 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
Pre-Foreclosure Short Sales
What is a Short Sale?
A short sale is when a bank or mortgage lender agrees to discount a loan balance due to
an economic or financial hardship on the part of the mortgagor. This negotiation is all done
through communication with a bank's Loss mitigation department. The home owner/debtor
sells the mortgaged property for less than the outstanding balance of the loan, and turns
over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances,
the lender would have the right to approve or disapprove of a proposed sale.
Extenuating circumstances influence whether or not banks will discount a loan balance.
These circumstances are usually related to the current real estate market climate and the
individual borrower's financial situation.
A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to
allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.
For the home owner, the advantages include avoidance of having a foreclosure on their
credit history and the partial control of the monetary deficiency. Additionally, a short sale is
typically faster and less expensive than a foreclosure. In short, a short sale is nothing more
than negotiating with lien holders a payoff for less than what they are owed, or rather a sale
of a debt, generally on a piece of real estate, short of the full debt amount. If you are a
Seller, and you want to negotiate a short payoff, you will need to provide this
documentation.
Negotiations
Lenders have a department (typically called a loss mitigation department) that processes
potential short sale transactions. Typically, lenders do not accept short sale offers or
requests for short sales until a Notice of Default has been issued or recorded with the
locality where the property is located.
Lenders have a varying tolerance for short sales and mitigated losses. The majority of
lenders have a pre-determined criteria for such transactions. Other distressed lenders may
allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very
common in short sales, similar to real estate owned (REO) and HUD properties, requiring
potentially multiple levels of approvals and conditions. Junior liens - such as second
mortgages, HELOC lenders, and HOA (special assessment liens) - may need to approve of
the short sale. Frequent objectors to short sales include tax lieners (income, estate or
corporate franchise tax - as opposed to real property taxes, which have priority even when
unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the
short sale.
Ever popular short-sellers market experiencing growing
pains. Reprint from Tampa Bay Business Journal - by Michael Hinman. Staff Writer
February 29, 2008
Five months ago, many real estate practitioners didn't know what a short sale was.
Now, with 12 percent of all residential listings in the Tampa Bay area now representing
sellers trying to avoid foreclosure by marketing their home for less than they owe, some
analysts are blaming some uneducated listings as one of the primary culprits for the drop in
listing values.
"They are trying to execute a scenario that is absolutely impossible," said Peter K. Murphy,
CEO of Home Encounter LLC in Tampa, which is tracking short sales in the current housing
market. "They want to throw a short sale on the market, hoping the bank will drop a price,
and they'll be able to sell. But that's just not happening."
Guessing a lender's interest
With foreclosures up more than 157 percent in Florida over the last year, according to
RealtyTrac, lenders are becoming more attracted to selling homes facing foreclosure at
costs lower than what was originally lent but higher than they likely would receive in a
foreclosure auction.
"When you see a lot these short sales listings, they have these low prices attached to it that
the banks may never accept anyway," said Fudge, a broker/associate with Johanson &
Associates Inc. "The prices they come in with are so artificially low, and if I'm selling my
house and I see other homes in the neighborhood that are priced lower because they are
short sales, that is going to affect the way a buyer looks at what I'm trying to sell."
Dragging their feet
Another hindrance in short sales situations is the amount of time lenders are taking to make
a decision. It's something that typically can drag on for at least six weeks, sometimes more,
said Debbie Davis, a Realtor with Keller Williams-Kelly Realty in Dade City.
"I'm finding a lot of [real estate practitioners] leery of even showing them, there is just so
much red tape," Davis said. "I'm beginning to feel like it's becoming a big hassle, as the
lenders want to assign it to a loss mitigation officer until you have an offer in hand, which
means you can be speaking with someone different every single time who likely has no clue
what you're talking about."
Lenders, however, are struggling to get their loss mitigation offices staffed as quickly as
possible, and that can contribute to slower response times, said Ritch Workman, president
of the Florida Association of Mortgage Brokers, and a co-owner of Workman Mortgage on
the Space Coast.
