By now you probably all know what a short sale is: a deal in which the lender allows a home to change hands for less than the balance on the mortgage, forgiving most or all of the difference.
For months, agents have said there are far more would-be short sales than closed deals. The lenders reject the offers, or they take so long to consider that buyers give up and move on. So I was curious to hear what Olivia Surge, who negotiates short sales on behalf of homeowners at the Law Offices of G. Russell Donaldson in Crofton, is seeing now.
Compared with 2007, when nine months could go by before lenders would even look at an offer, "things have gotten much, much better," she said. "But we're still slow and go."
Lenders are typically taking 30 to 90 days to acknowledge that they have an application for a short sale, she said. "They're so inundated," she said.
I talked to Surge for Sunday's story about the growing number of homeowners selling for less than their purchase prices. I only had space for a few of her observations in the article, but I've got all the space in the world here. And I think you'll be interested in hearing more of what she had to say about what works, who's eligible, whether lenders are forgiving all the debt and how frequently these deals are popping up.
"The key," Surge said, "is following up with the lender."
It might take a while before a lender acknowledges receipt, but once they're looking at an application, sellers need to be ready to supply all requested information speedily. "If we miss a phone call to them, they could close the file," Surge said. "The volume of people in trouble is so high that they just don't have time."
The good news, she said, is that lenders are generally more efficient about short sales than they used to be. They've got systems in place, even if they're still trying to figure out what works best.
Another change: Lenders are less likely now to ask sellers to cover some of the difference between mortgage balance and sales price, at least for homeowners letting go of their principal residence. "The past five, six months, that's been the norm on a primary residence -- they're forgiving the remaining debt," Surge said.
In cases where the short sale is on a vacation home or investment property, though, the lender generally wants the owner to bring some cash to the table.
Short sales aren't an option for everyone under water on their loans. They're supposed to be hardship deals. You lost your job and can't pay the mortgage, for instance. But lenders are considering other life circumstances, too, Surge said.
"If you're in the military and you've received orders, they're very willing to work with you," she said. As for non-military, "They're willing to work with people when you've been relocated because the option was, 'Be relocated or be unemployed.'"
Surge warns homeowners that short sales won't be good for their credit scores. And she recommends that they talk to an accountant about tax implications. The federal government is temporarily not taxing homeowners on principal-residence mortgage debt forgiven by lenders, but you wouldn't want to find out you're ineligible after it's too late to reverse course.
Surge is one of three people in her office working full-time on short sales, and they're always at maximum capacity -- about 120 cases combined.
"We are certainly in a market where short sales are pretty much the norm," she said.
So common that first-time buyers -- who wouldn't normally opt for complex deals -- are trying to snap them up.
"Right now a lot of agents and buyers are very, very upset because they're not sure [the] buyers are going to be able to close in time to take advantage of the first-time buyer credit," Surge added. "They're like, 'Is there anything you can do to hurry up the process?' We're like, 'Other than calling them every single day?' And that's what we do. Some of these cases, we've been able to turn around to get approval within 45 days. Some -- I have one sitting here that I've been working on since February."