Wednesday, October 31, 2007

We heard a lot about short sales and foreclosures, but nothing lately … what’s up?

Just a few months ago, the phrase “short sale” was on every real estate practitioner’s lips. It was the ready answer to the plethora of over-encumbered properties and was the key to making Buyers and Sellers happy at the same time. Every agent talked about it, and the Lenders even started opening up to the concept. So what happened?

There are several contributing factors that changed the short sale miracle into a problem. In a reasonable short sale situation, the Seller agrees to sell to a Buyer at a fair market value, which is below the amount of the existing loan. The Lender, instead of going to the great expense, risk, and liability of taking the property back by foreclosing, agrees to take less, and the sale proceeds.

What is hampering the short sale process today is that many of the “creative” loans that were put in place a couple of years ago involved a Second Deed of Trust. The Second is just that, Second … behind the First. When the value of the home is less that the amount of the First, the Second is wiped out in a foreclosure. They are also wiped out in such a short sale. Many are trying to negotiate something with the holder of the First so they get something by cooperating, but absent that, there is no incentive for them to cooperate … and most don’t.

Another detrimental factor of short sales is the time and mechanics involved. Most Lenders will not look at the application unless the borrower is behind in payments presenting a dilemma for owners current with their payment. Once you miss a payment, you have about four months before your home is foreclosed on. This situation forces the owner to miss payments and then watch the time go by to their deadline. It is frustrating as the Lenders want everything to be via FAX and email. There is no phone communication… paperwork gets lost… time goes by… and nothing is certain. Buyers don’t like waiting with so much uncertainty about the outcome.

Our Advice: Buyers were initially excited about short sales because it was a way to get a home in good condition at a good price. There wasn’t the risk associated with buying foreclosure properties in which case you can’t see the interior when you buy it. Most foreclosures these days are going back to the bank as the loan is higher than the value and a short sale couldn’t be worked out. You can buy bank owned properties at or below market after they get them back and evaluate what they have, but it is rare these days to get a good deal on the courthouse steps. Short sale sellers – get a good short sale agent and make a run at it, and look to your options. Buyers – do not discount short sales on principle these days, rather look at the circumstances of the individual property, the loan, and the agent involved. You can make a good deal with good business practices. Foreclosures and short sales … a game of patience.

This market requires hard work and short sales require extraordinary hard work. Be realistic… be fair, and all will benefit. Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, , 775-781-5472.

1 comment:

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