October 18, 2010

Dear Friends and Colleagues,

I was asked by a colleague how everything that is going on affects me. After all, the news is flooded with stories regarding the bank initiated foreclosure moratorium, the attorneys general in each of the 50 states launching foreclosure investigations, and today, the Obama administration inserting their opinion regarding the moratorium. Confidently, I replied, "There is no better time to be doing short sales."

Disclaimer One: In the time taken to write this opinion, something has changed. Disclaimer Two: Not all banks are doing the same thing, so keeping things straight may be confusing. Disclaimer Three: The Obama administration officially became involved as of this morning, see Disclaimer One.

In short, some banks have suspended foreclosures while they review their procedures and others are proceeding with foreclosures while doing process reviews. For example, Bank of America has suspended foreclosures in all 50 states and has stopped foreclosure sales until their assessment has been completed, while GMAC Mortgage, now a division of Ally Financial, has suspended evictions and foreclosures in the 23 states that call for a judge's approval and is reviewing foreclosure practices in the other states.

Additionally, PNC Financial Services and Litton Loan Services are reviewing their practices. JPMorgan Chase suspended foreclosures in the 23 judicial approval states and is reviewing its practices in a handful of the other states. Wells Fargo, Citigroup and U.S. Bancorp have not announced a suspension of foreclosures even though they are on the list of banks to be scrutinized by regulators and attorneys general.

Delays will be costly for banks and taxpayers, because banks and government-owned Freddie Mac and Fannie Mae must continue to pay maintenance and other expenses on foreclosed properties being held in inventory. Time is of the essence. According to Radar Logic, a New York based real estate research and analytics firm, there are currently 3.1 million homes in the federal government�s REO inventory or headed toward it.

This is a window of opportunity for you and me if I have ever seen one! It is my opinion, and the opinion of Rick Sharga, Senior Vice President at RealtyTrac, that short sales will not be negatively affected by this foreclosure mess. Short sales have and remain the better option for the distressed seller and for the bank. But now, at least for a time, short sale are the better option, and may be the only option, for the buyer.

It is not clear how long the moratorium will last or length of time needed for thorough investigations to be completed. Expert opinions range from three months to 12 months. It seems logical to believe the collective effort will be well underway by year�s end. We should not be concerned with the duration of

the moratorium, because short sales will be strong regardless. My concern is with what may be uncovered during the investigation that requires further attention. Can of worms, anyone?

In conclusion, this is not a "Get Out of Jail Free" card. Bank of America said, "We will stop foreclosure sales until our assessment has been satisfactorily completed." They did not say they would stop the process of due diligence and disclosure. Distressed sellers have bought some time, so to speak, but if they are not making mortgage payments, banks will preserve their assets to the best of their ability.

If you have questions or comments, feel free to contact me at my office at (801) 994-9620 or by email at charles@distressedpropertyconsultants.com .

Best regards,

Charles Cease