In September 2009, my landlord called to say he was putting the townhome that I have lived in for the past five years on the market. I haven't started packing yet, and according to most experts, there is no rush.
My landlord needs to sell this property as a short sale. That means his mortgage is greater than the amount he hopes to have after the sale. Another way of looking at it: Whatever someone offers for this property will be less than the amount owed to the mortgage company.
In the past, short sales were not very common. They were often tried as a last-ditch effort to avoid a foreclosure, but they were time-consuming. The Consumerist has a post entitled, "What It's Like To Buy A Short Sale House,(Hell, With Benefits)." If you are considering buying a short sale, this is a must-read, and with over 60 comments, the general feeling is that buying a home on a short sale takes a strong constitution. Here is what one of the commenters shared.
May 3, 2010 5:49 PM
I bought a short sale home last year. It took 8 months from my offer to closing. The biggest hold up was with Bank Of America (surprise, surprise). They were the mortgage holder on the short sale house and paperwork kept getting lost, misfiled, misdirected, etc. The worst part of the whole experience was when 3 1/2 months after closing, we got served foreclosure papers on the house by guess who, BOA! They didn't even have a stake in the house anymore, but they went and hired a law firm to start foreclosure on our property! That took about 3 weeks to straighten out. Thank goodness for a title company that dots every i and crosses every t! Again, it appeared to be some mix up on BOA's part. However in the end, we did get an amazing deal. The BOA mortgage balance was $280k and we closed for $199k and the sellers did not have any out of pocket cost. If you have the time to wait, and you find the perfect house, go for it...otherwise, save some time and headache by not going the short sale route.
The U.S. Treasury has just launched a program that it hopes will eliminate much of the frustration of the short sale process. Known as HAFA, Home Affordable Foreclosure Alternatives, the program has the support of the National Association of Realtors. HAFA is designed to streamline the entire short sale process.
HAFA encourages short sales chiefly by:
- holding parties to deadlines for various parts of the process
- providing financial incentives, including $3,000 to help the homeowner relocate; $1,500 for servicers to cover their extra costs; and as much as $2,000 for mortgage security investors who allow as much as $6,000 of sale proceeds to go to other lien holders;
- allowing the current mortgage holders to get pre-approved short-sale terms before listing the property for sale
- requiring that homeowners be fully released from future liability for the first mortgage debt
It's too soon to tell whether or not the new program, which launched in early April, will mean short sales will become less burdensome. Clearly, there are many homeowners who want to be able to sell their homes in a short sale. In Nevada, which is described as ground zero for the housing crisis, about 50 percent of the homes on MLS are short sales.
If the complicated sales process is not enough to cause buyers to opt for other properties, until very recently, realtors aggressively encouraged their clients to avoid buying a short sale like the plague. As Christopher Haas, the realtor handling the townhome I rent, explains,
"Realtors don't like them because they are ten times more work than a regular sale and you end up getting less money. Short sales represent a significant pay cut for realtors."
Nevertheless, Haas believes short sales are the new norm. And he, like many realtors, is now getting trained and certified in handling short sales. While short sales may be a welcome option to the homeowner who needs to sell, they may not be welcome news to the other homeowners in the neighborhood who see short sales as eating into their property value.
Short sales DO impact the value of homes in the surrounding neighborhood since appraisers must use recent sale criteria of similar properties for a portion of the basis for appraising property values of homes for sale in the area. Most foreclosed, short saled and abandoned homes are not maintained so they all detract from the community and depress market values even further.
Meanwhile, housing prices continue to decline and the folks who follow these trends expect the downward spiral to continue for some time. According to the Federal Housing Finance Agency (FHFA), housing prices have dropped more than 13 percent since April 2007.
The HAFA program to make short sales easier has now been in effect for about one month. So far, no one is saying that it has transformed short sales, and many say the program will not make a huge difference, because there are no enforcement guidelines if banks and realtors miss the deadlines. More importantly, the critics of HAFA cite that it is an extension of the loan modification HAMP program, which was supposed to provide mortgage relief to four million homeowners. As of January, only about 100,000 homeowners qualified for a mortgage modification under that program.
BlogHer Contributing Editor: Business & Career
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