Short sales
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."
Categories: Mortgages, The foreclosure mess
Sign up for the At Home newsletter 
Comments
A short sale is the best option to keep you from throwing good money after bad. The credit rating baseline will change in a few years after all the bankruptices, foreclosures, etc, because the financial institutions will need to make that money available to re-capture the fees they are losing right now. With the new credit card laws limiting what they can/can't do, they will have no choice.
Real appreciation can only come about when there is a shortage of a product. With all the houses being built it had to be something else, which was a credit/monetary bubble.
Posted by: Mr Raven | October 12, 2009 9:21 AM
We had a short sale contract for about three months before the bank came back wanting 60K more than our offer-- the exact same price the distressed seller had paid in 2006. We walked away.
That was in late July, and the house is now off the market, I assume going through foreclosure. We have another contract now that has been inspected and appraised and looks good for our closing at the beginning of November, but when we were looking for other houses, we refused to look at any other short sales. What a pain.
Posted by: sarah | October 12, 2009 10:21 AM
We were lucky enough to complete our short sale last year and it took us nearly six months. At that time there weren't many experienced short sale realtors and finding one took a lot of effort. We didn't know what to expect and had to rely soley on our broker and our instincts.
Our short sale prompted my wife to write and sell an e-book, www.myshortsalesuccess.com. Having this information prior to our short sale would have really helped us to better understand the process and pitfalls. However, for us the short sale was our best option to foreclosure. It was absolutely worth the effort.
Posted by: Ken | October 12, 2009 12:57 PM
Here's a question to ya'll - what prompted your move forcing the sale? Was it a job change? Loss of a job? Downsizing? Upgrading?
I got a friend who is being transferred to another state and has to sell but is upside down. Bought a place for $190 and now is probably worth $110 at best.
Are these rules different from state to state?
Jamie - any thoughts?
Posted by: kevin | October 12, 2009 3:44 PM
Hi, kevin -- I get the sense that it mainly varies by lender rather than state. But it's quite possible that state foreclosure laws (which also vary) could affect a lender's decision about whether to accept a short-sale deal.
Anyone out there have insight on this subject?
Posted by: Jamie Smith Hopkins | October 12, 2009 3:48 PM
Short sales are here for the short term. However, not all real estate agents and banks are on the same page. I say this for several reasons:
1. Agents need to know what type of loan they are dealing with in the transaction. Most agents do not even know that lenders have minimum thresholds when reviewing short sale offers. In general, FHA and VA loans need to net 88% of current market value and you must submit a HUD form 90045 with your package. Conventional loan have a little more flex, where you need to net 85% of current market value.
2. Agents should have the seller package and letter of authorization submitted prior to listing the property. Over 91% of the Suntrust short sale packages submitted to the lender over the last quarter were incomplete or did not meet the banks criteria (numbers provided to us by SunTrust Loss Mitigation Department). What stack was your offer in the short or tall stack?
3. Banks only want to see the offer with the highest net and best terms. Part of an experienced agents job is to review the contract in hand and advise the sellers as to how to proceed with an offer (should we, submit or reject the offer?). When homes are listed for unrealistically low prices, agent will typically get multiple offers and should not simply sign and send every offer to the bank. They need to use this opportunity to counter the offers in hand and increase their chances of meeting the above thresholds.
4. Finally, agents need to be able to identify whether the seller has multiple mortgages and if the second mortgage is over 8% of the properties market value. If so, you will want to focus your efforts on obtaining a short on the junior lein first prior to dealing with the senior lein holder.
Sorry for the rant but this has been one of on my mind for a long time and felt that I had to share it with everyone.
Posted by: Homes in Baltimore | October 12, 2009 6:00 PM
Just a sad/weird anecdote:
The home in Mt. Airy where the murder-suicide occurred a few weeks ago was a bank-approved short sale that was about two weeks from closing. It had been waiting months for approval from their lender.
Posted by: Peter | October 13, 2009 1:56 AM