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Foreclosures, Short Sales & REO's

Storm Brewing Over Hawaii Property Valuations

Whether a property owner is seeking a loan modification, pursuing a short sale, or the property has already been foreclosed on, the determination of value is key to the success of each of those transactions.

Now a storm is brewing between appraisers and Broker Price Opinion (BPO) professionals vying for valuation work for short sales conducted through the Making Home Affordable Foreclosure Alternatives (HAFA) program.

Hawaii is a State where real estate agents are prohibited from receiving payment for BPO’s (so I am not sure why BPO’s are used). However, it is true that a BPO is less expensive than a professional appraisal and that may have something to do with the banks policies.

This short sale rim home (MLS# 227307) listed above had a compelling offer of $585,000 submitted. But, the banks BPO came in at 640,000 and the buyer walked away.

The Appraisal Institute—a trade group that represents appraisers—released a public letter it wrote to Treasury Secretary Timothy Geithner on Tuesday, calling for an end of the practice of using BPOs for Making Home Affordable modifications and refinances, as well as amending the rules for the upcoming HAFA program to require appraisals to determine value for government-incentivized short sales. Seasoned short sale agents like myself are looking forward to the HAFA program to bring a new efficiency and streamlining to what has been a long drawn-out process of a short sale.

“Generally speaking, real estate agents and brokers are not independent or properly trained valuation specialists. They have an inherent bias towards quick results and action which produces a fee for themselves irrespective of whether the lender/services/investor/property owner/borrower gets a fair return on the short sale,” the Appraisal Institute said in its letter.

“We believe that such conflicts can and should be mitigated by implementing basic requirements reestablishing independence and competency in the valuation process,” the letter also said.

Specifically, the Appraisal Institute called for the short sale process to include appraisals conducted under the regulations outlined in the Uniform Standards of Professional Appraisal Practice (USPAP).

I’m hopeful that this letter finds resonance with the government agencies . Many buyers, sellers, and agents have been frustrated by short sales that have blown up from an inaccurate BPOs.  It’s also good for the appraisal business which has been greatly softened due to the contracting of the numbers of transactions in each market throughout the state of Hawaii.

HAFA (Home Affordable Foreclosure Alternative) is set to launch on April 5. It provides monetary incentives for borrowers, services and lenders to who complete a short sale under the program’s terms.

Learn more about the short sale process if you are interested in purchasing a distressed property on Kauai

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Matt Beall, PB

March 15, 2010

This is such a significant issue. It’s worth pointing out that the Appraisal Institute is spinning an interpretation of the law by saying that 23 States (Hawaii included) PROHIBIT BPOs, which is not accurate (NAR has a point)…

Even though Realtors can’t legally be compensated for BPOs in the State of Hawaii, we still do them. Why? Because we treat the banks and their asset managers as prospects, and we hope to earn their future business.

One of the arguments against BPOs in the Appraisal Institute’s letter was about property “flopping”, where real estate agents help investors obtain distressed properties at (artificially) deflated prices. I know that any of our agents who do BPOs would laugh at this… since Asset Managers are so specific about making the agent justify their opinion.

It’s also worth pointing out that Hawaii law prohibits ANY agent of a real estate brokerage from purchasing a Short Sale that the brokerage has listed (within one year of the list date).

Thanks for this post, Ron… it’ll be interesting to see where this debate leads (if anywhere).

Matt Beall, PB

March 15, 2010

This is such a significant issue. It’s worth pointing out that the Appraisal Institute is spinning an interpretation of the law by saying that 23 States (Hawaii included) PROHIBIT BPOs, which is not accurate (NAR has a point)…

Even though Realtors can’t legally be compensated for BPOs in the State of Hawaii, we still do them. Why? Because we treat the banks and their asset managers as prospects, and we hope to earn their future business.

One of the arguments against BPOs in the Appraisal Institute’s letter was about property “flopping”, where real estate agents help investors obtain distressed properties at (artificially) deflated prices. I know that any of our agents who do BPOs would laugh at this… since Asset Managers are so specific about making the agent justify their opinion.

It’s also worth pointing out that Hawaii law prohibits ANY agent of a real estate brokerage from purchasing a Short Sale that the brokerage has listed (within one year of the list date).

Thanks for this post, Ron… it’ll be interesting to see where this debate leads (if anywhere).