"Banks are shifting more and more people over to loss mitigation, and they are simply
understaffed for the kind of influx of requests they're getting," Workman said. "Also, every
short sale is underwritten by the bank, so they have to make sure there's honesty in the
transaction, that it's not an arms-length transaction and whether or not a foreclosure would
protect its shareholders more than a short sale."
Short sales so far aren't providing too much of a positive influence to the housing market,
said Home Encounter's Murphy.
"Only 2 percent of all short sales attempted year-to-date have been successful," Murphy
said. "Short sales themselves are a great solution for certain types of problems
homeowners are facing, but they have to be handled properly, or it will turn into nothing
more than a giant mess."
Pitfalls are many
Many of the problems real estate brokers face in the short sale market come primarily from
a lack of understanding on how the rather complicated process works.
Many of the initial problems facing short sales can be mitigated right from the start, said
Ritch Workman, president of the Florida Association of Mortgage Brokers.
"You need to get with the bank first because they need to be aware of what you're planning
to do," Workman said. "If the bank says, 'No, we like that house,' then there won't be a short
sale accepted. The Realtor needs to know all of that, and they need to make sure they are
aware of all the paperwork the bank is going to require."
That includes making sure that every last sheet of paper the lender asks for is provided,
Workman said. Shorting a bank on even something considered trivial could add weeks to a
short sale process, which could force a home into foreclosure before a sale can be finalized.
And don't hedge an entire portfolio on short sales. Banks will continue to entertain short
sales as long as property values continue to fall, Workman said. Once they start inching
back up, short sales will disappear as quickly as they hit the market late last year.
For better deals than Short Sales, read my R.E.O's page and subscribe to my R.E.O. Hotlist
What is a Short Sale?
A short sale is when a bank or mortgage lender agrees to discount a loan balance due to
an economic or financial hardship on the part of the mortgagor. This negotiation is all done
through communication with a bank's Loss mitigation department. The home owner/debtor
sells the mortgaged property for less than the outstanding balance of the loan, and turns
over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances,
the lender would have the right to approve or disapprove of a proposed sale.
Extenuating circumstances influence whether or not banks will discount a loan balance.
These circumstances are usually related to the current real estate market climate and the
individual borrower's financial situation.
A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to
allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.
For the home owner, the advantages include avoidance of having a foreclosure on their
credit history and the partial control of the monetary deficiency. Additionally, a short sale is
typically faster and less expensive than a foreclosure. In short, a short sale is nothing more
than negotiating with lien holders a payoff for less than what they are owed, or rather a sale
of a debt, generally on a piece of real estate, short of the full debt amount. If you are a
Seller, and you want to negotiate a short payoff, you will need to provide this
documentation.
Negotiations
Lenders have a department (typically called a loss mitigation department) that processes
potential short sale transactions. Typically, lenders do not accept short sale offers or
requests for short sales until a Notice of Default has been issued or recorded with the
locality where the property is located.
Lenders have a varying tolerance for short sales and mitigated losses. The majority of
lenders have a pre-determined criteria for such transactions. Other distressed lenders may
allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very
common in short sales, similar to real estate owned (REO) and HUD properties, requiring
potentially multiple levels of approvals and conditions. Junior liens - such as second
mortgages, HELOC lenders, and HOA (special assessment liens) - may need to approve of
the short sale. Frequent objectors to short sales include tax lieners (income, estate or
corporate franchise tax - as opposed to real property taxes, which have priority even when
unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the
short sale.
Ever popular short-sellers market experiencing growing
pains. Reprint from Tampa Bay Business Journal - by Michael Hinman. Staff Writer
February 29, 2008
Five months ago, many real estate practitioners didn't know what a short sale was.
