Mom Talks Real Estate

The following is an outline for podcast 26, given 6/2/08, which should be posted shortly.

Definition of Short Sale: Selling a home for less than the value of one’s mortgage(s), with the permission of the lender(s)

Advantages of short sale vs. foreclosure

• Seller avoids foreclosure & eviction
• Seller’s credit may not suffer as much
• Bank recoups more than with foreclosure(80% with short sale vs. 60% nationally in foreclosure).
• Buyer might get home in better condition than bank owned since owner is living there
• Insurance, utilities, maintenance probably continuous
• If primary residence, seller may not need to pay income tax on debt foregiveness ( HR 3648 - effective on debts foregiven 1/1/07 to 12/31/09.)

So, with all the advantages, why is it a “long shot”?

1. Lender may not agree to accept less than owed.

a. Original lenders out of business; servicers or receivers

b. Each loan may have multiple lenders/investors

c. PMI company may be covering part of loss, thus may need foreclose to prove loss; lender reluctant to negotiate until mortgage insurer agrees

d. Lender may decide borrower doesn’t have hardship or value is higher

2. May not find lender because of sold loans, automated phone systems, or lender has closed down

3. Property in foreclosure - no time to finish negotiations

4. Listed below market to generate offers, thus may be multiple offers. Buyers are kept out of the pool for other purchases.

5. Experienced vs inexperienced asset managers or loss mitigation specialists. Outsourced negotiators could be working for sellers and banks, thus involving more people, layers of adminstration and delays.

6. Lender may agree only if seller brings cash to closing or signs note for some or all of shortage. Seller may be unwilling or unable to do so.

7. Buyer might not be willing or able to wait for the 2 weeks to 4 months + for lender negotations/decision

8. Whole neighborhood values affected by lower “teaser” offering price (see#3 above). Thus buyers may find other good choices while waiting for lender’s decisions. Also, property values could change during the long process, necessitating new appraisals, new decisions, etc.

Buyers are still hopeful, sellers are hopeful, agents have found an easy way to obtain listings (easy because there are no out of pocket costs to sellers), new short sale negotiation companies have been developed.. However, the current system may make offers for short sales a waste of time or at the very least, a long shot.

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