTOR. The purpose of selling a home through a real estate professional was never about just selling the home. It was about selling the home for the best price with the best terms possible, in a smooth and secure manner minimizing the risk of potential litigation.

In a market where demand outpaces supply (commonly referred to as a seller’s market) the need for a real estate professional is often less obvious because consumers confuse getting it sold with getting it sold properly (as I defined it above). And because of that confusion, the value that the professional adds to the transaction seems to be obfuscated by the market activity. (I know its a big word – I usually eschew obfuscation, but Google the word if you need to)

In a market where the supply outpaces the demand (commonly referred to as a buyer’s market) the seller’s need for the services of a real estate professional becomes more obvious because it is more difficult to find the qualified buyer to purchase the home for any price, let alone the best price for the seller. But that same price pressure often leads the seller to the mistaken impression that the best strategy is to sell the property without professional assistance to allow them more room to negotiate. But that doesn’t make the need for a REALTOR any less urgent, or the impact on the transaction of the professional’s services any less crucial.

In fact, I would suggest that the absorption rate of even the slower market would be negatively impacted by the removal of the REALTOR’s services. Perhaps the best analogy is that of a room that is dimly lit by a few candles. The argument made by my twitter bud seems to be that the poor lighting in the room is due to the presence of the candles, when without their illumination, the room would have been in deeper if not total darkness.

I don’t know why REALTOR bashing is so popular, except that it is always easy to bash a class of people. Professional goups are faceless and do not respond to small slights like these, and these unsupported statements, fallacious as they are, create untrue impressions in those who read them. And when the market is tough, and people seek to blame someone, faceless groups become an easy target.

So if you are a REALTOR, and struggle against a slow market in your area, be proud of the positive impact you have on the ability of your buyers and sellers to make the moves they need to make in their lives. And if you are a consumer, struggling against that same market, hold your agent accountable to do what they can, and to (perhaps as importantly) explain to you what they are doing and why, but don;t blame them for the vagaries of the marketplace, anymore than you should give them credit for the better marketplaces we have experienced.

Image via Wikipedia

Maybe I’ve been around the real estate industry for too long.Or maybe I’m just not bright enough to get the economics “du jour” – in any case, when I saw an Inman News article entitled “A new set of real estate fundamentals” I was annoyed.

When I look at the current market, I see the same fundamentals that were in place when I started to sell real estate in 1971 – to wit;

• Housing is still a basic need.
• Real Estate is not a liquid asset, and should be bought understanding that it is a long term investment
• Everybody with a periodic housing expense is probably paying a mortgage for someone, and would usually benefit more if they pad one for themselves.
• When you buy real estate that is affordable and fits your housing needs, over the long term, you will create additional financial stability for yourself and your family.

These to me are fundamentals – and have been the bedrock of our industry, and it bothers me when people assume that there are “new fundamentals” – which are actually variations on these themes – some of which have short term validity, and many of which do not.

So I started reading the article with a chip on my shoulder – but after reading it through, I felt a lot better. The article actually was looking at the statements and assumptions made at a 2003 Inman conference on the “Housing Bubble” which generated some theories and suppositions about what was fueling that real estate market among which were growing Immigration, Unlimited Market Liquidity, and Consumer Confidence. In my opinion these are not fundamentals of the real estate market, but are moderating influences, as we have seen them play out.

Immigration for example was (and still is a powerful) force impacting demographics, but is impacted by both the economy here and abroad, as well as the political climate here and in other countries. As a result, this is not fundamental to real estate as a commodity, though it might positively or negatively impact demand in the market. The limits which we have seen placed on the “unlimited” liquidity of the mortgage market  also impacts the ability of consumers to act on their desire for housing, again acting as a moderating influence on the market (though certainly not fundamental to real estate) and finally, the lack of consumer confidence has been an important factor in limiting demand for real property as people find alternative investments, diminishing the “serendipitous” buyer, though the impact of those issues was important to that market, and changes in those sectors of the market are among the reasons for our current real estate market

My niece and nephew called today to talk about whether they should buy a house i- they moved to California form the East Coast, and the price of housing , even in today’s market is pretty high.  There is a house on the street where they live that has just come on the market. They like the street and the neighbors, its close to libraries, playgrounds, schools, and highways.  And they plan to be in the area for the next several years. So based upon their needs and wants, and their desire to build some financial stability for their family through their monthly housing expense, they are going to make an offer to purchase. The offer will be aggressively low (so they feel protected if the market continues to go down rather than up) but since they have good credit, a substantial down payment, and good employment, the terms of the offer are pretty good. Since the seller has a need to sell the property (and since she has lived in it for many years and has no debt) hopefully they will be able to reach an agreement. But whether they reach an agreement or not, at least both parties are motivated by what are truly the fundamentals of real estate and as a result will hopefully make decisions that benefit them -

Photo courtesy of Creativecommons.org

As the FDIC takes control of IndyMac bank after the third largest bank failure in History, the Wall Street Journal wrote an article in which they announced that they would be halting foreclosures .

While I understand the political necessity of doing something perceived as positive by the public, and I understand that if they are able to make some of these loans productive, they improve the assets of the bank by moving these from “non-performing” to “performing” loan statuses. However IndyMac specialized in “Alt-A” loans a category between prime and sub-prime that frequently included loans in which borrowers didn’t fully document their incomes or assets. These “liar’s loans” as they have become known, may not provide the best workout opportunities, since they often provided unrealistic financial information to the lender.

The foreclosures will not be stopped, but the FDIC will be reviewing the loans to see what workouts are possible before sending them on to foreclosure.

Taken with the reassurances that Fannie Mae and Freddie Mac are stable, and now have the explicit guarantee of the government behind them, hopefully we’ll be on to better financial news for the rest of the summer – Maybe Price reductions on Salt Water Taffy at the New Jersey Shore! What could be better?