Short sales have gone from an obscure, last ditch method of unloading hard to sell foreclosed property to the Great White Hope for ending the housing crisis, all in one week.
On April 5th new federal rules took effect which will speed up the process of selling a home when the owner owes more than the house is worth, which is called a short sale. This latest program from the Obama Administration also offers financial incentives –$3,000 in moving expenses and HUD will pay up to 1% of the buyer’s mortgage as part of the closing costs if the new mortgage is FHA approved.
Toward the end of our own nine month Berkshire County housing search, Kathy Waldheim, our long-suffering broker from Tucker & Associates, showed us one home in Richmond that was in the short sale process. She warned us at the time that short sales were complicated and time-consuming. Although the price was more than reasonable, after researching the concept, I realized that there were no rules of the game as far as how long the negotiations might take nor what the ultimate price could be. In the end, we passed on the house because we didn’t like the uncertainty.
I could understand the banks point of view since short sales have historically been subject to abuse. Sellers have been less than forthcoming with the true facts of their economic predicament and there have been cases of insider deals where homes were sold to relatives for a song and then sold back to the owners. Exhaustive scrutiny by lenders has been the predictable result. It is one reason why lenders deliberately draw out the process.
As I learned, the short sale process has no time or value parameters. It is not unusual for a buyer’s real estate broker or attorney to make dozens of phone calls to the lenders over several months without getting a call back.
Yet the concept of short sales should be advantageous to buyer, seller and lender, especially in this housing environment. Although the selling home owners will still lose their homes, a short sale does not negatively impact their credit score as much as when the owner goes into foreclosure. The buyer receives a deeply discounted price. As for the lender, the new rules will allow lenders to use an appraiser, market research and a real estate agent’s opinion to determine the value of a home. Mortgage companies would set a minimum buying price before the house is listed for sale and if an offer is above that, the lender must accept it. Prior to this rule, lenders didn’t decide how much they would accept until after they had received an offer.
“I don’t think there have been many short sales in the Berkshires,” says Michael Shepard, his frosty hair somewhat askew, as he discussed the subject behind piles of legal folders and papers stacked on his conference table.
Shepard, 63, who has been practicing law in the area for thirty-five years, is probably the leading expert in short sales.
“Don’t call me that,” he begged,” I’m already getting too many calls about this stuff.”
Sheppard agrees that the process of a short sale is extremely difficult at best but he is hoping that the Obama Administration’s new ruling will facilitate and speed up the process.