For those of you following my weekly column in the Danville Patch, I apologize for the redundancy. But if you haven’t yet tuned into the Patch, then you’re missing lots of great LOCAL information–like the nice article on Forli that just recently ran. I love that restaurant and the way that the owner Russ always makes me feel like a guest in his living room. www.DanvillePatch.com, sign up for the delightful daily newsletter–it greets me every morning and starts my day out right!
But if you aren’t reading the Patch, please read on for the original version of my column from last Friday:
œ50% of homeowners in America may go through a short sale before this is over. That statement caught my attention. The speaker, at my office™s weekly market meeting, was Jonathan Pass of RPM Mortgage in Alamo. He went on to explain that the short sale creates a domino effect”lowering home values so that the next house is underwater.
What is a short sale? It™s such an everyday part of my vocabulary, that I assume that™s true for everyone. But I took it to the test, and asked my mother-in-law, œwhat is a short sale? She said, œI™ve heard of those. Do you know?
Well, yes, I do. First of all, it™s misnamed: a short sale is not a quick sale”that™s a common misconception. Quite the opposite: the Short Sale is a Long Process.
When a property is listed as a short sale, it means that the owner owes more to the bank than the house is worth”and that the owner doesn™t have the money to make up the difference after the sale. The owner is asking the bank to œforgive part of the loan.
Banks don™t want to own real estate, so the bank may agree to this in order to avoid the expensive foreclosure process. The process is lengthy because once a bank (or banks, because there is often more than one loan involved) is approached with a short sale offer, they need to research the value of the home, and the assets and hardship situation for the seller. Typically, this will take about three months, occasionally less time and quite often much longer. One agent in my office just had two short sales close that took over a year.
Jonathan Pass said, œthe banks will be more inclined to help if the owners got in trouble because of bad timing¦and less inclined to help if they were using their home as an ATM. In other words, people that refinanced just to get money out of their house”vs the people that purchased at the top of the market and have loans that now exceed their home values.
Lenders are predicting that 2011 will be the year of the short sale, an increase in number of sales over 2010. This is significant, considering that Dennis Simkin, managing broker of Sotheby™s Danville, said that œ25% of the sales we had in 2010 were short sales.
Today, in Alamo & Danville, there are 267 properties for sale”of those 47 or 17.6% are being offered as short sales.
And because we will always hear statistics based on Contra Costa County, it interesting to compare our local details to Antioch, where the current inventory is 484 and 219 or 45.2% of those are short sales..
Sellers opt to do a short sale to avoid the more detrimental credit hits associated with a foreclosure. However, sellers should be very cautious in taking this step, and consult with an attorney and/or a CPA about the tax ramifications and potential for a deficiency judgment¦every case is different.
And the rules may be changing as well. Kelly Copland, a mortgage loan associate for Bank of America, told me that there are rumors that short sales may become as detrimental to your credit as foreclosures. Currently the guidelines for conforming loans include a 7 year credit hit for a foreclosure vs 2 to 3 years for a short sale.
For buyers, the short sale pricing is very attractive”but keep in mind that the price is not necessarily a reflection of what the bank will accept. It isn™t until there is an offer on the table, that the bank will evaluate the offer, examine the hardship letter and evidence, inspect the seller™s financial situation, and make a decision.
For an investor hoping to get a good deal, this process may be worthwhile. For a buyer looking for a home to live in, this process is often unbearable. It™s not just waiting with anticipation, it™s often waiting for something that won™t happen. If the banks can™t come to an agreement, the process could end with a foreclosure and the home could become bank-owned.
All short sales are not created equal. An œapproved short sale usually refers to a sale that had an offer, but by the time the bank returned with an agreement, the buyer was no longer in the picture. This is fairly common with the long process. In this situation, the process will be swift (swifter anyway) with the next offer: the bank has already done the time-consuming work.
If you decide to go after a short sale, find out how many banks are involved and how short the sale will be. The fewer banks and the smaller the loss, the more likely it will be to happen. Then, have patience¦the quickest short sale is still a long process!