Originally posted by Catherine Reagor, Real Estate Reporter for The Arizona Republic
Short sales may be a new best option for Valley homeowners struggling to avoid foreclosure.
Home-loan modifications, endorsed by the federal government, are most borrowers' first choice when they fall behind on their mortgage payments because of a drop in their income. But short sales are also part of the federal housing plan to slow foreclosures. Unlike their slower-than-expected actions on loan modifications, lenders are now moving quickly on many short-sale requests in the Phoenix area.
New figures for the Valley show a record number of short-sale deals in various stages of completion. Pending short sales, including all of the deals under contract, reached 9,343 in October, compared with 1,448 in January, according to real-estate analyst Mike Orr. Almost ƒè 40ƒ|percent of the homes currently for sale in the Phoenix area are properties homeowners are trying to sell to avoid foreclosure.
Short sales, which require lender approval, allow homeowners to sell their homes for less than they owe their lenders. Borrowers still lose their homes, but the deals are better for their credit records and often their morale because they are not evicted.
Short sales are also better for neighborhoods because the houses are not abandoned as is often the case when a lender forecloses and tries to resell. Buyers are finding great deals on short-sale homes and in many cases opting for those homes over foreclosure properties because they are in better shape.
“The demand for short-sale properties from buyers is clearly strong,” said Orr, who publishes the “Cromford Report,” a local daily online real-estate update. “We anticipate that lender-owned properties (homes taken back through foreclosure to be resold) will continue to decline. We expect to see short sales increase.”
Market watchers are advising more borrowers falling behind on their mortgages to consider short sales in order to slow the potential next wave of foreclosures.
“Short sales have a net result of everybody winning when compared to a foreclosure,” said Randy Kutz, a Phoenix-area expert on the deals who recently worked with Arizona Treasurer Dean Martin to hold a series of seminars on why short sales are important to the economy's recovery.
“Even if you avoid foreclosure with a loan modification, many homes in Arizona will not recover value fast enough to allow struggling homeowners to sell for many years,” Kutz said. “At some point, the same homeowners who are getting modifications now will likely need a short sale in the future.”
Streamlined process
Short sales have been around for decades, but until recently, the deals were slow and difficult to do. Most homeowners, real-estate agents and lenders tried to avoid short sales because of all the paperwork and time they involved.
A year ago, borrowers often waited at least three months to hear back from lenders on potential short sales. The deals would fall through as buyers, who didn't want to wait, walked away.
Now, lenders are being encouraged and paid by the federal government to expedite short sales for homeowners who qualify for help from the federal housing plan but aren't candidates for loan modifications. Some Phoenix homeowners are now receiving approval in days.
“We are starting to see short-sale approvals come in much quicker from some lenders,” said Bob Hertzog, a broker with Phoenix-based Summit Home Consultants. “I received an approval in less than 24 hours last week.”
Selena Riviere recently was able to sell her Phoenix home in less than a month through a short sale.
“I had heard they were difficult, but when I got divorced, I couldn't afford my $2,000 mortgage payment anymore,” said Riviere, who tried to obtain a loan modification for six months before settling for a short sale. “What helped me was having someone who knew the process and made it pretty easy for me.”
Many homeowners who apply for loan modifications are still waiting three months to hear back from their lenders and can fall farther behind in their mortgages as they wait.
Hertzog said each lender handles short sales differently. He said it's important to find out what a lender requires from a short sale before even starting to look for a buyer or listing the home for sale.
Homeowners can contact their lender about a short sale. However, to close the deal, a homeowner has to have a buyer willing to purchase the house for its current appraised value.
Part of the seminars Kutz and Martin hosted educated Valley real-estate agents on changes in short-sale methods so such deals can be expedited and more foreclosures avoided.
“Navigating a short sale is much easier than it was a year ago,” said Diane Watson of the Scottsdale office of Realty Executives. “More real-estate agents are prequalifying sellers for short sales before they list their homes.”
She recently received approval for a client's short sale within a week of submitting the paperwork.
Lenders have begun to preapprove prices for homes eligible for short sales, which cuts weeks out of the process. The preapproved prices are based on current appraisals of the home. Also, lenders have added staff in their short-sale divisions and begun paying slightly higher real-estate commissions on shorts sales to entice more agents to put in the extra work it takes to close the deals. Some banks have launched online systems for short-sale applicants.
Jay Luber, a mortgage broker with Phoenix-based Galaxy Lending, said banks are also doing a lot more now to make short sales work.
“In most cases, banks will pay for some closing expenses,” he said. “When an appraisal comes in lower than expected, I have found lenders meeting the lower appraised value on short sales to make the deals work.”
Better than foreclosure
Foreclosing on a home is a costly process for lenders and an emotionally and financially draining event for homeowners.
It costs a lender more than $10,000 to foreclose on a home in Arizona. If no one purchases the house at the legally required foreclosure auction, then the lender typically has to spend more than $30,000 to fix it up and resell it.
Short sales still result in a loss for the lender. Most short-sale prices now are at least 30ƒ|percent below what is owed on the home, due to the Valley's drop in home values during the past two years.
The average price of homes sold through short sales in October was $87.55 a square foot, according to the “Cromford Report.” The average price of homes taken back through foreclosure resold by lenders was $69.45 a square foot. The average price per square foot of regular home sales was $114.18.
Short sales cost thousands of dollars less in legal costs to process than a foreclosure. Also, through the federal housing plan, lenders can receive at least $1,000 for every short sale they complete to keep a home out of foreclosure. Homeowners who go through with short sales to avoid foreclosure can receive up to $1,500 from the government through the federal housing program.
Riviere, who is a nurse at a senior living center, would like to try to buy another home in a few years.
“I never would have bought such a large home if I knew I was going to be on my own,” she said. “I want to buy a small condominium close to my job next. We'll see if the short sale was really better for my credit then.”
Borrowers also benefit more from short sales because mortgage giant Fannie Mae requires them to wait only two years to buy another home, or even less than that if they were not late on their payments. People who lose homes to foreclosure have to wait five years to buy again.
More homeowners are now trying to sell before they fall behind on their mortgages. Almost half of the Valley homes listed for sale through short sales are owned by people who haven't yet received notice their lender has started foreclosure proceedings.
“The huge increase in short sales is because many homeowners are recognizing that they either do not qualify for a modification, or even with a modification they still cannot afford their mortgage,” said Travis Hamel Oslon of Loan Resolution Corp. “A growing number of people are starting to understand that a short sale is their best option.”
Comments(3)