Tuesday, April 27, 2010
by Broderick Perkins
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Deadline Newsroom - Short sales can be a tall order, but as their numbers increase, better trained professionals working the deal are getting wise to what's needed to make them a success -- in short order.
More competent short sale professionals are also helping bust some of the myths that have surrounded the lesser-used foreclosure alternative, according to Woodland Hills, CA-based Panorex Realty affiliate I Short Sale, Inc.. As it's name implies, I Short Sale, Inc. is a real estate brokerage specializing in short sale transactions.
"If done right, the short sale is a winning proposition for all, including the lender because the costs involved are certainly lower than that of foreclosing," said Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.
A short sale occurs when the bank allows the sale of a home for less than the existing mortgage balance, typically provided there's a qualified buyer in the wings. Such homes are often held by home owners struggling with "underwater" mortgages -- mortgages with balances larger than the value of the home.
First American Core Logic says more than 11.3 million home owners are underwater on their mortgages.
Mortgage modifications and federally sponsored refinancing programs, to date, have been the go-to tools to help struggling home owners.
All are strategies to avoid foreclosure, but banks have been more likely to refi, modify or foreclose, rather than taking the short sell route.
That's because short sale bids can come in well below the last appraisal and banks don't want to take a loss. After sellers seal the deal, they can be left with a bill that's the difference between the selling price and the mortgage balance. Real estate agents and buyers fear a six month or longer transaction period that could end in a no-sale scenario that comes with the cost of lost time.
"A major reason why a short sale fails is the length of time it takes to get the lender’s approval. Long delays frequently cause the buyer to drop out of escrow and buy another home," said Zdenka Mahan, a short-sale experienced Intero Real Estate agent from Saratoga, CA.
However, as their numbers have grown, more attention is making the deals easier to close.
First American Core Logic's first monthly Distressed Sales Report released in April, reveals January's
short sales nationwide were 8 percent of all resale home sales, up from 7 percent in December and 5 percent a year ago.
Their numbers are much higher in areas hit hardest by the housing bust and account for 20 percent of resale home sales in San Diego (the nation's highest), 19 percent in Sacramento, and 15 percent or more in Oakland, CA Washington D.C. and Tampa, FL, according to First American.
Effective April 5, the Obama Administration rolled out Making Home Affordable's Home Affordable Foreclosure Alternatives (HAFA) streamlined short sale effort to give qualifying home owners up to $3,000 to defray the cost of moving. Servicers can also get $1,500 each for short sale deals that pencil.
With short sales getting more federal support and greater know-how from professionals who work them, myths about short sales are flying out the window, according to I Short Sale, which is "setting the record straight on common short sale myths."
• You must be default on your mortgage to negotiate a short sale. Short sales are not a function of default status on a mortgage. They are the result of the bank mitigating a potential default situation that, in the long run, will cost more money to the investors. Defaulting is not a short sale requirement under the HAFA plan.
• Short sales are embarrassing. Home owners who "avoid" short sale "embarrassment" could face a foreclosure disaster and much greater heartache. Emoting through tough financial situations won't make the problem go away, says I Short Sale.
• Buyers aren't interested in short sale properties. Perhaps not as many as are interested in foreclosures, but the number of short sales is up, according to First American Core Logic. That's because short sale properties are often available at bargain prices compared to similar homes on the market and given the owner remains until the sale is closed, short sale properties may also be in better shape than abandoned foreclosures.
"Search for a buyer, especially those who have expressed an interest in buying short sale properties. The buyer must be willing to deal with extended deadlines and additional demands made by your lender," said Julie Larsen Wyss, a RealtyU graduate and holder of its new Certified Short-Sale Professional (CSP) designation.
• There's not enough time to negotiate a short sale before foreclosure. Federal mandates that come with paid incentives for lenders demand that lenders consider a short sale before moving to foreclosures, especially if a refinance or mortgage modification hasn't worked out. A good negotiator takes into account the timeline affiliated with a foreclosure. There is always a chance that a short sale can be negotiated. However, the only way to know for sure is to try.
"A real estate agent needs to put together the most comprehensive short sale proposal possible to minimize the back-and-forth delays," said Mahan.
• The bank would rather foreclose than complete a short sale. The bank would rather have the full mortgage paid on time. If a lender can strike a better deal with a short sale than a foreclosure, they'll go for the short sale when possible. It costs the bank money and liability risk to carry foreclosed homes. The sooner a home is off the books for the most amount of money, the better. Wherever possible, banks are seeking other loss mitigation options before foreclosure.
• Short sales are impossible and never get approved. Short sales can be complicated, but again, according to First American, short sales are increasing.
"We negotiate short sale approvals every day," reports I Short Sale.
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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.
Perkins was the first Examiner to cover three beats for the Examiner.com news service:
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• National Real Estate Examiner
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