Short sales are a dime-a-dozen during these tough economic times, but they still an attractive option for both buyers and sellers. Buyers are still exploring the possibility of purchasing short sales with the hope of finding a good discount. On the flip side, sellers are hoping to receive a decent offer on their short sale in order to avoid the foreclosure process, which is more damaging to their credit. That being said, the short sale process isnt known for being a quick and smooth process.
If you are considering buying or selling a home via the short sale process, it is highly advisable that you consult a trusted Realtor who can provide you with specific information on the lifecycle of the short sale process and who you should consider consulting prior to moving forward with your decision.
In case you missed it, take a look at the following article written by Lily Leung from the Union Tribune. Its a bit lengthy, but worth the read as she walks readers through the short sale process and current market trends.
San Diegans take the short-sale gamble- They can be a way out for underwater borrowers - if everyone's on board
Short sales can be lifesavers for consumers who want to shed real estate and avoid foreclosure or are steals for house hunters, from first-timers to move-up buyers.Thats if everything goes right and everyones on board. Emphasis on "if."
Short sales -- transactions in which borrowers owe more on their mortgages than their homes are worth but the lender agrees to a discounted payoff -- made up 18.7 percent of San Diego Countys home resale market in June, up from 2 percent five years ago, says local real estate tracker DataQuick.
Even though short sales have become more common locally and throughout the state, the process of closing the deal from the buyers and sellers sides remains lengthy, uncertain and ever-changing -- qualities that could leave a cast of interested parties in a bind.
"Short sales are changing all the time," said Kurt Wannebo, a San Diego broker who has specialized in such transactions for more than six years. "The banks change their processes all the time ... and there are new laws and new short-sale government programs."
Short-sale insiders say one particular state law signed in July thats meant to further protect short sellers could actually make the process more lengthy, uncertain and costly for the seller.
What kind of homeowners sell short, and why?
A short sale is a transaction in which the homeowner owes more on the loan than the property is worth.
To sell the home, the lien holder (the party or parties who have claim on the property, such as a bank) must approve the sale, because the amount owed to them will be short of what is currently owed by the borrower.
The typical short seller is someone who cant afford their mortgage and wants to walk away because their once-sound investment no longer makes sense.
Take Sheila Brady, a 47-year-old flight attendant. She and her husband bought her condo in Rolando for $285,000 in 2004. That property, now in escrow, is being sold short at $120,000. On top of the lost value, Brady and her husband fell behind on their mortgage payments because surgery kept her out of work for 2½ months and hes been unemployed for two years.
Why did the couple short-sell over letting their home foreclose?
"You have such a strong moral obligation toward your mortgage," Brady said. "You sign a document saying, 'I will do this. "
Greg Ives, 33, bought his downtown San Diego condo at the Hard Rock Hotel as a rental investment for $405,000.
As the propertys value depreciated, so did the amount he was able to fairly charge tenants. After paying his mortgage, he was $1,000 in the red for several months.
Ives tried to secure a loan modification, but that effort failed, so he decided on a short sale as a last resort.
After five months of negotiation, the deal closed. Ives still owes the lien holder, in this case a small bank, $340 a month for the next 10 years since the property was considered commercial, he said. Still, he said a short sale was his best option. "Im grateful to be done with it," Ives said.
How do they work?
Executing a short sale requires timeliness and coordination from several people: seller and buyer, their real estate agents, loan servicer (sometimes they are banks) and short-sale negotiator.
Heres roughly how it works, although there are variations:
Homeowners consult with agents who have experience with short sales. Agents at times refer the home sellers to a real estate attorney or tax adviser to evaluate the possible implications of a short sale on their financial records.
The home gets listed, and as offers come in, sellers gather documents to prove to loan servicers they are under financial hardship.
"Theyre looking for financial data," said Vikki Kuick, a short-sale specialist at Laturno Kuick Realty in San Diego. "There has to be a hardship. You cant just be in an upside-down house." If the paperwork looks OK, then the servicer sends someone to appraise the home.
Once a number is settled on, negotiation between the sellers agent and the short-sale negotiator starts to settle the outstanding loan balance. This can get complicated if there are junior lien holders or secondary loans. Those are common since many homeowners tapped into their equity during the housing boom.
At this point, the amount of time it will take to close the short sale is uncertain. In all, the process could take three to four months or as long as a year, if theres little or poor communication and lost documents.
Why are short sales so attractive?
Sellers prefer short sales over foreclosures because they typically have less impact on credit scores.
Derrick Evens, who specializes in credit issues in San Diego, says short sellers can lose as little as 20 to 30 points or as much as 150 points off their scores, depending on how behind they are on their mortgage payments and other items on their reports.
The hit is instant, but "it will recover as times goes on," said Evens, who goes by Mr. Credit on his weekday personal finance show "The Lunch Hour" on 1700 AM ESPN.How long the short sale will stay on record also depends on mortgage-payment history but is usually shorter than that of a foreclosure, which can stay on a credit report for as long as seven years.
Buyers tend to like short sales because they can snag good deals.That was the case for Paul and Beth Batcher, who wanted to upgrade from their 1,000-square-foot home in Point Loma to accommodate two toddlers.
After scouring for the right place since October, the couple moved into a San Marcos short-sale property in July. They bought the property for $300,000 below the previous owners purchase price, said Beth Batcher, a registered nurse.
"We got so much more house for a little bit of money we put on it," she said. "We got yard size, square footage, amenities and a good school district."The downside to a short sale, she said, was the wait.
"Be patient," Batcher advised others who are thinking about buying a short-sale property.
How is the short-sale process changing?
As people continue to buy and sell short, the rules and laws that dictate those processes continue to change.
A recent example was the signing of Senate Bill 458, which says if a bank servicing a junior loan accepts a reduced offer in a short sale and then discovers an outstanding loan on the property, the bank cannot go after the seller for money owed once the deals closed.
That law, which went into effect July 15, builds on a previous law, SB 931, which covered only servicers of first liens.
Short-sale specialists say the new law has great intentions but could have bad consequences for sellers and agents.
Banks, which follow their own in-house rules, likely will ask for more money up front since they cant pursue deficiencies after the fact.
Whereas a second lien holder wouldve been happy with $3,000 to $5,000 to "release" the borrower from the lien, theyll now likely ask for $20,000 to $50,000 up front, said Wannebo, whose focus is San Diego short sales.
Given that scenario, "the first lien holder may not pay that money, and that could lead to a foreclosure," he said.
Since the law has passed, Wannebo and other agents have seen banks revise their release of lien amounts in letters to larger figures. In one case, the number was bumped from $12,000 to $30,000.
"Right now, its hurting more than its helping," said Jacalyn Blank, a San Diego short-sale negotiator. "With anything, once the kinks get worked out, it will be good protection for the seller."
See the full article at: http://www.signonsandiego.com/news/2011/aug/04/san-diegans-take-short-sale-gamble/
For more information related to short sales or specific information on your neighborhood, contact us today for a complimentary market analysis. Stay connected with us on www.LakeHodgestoLakePowayHomes.com for more articles and real estate news.
August 09, 2011 03:24:39
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