Short Sales, a win win win?
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The U. S. Government is a strong advocate of short sales. "Short sales provide a substantially better outcome than a foreclosure sale for borrowers, investors and communites," a Treasury Department spokesperson said recently.
Consider the following: Short sales are:
A win for borrowers who can avoid the stigma of a foreclosure, stay in the home until close of escrow and they may be able to buy another home in two years with a conforming Fannie Mae or Freddie Mac loan. Short sales are a way to "cut ones losses" and exit gracefully.
A win for lenders who will save on the costs to foreclose, save on the costs of owning the home and receive a higher payoff with a short sale than with a foreclosure. If a bank takes a house back in a foreclosure, they will have a non performing asset on their books, be required to pay the costs of homeownership, including property taxes, HOA fees, if applicable, utilities, maintenance costs and costs to hire a real estate company to sell the home. In addition, homes that are taken back by lenders are often in worse condition and typically sell for less than owner occupied properties.
A win for communities who avoid vacant homes, vandalism, crime, property deterioration and are able to better maintain property values.
See www.MakingAffordable.gov where the Treasury Department comments:
Many homeowners may feel that they can no longer afford their home but want to avoid the negative effects of foreclosure. The Home Affordable Foreclosure Alternatives (HAFA) Program offers homeowners, their mortgage servicers, and investors an incentive for completing a short sale or deed-in-lieu of foreclosure. With these options, under HAFA, a homeowner leaves their home to transition to more affordable housing and alleviate the mortgage debt they owe.
Short sales, however, raise a number of issues for borrowers, including tax considerations, possible lender requests for financial contribution and the possible liability for any deficiency. We address these and other important issues in this web site.
All borrowers should consult an attorney, a CPA, a HUD certified housing counselor and a Realtor who has substantial experience successfully closing short sales before deciding if a short sale is their best option
LK Realty made the news on August 1, 2010 - see below!!!
County’s housing market sees ray of sunshine at last
Drop in foreclosure, default rates bests most areas in U.S.
Sunday, August 1, 2010 at 12:01 a.m.
There is good news for the San Diego County housing market, but experts caution that we're not out of the woods yet.
Glossary of a downturn
Mortgage delinquencies: Mortgages that are more than one month overdue on their payments.
Mortgage defaults: Mortgages that have received a notice of default saying they are more than 90 days past due.
Foreclosures: Homes that are seized by banks after receiving a notice of default. Currently, it takes an average of nine months to move from default to foreclosure.
Real estate owned (REO): Property that has been seized by a lender and is being temporarily held on the lender’s books.
Short sales: Homes that are sold at a loss to resolve outstanding mortgage debts.
Over the past year, mortgage defaults and home foreclosures have dropped sharply in San Diego County, sparking hopes that the worst of the housing crash is in the past and that the market will continue to improve in the near future.
Between the first half of 2009 and the first half of 2010, mortgage defaults in San Diego County dropped by more than 40 percent, according to two recent studies by real estate research firms MDA DataQuick in La Jolla and RealtyTrac in Irvine. Both reports found that January through June was the lowest six-month period for defaults in the county since the first half of 2007, before the economy slid into recession.
Properties that have been seized and held by banks — known as “real estate owned,” or REO — have dropped 12 percent, says RealtyTrac. And trustees’ deeds, which banks file after foreclosing on homes, have fallen 6 percent, DataQuick reported.
San Diego still has a high foreclosure and default rate, ranking 31st out of 206 metropolitan areas nationwide by RealtyTrac. But it is improving at a faster rate than most other areas. RealtyTrac said properties with default and foreclosure filings rose more than 8 percent nationwide in the past year, compared to a 14 percent decline in San Diego and 13 percent decline statewide.
“We’re definitely not out of the woods,” cautioned Gary London, who heads San Diego’s London Group Realty Advisors. “Even though we project foreclosures will keep dropping, that will happen frustratingly slowly. On the other hand, factors are coming together that will lead to an improving market, with fewer people losing their jobs, more being hired and a higher confidence on the part of homeowners not to do something drastic.”
London projects that the county will average 2,135 defaults per month this year, 33 percent lower than 2009’s average of 3,192.
But the improvement is not necessarily as glowing as it seems at first glance. Even though foreclosures are dropping, debtors are still losing their homes, often by selling them at a loss through “short sales.” And analysts warn that a number of factors could lead to another spike in foreclosures, including weakness in the job market, mortgage rate adjustments and a “shadow inventory” of debt-laden homes that have not yet hit the market.
