Who's in charge here?

I've been privileged to be the listing agent on a home that is in short sale. It's not something I went looking for, it fell in my lap because of the good reputation I had in the days when I was a real estate broker for a living. The lesson here is: It pays to maintain that license -- you never know when it will come in handy.

The home is in good condition, well-maintained, but it was built in the 1930s, when building codes weren't what they are today. That means that the foundation is considered inadequate, though it held up fine during the 1989 earthquake, the sewer lines are too small by today's standards, etc.

We had an agreement for a purchase price that satisfied both the first and second lenders. The first lender was getting almost all their money back, and under CA law, can't get a deficiency judgment on a purchase money first mortgage. They agreed to this amount because the offer was about the same as the value put on the house by the bank's appraiser. The second lender was getting pennies on the dollar at close, because the first lender knows they won't settle without some payment. Although the second mortgage holder can get a deficiency judgment against the (former) homeowner under CA law, apparently it's common to settle these after the sale, for a few more pennies on the dollar. (I really have to wonder about the financial strength of the banks here, and the efficacy of the stress tests -- I suspect that these junior liens are being carried on the books at a lot more than 10 cents on the dollar.)

It's common for a buyer to try to renegotiate a bit after inspections, when the termite, contractor's and other inspections put a price on the repairs to be done. And usually, you can finesse a few thousand dollars, by everyone kicking in some -- seller, both agents, and the buyer compromising their request. But holy carp! The buyer is asking for a price reduction so big that it wipes out the pennies on the dollar for the second (which they would never agree to in any case), both agents and a huge chunk of the first mortgage. I really don't know if this is posturing, or if the buyer doesn't really want the house, but figures, hey, if I can get it for that much less than the appraised value, hell, then it's worth it.

Here's the weird part: the owner/seller of the house is not in a position to decide what happens, what counteroffer is made. The first lender is. So who really owns the house? Who's in charge here? And in fact, since the seller realizes that the amount that the house sells for won't change his situation one iota, he's pretty neutral. The homeowner here has effectively become the agent of the bank. How weird is that? There used to be an old joke, something people would say when they bought a house with a mortgage, which was that the bank owned the house. In a short sale, it's pretty much true. The seller owns the house in name only, and the banks make all the decisions.

That brings me to the bigger questions. What happens when someone has no equity? And what is equity, anyway? I think that here, equity doesn't just mean housing equity, it means a stake in the economy, a stake in our society.

One can definitely have a stake in society without a financial stake -- that's called community, or emotional connection. But so much of what used to be supplied by community has been replaced by market forces (think restaurants instead of home-cooked food, cleaning services instead of the family cleaning the house, car detailing instead of Dad washing the car, child care centers instead of Mom or Grandma or a neighbor watching the kids), that non-financial equity has declined substantially, over at least the last 30 years, replaced by financial equity -- money, in one form or other.

So as our financial equity declines, we have to/are substituting community again. That substitution, though, has consequences for the economy. As more people are out of work, they are substituting community for things they used to pay for. That puts more people out of work. So the monetary economy declines, while the non-monetary community grows stronger and larger.

But what happens to someone who has no financial equity, and no community ties? Do they become violent, because they're angry, and don't care what happens to them? Do they become depressed and suicidal? And as a society, what do we do about that?