Now, with 12 percent of all residential listings in the Tampa Bay area now representing
sellers trying to avoid foreclosure by marketing their home for less than they owe, some
analysts are blaming some uneducated listings as one of the primary culprits for the drop in
listing values.
"They are trying to execute a scenario that is absolutely impossible," said Peter K. Murphy,
CEO of Home Encounter LLC in Tampa, which is tracking short sales in the current housing
market. "They want to throw a short sale on the market, hoping the bank will drop a price,
and they'll be able to sell. But that's just not happening."
Guessing a lender's interest
With foreclosures up more than 157 percent in Florida over the last year, according to
RealtyTrac, lenders are becoming more attracted to selling homes facing foreclosure at
costs lower than what was originally lent but higher than they likely would receive in a
foreclosure auction.
"When you see a lot these short sales listings, they have these low prices attached to it that
the banks may never accept anyway," said Fudge, a broker/associate with Johanson &
Associates Inc. "The prices they come in with are so artificially low, and if I'm selling my
house and I see other homes in the neighborhood that are priced lower because they are
short sales, that is going to affect the way a buyer looks at what I'm trying to sell."
Dragging their feet
Another hindrance in short sales situations is the amount of time lenders are taking to make
a decision. It's something that typically can drag on for at least six weeks, sometimes more,
said Debbie Davis, a Realtor with Keller Williams-Kelly Realty in Dade City.
"I'm finding a lot of [real estate practitioners] leery of even showing them, there is just so
much red tape," Davis said. "I'm beginning to feel like it's becoming a big hassle, as the
lenders want to assign it to a loss mitigation officer until you have an offer in hand, which
means you can be speaking with someone different every single time who likely has no clue
what you're talking about."
Lenders, however, are struggling to get their loss mitigation offices staffed as quickly as
possible, and that can contribute to slower response times, said Ritch Workman, president
of the Florida Association of Mortgage Brokers, and a co-owner of Workman Mortgage on
the Space Coast.
"Banks are shifting more and more people over to loss mitigation, and they are simply
understaffed for the kind of influx of requests they're getting," Workman said. "Also, every
short sale is underwritten by the bank, so they have to make sure there's honesty in the
transaction, that it's not an arms-length transaction and whether or not a foreclosure would
protect its shareholders more than a short sale."
Short sales so far aren't providing too much of a positive influence to the housing market,
said Home Encounter's Murphy.
"Only 2 percent of all short sales attempted year-to-date have been successful," Murphy
said. "Short sales themselves are a great solution for certain types of problems
homeowners are facing, but they have to be handled properly, or it will turn into nothing
more than a giant mess."
Pitfalls are many
Many of the problems real estate brokers face in the short sale market come primarily from
a lack of understanding on how the rather complicated process works.
Many of the initial problems facing short sales can be mitigated right from the start, said
Ritch Workman, president of the Florida Association of Mortgage Brokers.
"You need to get with the bank first because they need to be aware of what you're planning
to do," Workman said. "If the bank says, 'No, we like that house,' then there won't be a short
sale accepted. The Realtor needs to know all of that, and they need to make sure they are
aware of all the paperwork the bank is going to require."
That includes making sure that every last sheet of paper the lender asks for is provided,
Workman said. Shorting a bank on even something considered trivial could add weeks to a
short sale process, which could force a home into foreclosure before a sale can be finalized.
And don't hedge an entire portfolio on short sales. Banks will continue to entertain short
sales as long as property values continue to fall, Workman said. Once they start inching
back up, short sales will disappear as quickly as they hit the market late last year.
For better deals than Short Sales, read my R.E.O's page and subscribe to my R.E.O. Hotlist
| Alex Baglioni & Team RE/MAX Partners Toll Free: 866-YOU-SOLD Ph: 954-229-0610 Fax: 800-743-1023 Offices in Fort Lauderdale, Las Olas, LightHouse Point, Plantation Pembroke Pines and Coral Springs. |
 |  |  |  |  |