Katie Minkus, R(BIC)

March 15, 2010

The real question is are they going to fix the appraisal process??? On the Big Island, we are still seeing appraisals done by appraisers from out of the area, another island, sometimes another state! I had an appraiser call me last month about a house I closed over ONE YEAR ago… I’m aware on a daily basis of how difficult it is to provide numerical values for most homes on the Big Island – in many cases there are simply “no comps.” But to think that an appraiser used to valuing condos in Waikiki, for example, is qualified to give accurate monetary valuation to a property located over 300 miles away (that they must fly, not drive, to see) in Kapa’au, that is completely off the grid running on a photovoltaic system with an organic farm, is asinine.

Until the appraisal problem is “fixed” I’m afraid it really doesn’t matter if banks order BPOs or appraisals on short sales, it will still be up to the Real Estate Professional to do their best to negotiate with the banks and pound it into them that the agents on the ground negotiating the deal are usually the ones the most qualified to give an opinion of value.

On a side note, I’m also laughing at the idea of “flopping.” Seriously? The banks should be glad to get ANY toxic asset off their books at this point, instead of wasting everyone’s time and money trying uncover any additional fraud and greed in the purchase process. I guess that’s what Wells Fargo was worried about when our Buyer’s appraisal on a $450k property came in $20k under the leinholder’s BPO – did I mention that Wells Fargo was BOTH the leinholder AND the lender?? Guess what? Wells Fargo vs. Wells Fargo. The buyer walked. I bet their investors wish Wells had struck a deal instead of worrying about “flopping” and then foreclosing…

Katie Minkus, R(BIC)

March 15, 2010

The real question is are they going to fix the appraisal process??? On the Big Island, we are still seeing appraisals done by appraisers from out of the area, another island, sometimes another state! I had an appraiser call me last month about a house I closed over ONE YEAR ago… I’m aware on a daily basis of how difficult it is to provide numerical values for most homes on the Big Island – in many cases there are simply “no comps.” But to think that an appraiser used to valuing condos in Waikiki, for example, is qualified to give accurate monetary valuation to a property located over 300 miles away (that they must fly, not drive, to see) in Kapa’au, that is completely off the grid running on a photovoltaic system with an organic farm, is asinine.

Until the appraisal problem is “fixed” I’m afraid it really doesn’t matter if banks order BPOs or appraisals on short sales, it will still be up to the Real Estate Professional to do their best to negotiate with the banks and pound it into them that the agents on the ground negotiating the deal are usually the ones the most qualified to give an opinion of value.

On a side note, I’m also laughing at the idea of “flopping.” Seriously? The banks should be glad to get ANY toxic asset off their books at this point, instead of wasting everyone’s time and money trying uncover any additional fraud and greed in the purchase process. I guess that’s what Wells Fargo was worried about when our Buyer’s appraisal on a $450k property came in $20k under the leinholder’s BPO – did I mention that Wells Fargo was BOTH the leinholder AND the lender?? Guess what? Wells Fargo vs. Wells Fargo. The buyer walked. I bet their investors wish Wells had struck a deal instead of worrying about “flopping” and then foreclosing…

Ron Margolis

March 15, 2010

Katie, I won’t take that bet. If the investors, the companies would bought these gaggles of loans and nested them in multiple trusts, had any idea of the bank’s ineptness, they would be upset for sure. Of course, given the level’s of insurance some of the lenders procured, it may not always be an issue

Ron Margolis

March 15, 2010

Katie, I won’t take that bet. If the investors, the companies would bought these gaggles of loans and nested them in multiple trusts, had any idea of the bank’s ineptness, they would be upset for sure. Of course, given the level’s of insurance some of the lenders procured, it may not always be an issue

Justin - Head Web Head

March 15, 2010

Now I see the home listed for $499K. Would the bank now accept that? So are you saying the bank could have sold it for $585K? If so, that’s a loss of $86,000 assuming the bank can get a full price offer.

So now my question is, who at the bank was fired?

Justin - Head Web Head

March 15, 2010

Now I see the home listed for $499K. Would the bank now accept that? So are you saying the bank could have sold it for $585K? If so, that’s a loss of $86,000 assuming the bank can get a full price offer.

So now my question is, who at the bank was fired?

Matt Beall, PB

March 15, 2010

Justin would be a great candidate to call in to the banks to follow up on Short Sales. I would love to have a recording of those conversations! 😉

Matt Beall, PB

March 15, 2010

Justin would be a great candidate to call in to the banks to follow up on Short Sales. I would love to have a recording of those conversations! 😉

Justin - Head Web Head

March 15, 2010

LOL, that would be funny. If I was a bank executive and somebody lost $86K of the companies money, that sure would be a good firing.

If you had a video you could send it to Celebrity Apprentice and they’d probably give me Mr. Trump’s job!

