The term “Short Sale” is a relatively new term in the real estate world as of this decade. It has come to represent the majority of the listings in the Denver home sale market.
Short Sales occur when a home owner needs to sell a home and the amount the owner needs to sell is less, much less than the value of the home. What happens at this point is up to the home owner. He can choose to stay in the home and wait until the market improves. If that is not an option he can stop making payments on the home forcing the bank to foreclose which also results in destroying his credit and costing the bank a significant sum to take back the property. Or he can request the bank cooperate in a short sale, meaning the bank agrees to take less than it is owed.
Short Sales do not invoke good feelings. Consumers who need them do so with guilt and regret for not being able to pay their mortgage off at the time of sale. Buyers drawn into them with a dream of purchasing a home, soon find Short Sales are more like a nightmare.
Real estate brokers who list them end up working for 2 cents an hour at best, with absolutely no guarantee of success.
Lending institutions and investors who supplied the funds for loans find themselves on the losing end of short sales with little recourse.
Seldom are all the parties in a short sale happy. The process is frustrating, unregulated and frankly from my perspective, unprofessional.
Despite all the negatives involved in a short sale process, they most likely will continue increase. This week the U.S. Treasury Department set guidelines for the Short Sale process that will go into effect April 5, 2010.
- The new Short Sale Guidelines are: Mortgage servicers have 10 days to accept or deny a short sale request. After a sale is completed, the borrower could be completely released from debt.
- Borrowers are eligible to receive a $1,500 moving allowance, if they sell their home through a short sale. Mortgage servicers will receive $1,000 for each completed short sale.
- Investors who hold first mortgages can get as much as $1,000 for allowing second lien holders to release their liens. A lien is a charge against a property that makes it security for payment of things such as a mortgage, debt or taxes.
- Second lien holders can get only as much as $3,000 in proceeds from short sale to release their liens.
For real estate brokers and their consumers who want to purchase a short sale, having a deadline of 10 days to respond is a step in the right direction. Ten days is much longer than a normal response but when it comes to short sales, 10 days is very short. It will be a relief to be able to know or not if your buyer actually has a chance at purchasing a short sale.
Providing a moving allowance to cash strapped sellers may help the process. Hopefully with some cash they can move on and begin the process of starting over.
Giving mortgage services an incentive for completing the short sale might help cover the costs they incur hiring staff to process the endless paperwork. The same holds true for the second lien holders. Typically they end up with the least amount of return on short sales. Monetary incentive might help.
The intent of this program is to help prevent additional foreclosures. It has grown from the existing Home Affordable Modification Program (HAMP) which to date has been rather unsuccessful due to the limitations in qualifying. (Funny we real estate people predicted that!)
Still Short Sales are riddled with flaws from marketing them until closing. I feel for the people who need to use them but at the same time I steer away from them when working with buyers on a tight time frame.
Short Sales will be with us for some time to come. Hopefully that won’t be too very long.
About the Author
Kristal Kraft
Kristal has been helping buyers and sellers in Colorado since 1984. She enjoys sharing her knowledge of the Metro Denver Real Estate market via blogging and in person while driving around the beautiful Rocky Mountain town of Denver! For fun, Kristal enjoys shooting things with a Canon. Visit Denver Photo Blog
Kristal Kraft