“There’s certainly a risk we could see a second spike in foreclosures,” said RealtyTrac spokesman Dan Blomquist. “Although San Diego and California have been consistently (improving) over the past six months, the trend is fragile, and if we don’t start seeing job growth soon, we could see a second bump.”
Some factors weighing down the market include:
Short sales
Even though foreclosures are on the decline in San Diego County, there has been an increase in short sales, with banks allowing borrowers to sell their homes at a loss. Short sales are less costly to banks than foreclosures and do not do as much damage to the borrower’s credit rating. But even though they don’t show up in the foreclosure numbers, they do indicate weakness in the market.
The California Association of Realtors estimates that 25 percent of the homes sold in San Diego County were “distressed properties,” which includes foreclosures and short sales. Although that’s down from 44 percent in June 2009, real estate analysts say short sales are on the rise, with encouragement from the federal government, which is promoting them as a way of finally resolving the real estate crisis.
Gary Laturno, a San Diego attorney specializing in helping debtors deal with lenders, said he is dealing with an increasing number of short sales. His firm closed 90 transactions last year with lenders, including more than 45 short sales. Although this year is only half over, the firm has already closed 60 transactions, including 34 short sales, meaning it is on track for at least a 33 percent increase this year, said chief financial officer Vikki Kuick.
Unemployment
In the first stage of the recession, most San Diegans going into default were people who had taken out risky loans to buy homes they could not afford. Today the defaulters are more likely to be middle-age, middle-class breadwinners who have lost their jobs and can no longer keep paying their mortgages.
Laturno’s firm is currently dealing with several out-of-work construction contractors who never took out any risky loans, who have been out of work for two years and have no prospects on the horizon. “They’ve blown through all their savings trying to keep their homes,” Kuick said. “I don’t see any letup in that.”
The longer that the local jobless rate, currently at 10.5 percent, continues to hover in the double digits, the more likely that homeowners will go into default or try to sell their homes, economists say. Statewide, 18 percent of home sellers in 2009 said they were selling because they lost their jobs — and the jobless rate is higher now.
Mortgage resets
When the real estate crash began three years ago, it was largely because “subprime” borrowers — typically people with poor credit ratings — were unable to afford their houses as the interest rates on their adjustable mortgages moved upward. Bruce Norris, who heads The Norris Group, a real estate investment advisory firm in Riverside, said that problem is almost over. Only 9 percent of subprime adjustable-rate mortgages in San Diego County have not yet adjusted upward, totaling around 1,900 homes.
But Norris warns that the county is little more than halfway through its problem with “Alt-A” adjustable mortgages, which targeted a more upscale clientele than the subprimes. Norris estimates that 44 percent of those loans will adjust in 2010 and beyond, totaling 17,500 loans, which could give rise to a new round of foreclosures if the borrowers have the same problems making payments as their subprime counterparts did.
The ‘shadow inventory’
Real estate analysts warn that there is also a “shadow inventory” of troubled homes that have not yet been put up for sale but could spur more foreclosures as they hit the market.
Definitions of the shadow inventory vary, but some components include REOs, homes that are in delinquency (with mortgages overdue by 30 days) instead of default (overdue by more than 90 days) and homes that have not been put into default even though the owners long ago stopped paying their bills.
Norris said that particularly in the upper end of the market, lenders sometimes don’t press for an immediate default, foreclosure or short sale since they hope that be the time they do take action, the market will have improved enough to get a higher sales price on the property.
“It can take a very long time between when somebody quits paying the mortgage and when the bank files a notice of default,” Norris said. “The idea is that they’re trying to wait for things to improve, but the marketplace is just not filled with capable buyers right now. And the growth of short sales means that there’s an absence of normal sellers.”
Norris and other analysts warn that if the REOs and the homes held by nonpaying or delinquent borrowers started flooding into the marketplace, they would drive prices lower and push foreclosures and short sales higher. But London said that even if some debtors are able to escape default while skipping their mortgage payments, he doubts that’s a widespread policy by banks. He added that the shadow inventory is much smaller than many analysts say.
“Even if you put all the shadow-inventory homes up for sale today, it would only add several months worth of supply to the market, which might slow things down but would not have a lasting impact,” he said.
Blomquist said lenders are already beginning to reduce the shadow inventory through short sales, adding that they have been “very careful about not flooding the market with too many REOs at once.” On the other hand, he said, their success depends on the economy improving enough to provide a larger supply of buyers. If that doesn’t happen, he warns, “you could see another surge in foreclosures.”
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