Real Estate Information Archive

Are Short Sales Anything but Short?

By Mary Shanklin Print Article

RISMEDIA, October 23, 2009—(MCT)—For buyers, short sales are a way to get a bargain. For upside-down homeowners, they are a way to avoid foreclosure. But for pretty much everyone involved, short sales are not a way to buy a house quickly. 

But short sales can be anything but short. Unless they work with highly skilled agents, buyers and sellers can get frustrated if the process is protracted, which may lead to the deals simply getting abandoned. 

Short sales—when houses sell for less than the mortgages owed on them—and foreclosures rise during tough housing markets. For example, they now account for more than half of the home sales in the Orlando area, according to the Orlando Regional Realtor Association. In the spectrum of home sales, the deals fall somewhere between a regular transaction and a foreclosure. Sellers faced with foreclosure may opt for a short sale because it does not mar their credit as much as if the bank took over the house. They typically contact a real estate agent and set a sales price, based on an appraisal. Once the property sells, the bank must approve the sales price. Getting banks to approve a sale for less than the mortgage amount is what takes time. The process can become so complicated, with different lenders setting different rules, that short sales take about a month longer than other home sales to complete, according to the association. 

Once a buyer signs a contract, foreclosure sales take five weeks to complete, traditional home sales take seven weeks and short sales take more than 10 weeks. And the time it takes to complete a short sale has only grown longer as the year has progressed, with the bank-approved transactions taking up to seven weeks at the moment. 

For sellers, the process can be a tortured farewell to a home that has lost its value. Wanda Gibbons’ 4,000-square-foot Florida home that she purchased at the peak of the market in July 2007 for more than $510,000 was just days from “going to the courthouse steps” to be sold at an auction when she contacted attorney Justin Clark to explore a short-sale option. 

She hired a real estate agent and got an appraisal that showed her five-bedroom pool home with the brick pavers was worth about half what she paid two years earlier. Once Gibbons had a contract on her house, Clark submitted to her lender a package that included everything from the appraisal and a hardship letter to a sales contract. And then the waiting began.

“The problem is, it depends on the bank, the people the bank has and how many mortgages they have,” the attorney said. “These banks, they’re so inundated.” 

Banks typically take 45 to 60 days to even acknowledge they got the paperwork and to assign a negotiator to work on the sale, Clark said. At that point, they get a broker’s price opinion on the value of the home and whether the sales price makes sense. If the sales price doesn’t measure up to the broker’s opinion, the lender may tell the seller the price should be higher. In some cases, Clark said, the buyer will agree to pay more, the seller may have to throw in a few thousand dollars or the real estate agent may agree to cut his commission. 

In Gibbons’ case, the process was somewhat easier because unlike many sellers going through the process of a short sale, she had no second mortgage. Some lenders refuse to share any of the sales proceeds with the bank that holds the second mortgage. In some cases, homeowners face getting their credit rating dinged for not paying the second mortgage. That becomes part of the negotiation, Clark added. At that point, the deals can fall apart. 

Foreclosure Activity Increases 5% in Third Quarter

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RISMEDIA, October 15, 2009—RealtyTrac, one of the leading online marketplaces for foreclosure properties, released its U.S. Foreclosure Market Report for Q3 2009, which shows that foreclosure filings—default notices, scheduled auctions and bank repossessions—were reported on 937,840 properties in the third quarter, a 5% increase from the previous quarter and an increase of nearly 23% from Q3 2008. One in every 136 U.S. housing units received a foreclosure filing during the quarter—the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005. 

Foreclosure filings were reported on 343,638 properties in September, a 4% decrease from the previous month but a 29% increase from September 2008. Despite the monthly decrease, September’s total was still the third highest monthly total since the RealtyTrac report began in January 2005, behind only July and August of this year. 

“Bank repossessions, or REOs, jumped 21% from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,” said James J. Saccacio, chief executive officer of RealtyTrac. “REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties.” 

Nevada, Arizona, California post top state foreclosure rates in third quarter
Nevada continued to document the nation’s highest state foreclosure rate in the third quarter, with one in 23 housing units receiving a foreclosure filing—nearly six times the national average. Foreclosure filings were reported on 47,925 Nevada properties during the quarter, an increase of nearly 10% from the previous quarter and an increase of nearly 59% from the third quarter of 2008. Nevada REO activity in the third quarter increased 29% from the previous quarter and scheduled auctions increased 26% from the previous quarter, but defaults decreased 8% from the previous quarter. 

Arizona posted the nation’s second highest state foreclosure rate in the third quarter, with one in every 53 housing units receiving a foreclosure filing, and California posted the nation’s third highest state foreclosure rate, also with one in every 53 housing units receiving a foreclosure filing during the quarter. 

Other states with foreclosure rates ranking among the top 10 in the third quarter were Florida, Idaho, Utah, Georgia, Michigan, Colorado and Illinois. 

Six states account for more than 60% of nation’s third quarter total
California, Florida, Arizona, Nevada, Illinois and Michigan accounted for 62% of the nation’s total foreclosure activity in the third quarter, with 579,541 properties receiving foreclosure filings in the six states combined. 

With 250,054 properties receiving foreclosure filings during the quarter, California accounted for nearly 27% of the nation’s total. The state’s foreclosure activity decreased nearly 2% from the previous quarter thanks to a 10% drop in default notices, but scheduled auctions increased 4% from the previous quarter and REOs increased 12% from the previous quarter. 

Florida foreclosure activity decreased less than 1% from the previous quarter, but the state still posted the second highest foreclosure activity total for the third quarter. Foreclosure filings were reported on 156,924 Florida properties, a 23% increase from Q3 2008. Default notices in Florida decreased 6% from the previous quarter while scheduled auctions increased 5% from the previous quarter and REOs increased 16% from the previous quarter. 

Arizona posted the nation’s third highest foreclosure activity total in the third quarter, with 50,342 properties receiving a foreclosure filing during the quarter—a 5% increase from the previous quarter and a 25% increase from Q3 2008. 

Nevada posted the nation’s fourth highest foreclosure activity total, with 47,925 properties receiving a foreclosure filing in the third quarter, followed by Illinois, with 37,270 properties receiving a foreclosure filing, and Michigan, with 37,026 properties receiving a foreclosure filing. All three states reported increasing foreclosure activity from the previous quarter and from Q3 2008. 

Other states with foreclosure activity totals among the nation’s 10 highest were Georgia (33,385), Texas (29,838), Ohio (29,645), and New Jersey (18,108).