Short Sales Revisited

The following was a post we did in February of 2009. Not much has changed

in 1 year.   We are expecting the government to start incentives to banks and

second mortgage lenders to encourage the short sale process instead of  

waiting for foreclosure.   The house usually sells for a higher price, the credit

of the seller is not affected for as long, and the neighborhood is not affected as

adversely.

 

The term Short Sale has nothing to do with the time it takes to close this

type of transaction.  It refers to the money the bank or mortgage holder

 will receive from the sale of the property.  The closing will be "short" of the

funds that the seller owes on the mortgage. In other words, they are upside

down: they owe more than the home is currently worth.

 

 

Since we don't live in a past world where the home "was" worth more or a future

world where it "may" be worth more,  this is the sad financial situation many

 reluctant  home sellers find themselves in today, selling at a loss. It doesn't

make for happy campers.

 

The Short Sale scenario usually doesn't have anything to do with greed or

mismanaging money.  Many of the cases we see are typical families that

bought a home, fixed it up a little, and then got a job transfer, had a job loss,

 a divorce, a family death or illness occurred which drastically changed  their

financial situation.

 

 

What the falling prices on homes does is trap the homeowner.  He can't sell it

for what he paid for it------ he has to take a loss, go bankrupt, or lose his credit

rating.   How many people have equity in their home, or savings, or a 401K they

 can borrow from to pay their losses?  We see that occasionally, but it is not the

 rule.

 

The banks and mortgage companies are in an especially difficult situation. 

 They are going to take a loss, no matter what happens. The object is to stall, 

wait, and negotiate until they get the best outcome they can for their company's

bottom line.  Okay, companies stay in business by minimizing losses.

But, and this is a big but, stalling, and prolonging these transactions until the

potential buyers walk away is hurting everyone.  Delaying a month, two months,

three months on answering a decent real estate offer hurts the bank, the seller,

the buyer, and the real estate agent.  This kind of time lag is typical of short

sales.  I have heard getting these transactions to close as compared to  " trying

to land a 747 on a blade of grass. "

 

Real Estate agents don't like to get involved in these transactions because they

 are prolonged, messy, tons of paperwork, many, many frustrating phone calls,

and at the end of the transaction, the bank or mortgage company will typically

 "short" the commission the agent has worked for. This is another sticky wicket

because the contract is with the seller, not the mortgage lender. So, this has to

 be negotiated again, if you are fortunate.  If not, you take what they will give

you.

 

Short Sales are becoming a much more common transaction as banks are

deluged with foreclosures and calls from homeowners requesting help.  The recent

* Recovery Act may be a relief valve, allowing some people to reduce their mortgage,

save their credit and their home. The first week of March the US government will

tell us what the perameters of their plan are going to be.

 

*We have seen little effect from the Recovery Act yet.

 

Make sure your agent has the experience and knowledge to get you through the

minefield of short sale negotiation, if you are buying or selling. 

 

 

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 The authors of the this blog write about Grand Rapids Real Estate, the Greater Grand Rapids MI area, and what it is like to live in West Michigan.  Grand Rapids Michigan is a vibrant, growing metropolitan area with a diverse business community, great medical research & services, numerous universities, plus lively arts and entertainment of all kinds.

 We believe: Grand Rapids is a Great Place to Live!

                               

            Westbrook Realty Grand Rapids MI Real Estate

                          Contact Terry   616-292-7263