The Myth of “Win-Win”

I’m sure that you have seen the news reports out of Ohio a while back. First one, then a second Federal Judge dismissed foreclosure proceedings because the lenders “failed to prove that they owned the properties they were trying to seize”.

That’s a complicated way of saying that the paperwork is screwed up. (If you’ve ever worked at a big company, you know that this is the rule not the exception.)

More importantly though, neither judge passed any judgment whatsoever on the validity of the actual facts in the case – that the homeowners had defaulted on their payments and were therefore in material breach of their promissory notes and therefore subject to losing their homes. So basically these homeowners got off on a technicality.

But not just a technicality. A technicality that is totally, completely, and 100% irrelevant to the case.

A technicality that is tantamount to a murder suspect caught red-handed getting off because the coroner spelled the dead guy’s name wrong on the death certificate.

That irrelevant.

And as usual, the self-proclaimed “Victims Rights Groups” are having a field day with this, and you can imagine the fervor that this has spawned in the office of every ambulance chasing trial attorney in the nation. But contrary to the claims of all the spammy marketing that my colleagues are directing at these borrowers, it IS their fault, they ARE responsible, and they SHOULD face the consequences of their actions. And these borrowers should stop considering themselves “victims”.

What’s interesting, though, is the implication that this might have for the real estate investor, at least in the short-term, because I’m betting that this gets overturned on appeal in pretty short order.

When I first read about this I made a mental note to revisit it and think about how it might be used in my investing activities, and in particular in my short sale negotiations. I hadn’t had a chance to do that when I visited a real estate discussion forum that I frequent on a regular basis. (Hmmm. That sounds redundant.)

I saw a very interesting post on exactly this topic – leveraging this situation in Ohio in short sale negotiations. The post was long, considered, and very well written by an experienced investor. It also hit the nail on the head in describing how you might add this to your negotiating repertoire. As with most forums, 98% of the posts in this forum are from people that have never done anything giving advice to others that aren’t going to do anything. So it’s mostly harmless drivel. But this post was a brilliant analysis of the situation and an equally brilliant discussion on how you would implement it today, and in no way suggested coaching the homeowner to use this as a way to delay the foreclosure.

Bravo I said.

But I was shocked when I visited the forum later that same day. There were now a number of posters that had come out strongly against using this tactic in any way. One in particular caught my eye (and my ire).

This clown climbed up on his moral high horse and started lecturing everyone about how “wrong” it was to use tactic because it was “unethical” to help someone avoid foreclosure due to a technicality. Which of course it would be. But he was on a roll, and therefore, in several pontificating posts, he conveniently kept overlooking the fact that the original poster had specifically stated that this was merely a short sale negotiating tactic and not something that you would even talk to the homeowner about.

But in all of his moral superiority he wrote one thing that made me laugh out loud.

He said that in his business “everyone wins”.

And not only that, but he also said that in a short-sale, you’re trying to make the best deal for both the homeowner and the bank. He even went on to say that if it’s not a win for the bank then it wouldn’t be a win for him.

Huh??? Perhaps I’m missing something here, but I always try to make the best deal for ME. In a short sale the homeowner is irrelevant and the bank is an adversary.

But more to the point – since when has real estate – or LIFE – ever been a “Win-Win” situation?

I know that the namby-pamby, never-got-picked-for-kickball-in-the-third-grade crowd loves to believe that business is all about kumbaya hugs and everybody succeeding, but that’s just not the way it is in real life.

The answer, as hard as it may be to swallow, is that neither business, nor life, ever has been, nor will it ever be “Win-Win”.

And the reason is plain and simple – because real estate, and life, are both zero-sum games. What that means in simple terms is that if you and I participate in a transaction as buyer and seller, you can’t make a dollar unless I lose one. And I can’t make a dollar unless you lose one. It’s that simple. Somebody wins. Somebody loses. That’s capitalism.

That’s life.

When you think about it, it is pretty harsh, isn’t it? Cold reality usually is. And unfortunately I think that’s why most of us now choose the college route rather than the entrepreneur route, because going to college and getting a job lets us appear to be “successful” while we hide from the bare-knuckle competition that is the marketplace.

On one hand that’s a shame. On the other, it leaves the playing field wide open for those willing to take a risk.