Justin - Head Web Head

March 15, 2010

LOL, that would be funny. If I was a bank executive and somebody lost $86K of the companies money, that sure would be a good firing.

If you had a video you could send it to Celebrity Apprentice and they’d probably give me Mr. Trump’s job!

Ron Margolis, RA, ABR

March 15, 2010

OK, so here’s the latest from Inman News, of course, counterpoint to the original post.

There’s no evidence that relying on a broker price opinion “exacerbates mortgage fraud or abuse,” the National Association of Realtors said in a letter defending the use of BPOs in the Obama administration’s short-sale incentive program.

Industry groups representing appraisers are pushing for a ban on the use of BPOs to value short-sale properties in the Home Affordable Foreclosure Alternatives (HAFA) program, saying they open the door to mortgage fraud.

NAR says the groups have provided “misinformation” to the Treasury Department about the role of BPOs in mortgage fraud and the application of state laws governing BPOs.

Go figure!

Ron Margolis, RA, ABR

March 15, 2010

OK, so here’s the latest from Inman News, of course, counterpoint to the original post.

There’s no evidence that relying on a broker price opinion “exacerbates mortgage fraud or abuse,” the National Association of Realtors said in a letter defending the use of BPOs in the Obama administration’s short-sale incentive program.

Industry groups representing appraisers are pushing for a ban on the use of BPOs to value short-sale properties in the Home Affordable Foreclosure Alternatives (HAFA) program, saying they open the door to mortgage fraud.

NAR says the groups have provided “misinformation” to the Treasury Department about the role of BPOs in mortgage fraud and the application of state laws governing BPOs.

Go figure!

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Katie Minkus, R(BIC)

March 16, 2010

The very sad truth of the matter is that I could point to at least 100 properties on the west side of the Big Island alone that could have sold short for $100-200k MORE than the bank eventually has settled for, or received at auction or after they foreclosed and the property hits the market as an REO. I’ve said it before and I’ll say it again – if I ran my business the way the banks have been running theirs I would be in JAIL. What’s even more amazing is the American public and worldwide investors seem to still believe there is value in a share of Citbank – or Wells Fargo – or Bank of America stock. The banks are BROKEN, peeps. Don’t get me started…

Katie Minkus, R(BIC)

March 16, 2010

The very sad truth of the matter is that I could point to at least 100 properties on the west side of the Big Island alone that could have sold short for $100-200k MORE than the bank eventually has settled for, or received at auction or after they foreclosed and the property hits the market as an REO. I’ve said it before and I’ll say it again – if I ran my business the way the banks have been running theirs I would be in JAIL. What’s even more amazing is the American public and worldwide investors seem to still believe there is value in a share of Citbank – or Wells Fargo – or Bank of America stock. The banks are BROKEN, peeps. Don’t get me started…

supratkshoes

April 27, 2011

Could I just say what a alleviation to search out anyone who actually knows exactly what they may be discussing on the web. You certainly realize how to bring a major issue to light and make it vital. More people should study this and understand it all side of the story. I cant believe you aren’t more popular because you clearly have the gift.

supratkshoes

April 27, 2011

Could I just say what a alleviation to search out anyone who actually knows exactly what they may be discussing on the web. You certainly realize how to bring a major issue to light and make it vital. More people should study this and understand it all side of the story. I cant believe you aren’t more popular because you clearly have the gift.

Kathy Awai, R(S)

September 15, 2011

Katie, you are so “spot on” regarding your comments and the banks. Regarding appraisal? I can’t believe what a mess that system as turned into. In the past year, I have personally experienced how “qualified” appraisers are now and how they come to their value of property. Who are these people? I have had such conflict with several appraisers. One tells me, she cannot discuss anything with me regarding the appraisal because I am not the client, the bank is and just one month ago, another appraiser was happy to discuss her appraisal with me. They have gone from one extreme to the other; don’t get me started. Between banks and appraisers, it’s quite a mess.

Kathy Awai, R(S)

September 15, 2011

Katie, you are so “spot on” regarding your comments and the banks. Regarding appraisal? I can’t believe what a mess that system as turned into. In the past year, I have personally experienced how “qualified” appraisers are now and how they come to their value of property. Who are these people? I have had such conflict with several appraisers. One tells me, she cannot discuss anything with me regarding the appraisal because I am not the client, the bank is and just one month ago, another appraiser was happy to discuss her appraisal with me. They have gone from one extreme to the other; don’t get me started. Between banks and appraisers, it’s quite a mess.

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