I read this article in the Baltimore Sun this morning which they reported from the Chicago Tribune and thought it would be good to share with my neighborhood.
By Mary Ellen Podmolik Tribune reporter September 20, 2009 writes:
Housing: Short sales spread across real estate market, leaving frustration in their wake Offers may roll in, but banks often slow to respond, prompting buyers to walk away
A few years ago, few people in the housing market had ever heard of a short sale. Mention the term today and people, whether they are homeowners or real estate agents, just roll their eyes.
The practice, which involves selling a property for less than the amount owed on the mortgage, has grown in popularity as an exit strategy for financially strapped homeowners because it doesn't ding a credit report as deeply as a foreclosure. But because the transactions have to be approved by first and second lien holders, they are languishing. Some real estate agents try to steer clear of them entirely and even specify in their listings that a property is not a short sale.
The Obama administration is aware of the frustrations. In mid-May, Treasury Secretary Tim Geithner announced plans to streamline the process by offering financial incentives to mortgage servicers and investors that accept short sales, much in the same way that they are rewarded for refinancing or modifying troubled mortgages.
Four months later, homeowners, real estate agents and lenders are still waiting for specific details of how the plan would work. A Treasury Department spokeswoman said an update on the program is expected in a few weeks. Meanwhile, homeowners like Dallas O'Day are in limbo.
O'Day, a Chicago attorney, and his family relocated from California in June 2004 and bought a Mediterranean - style home in Chicago's Beverly neighborhood for $395,000. They rewired the house, stripped and refinished the wood floors and the woodwork and did other work to restore its charm.
Last year, personal circumstances prompted them to list the home for sale just as the housing industry's meltdown was picking up steam. With no takers and no longer even expecting to break even on his investment, O'Day relisted the 2,700-square-foot home in January as a short sale.
Four months and three price reductions brought the house down to $384,900, at which point a potential buyer made an offer in late May. O'Day accepted it and submitted the paperwork to the lenders holding first and second mortgages on the home.
He has yet to receive a response. Meanwhile, the family has moved into a North Side apartment, the refrigerator has broken in the home and there's evidence of mold in the basement.
"The only thing we keep hearing is they keep wanting current payroll stubs, bank statements and taxes," said O'Day's real estate agent, Pam Decker at Prudential Biros Real Estate in Evergreen Park.
"What has astonished me is that in the presence of one of the softest housing markets I can remember, we're hitting up on four months and they've just had a person assigned to look at it, that they would move at such a glacial pace," O'Day said. "My expectation is I'll be renting until whatever blemish is gone. I've just accepted the fact that at some point it'll be foreclosed upon because I just don't think the banks will pull it together. I feel like I've done everything I can do."
During the second quarter, 14 percent of all home sales were short sales and they were made primarily to first-time buyers who may have more flexibility to deal with the long wait times, according to a survey by Campbell Communications. The sales volume could be much greater. Two out of three short sales never close.
"In general, you have to have three offers for every completed short sale," said survey designer Thomas Popik. "The first offer, the buyer walks before they get a yes or no. On the second offer they walk a good part of the time. The third offer is the charm because it's been in process long enough at the lender that [the lender] knows they want to do this.
"Home buyers are now putting in half a dozen verbal offers, hoping that on one of them the lender will say yes. What this is doing is bogging down the approval [process] at the mortgage servicers. It's just gotten to the point that everyone has started engaging in unproductive behavior. It's a vicious cycle."
The process of getting a short sale approved involves a packet of documents that includes bank statements, tax returns, letters explaining any other sources of income and a hardship letter explaining why a short sale is being sought.
After the packet is submitted to a mortgage servicer, it has to be entered into the system, a person has to be assigned to it, and an appraisal has to be ordered for the property. On average, it took loan servicers 9 1/2 weeks to respond to a short sale offer, Campbell's survey found.
"You've got to stay on top of these banks," said James Orrico, a real estate agent at Professional Residential Brokerage LLC in Oak Brook. "I call on my files every day. If you don't stay on top of them, you'll lose it."
But not every real estate agent is willing to deal with the process. Online realty company Redfin doesn't show or write offers on short sale properties "because of the slim chance that you'll get the home," according to its Web site.
A number of factors are contributing to the delay. Lenders say their top priority is keeping people in their homes, and their own and the government's loan modification programs are taking the bulk of their resources.
"The modification [program] was just like an atom bomb that dropped on [servicers]," said Matt McCabe of National Short Sale Center, a company that acts as a negotiator between borrowers and mortgage lenders. "They had a really hard time reacting to that increased demand."
Wells Fargo Home Mortgage, which services more than 8 million mortgages, said it has cut the average 60-day response time on short sale offers to 30 to 45 days.
"We're not satisfied with that number," said Tamara Swain, senior vice president of real estate owned and short sales at the lender. "The current goal is 15 to 20 days. This has been a big learning process of a function that wasn't very prominent a couple years ago."
Also delaying the process is that if a home can't be saved, servicers are keen on trying to recover as much as possible for what could be multiple investors and that requires a fair amount of due diligence.
"The challenge is buyers always want to pay as little as possible and sellers want to receive as much as possible," said Tom Kelly, a spokesman for JPMorgan Chase, which services 10.3 million mortgages. "The bank is the server in the middle."
From a prospective buyer's standpoint, purchasing a short sale property can be preferable to a foreclosure because if the borrower stills owns the home, he or she is likely to take better care of it.
However, with so many distressed properties for sale, and other homes selling conventionally at drastically reduced prices, there's a wealth of inventory available allowing buyers to get a quick yea or nay to their offer. Some buyers make offers on multiple short sales or write the offers so they can walk away if a lender doesn't respond within a certain time frame.
Xia Zhao and her family thought they'd found their next home when they walked into a Jefferson Park townhouse that was listed as a short sale. It was large and near her son's school. However, they walked away from the offer after a month because they still hadn't received a response and were worried they wouldn't be moved in by the time school started.
Instead the family bought a new town home with a price that was cut by the developer in the city's Old Irving neighborhood.
"I guess we're not people with extreme patience," Zhao said. "What if you wait for a couple months and this goes away? You have to start all over again."
"Most people really aren't in a situation where they can deal with the uncertainty," said Zhao's real estate agent, Eric Rojas at Prudential Rubloff. "Even when you explain that it's not accepted until the bank accepts it and you build these safeguards into the contract, people are dropping out, left and right. These sales would get done, but people just can't wait."
Chicagoan Marie Cabrera, a real estate agent at Baird & Warner, is hoping she has found a purchaser with some patience.
After being unable to sell her own condo in the luxury Palmolive Building, Cabrera decided she didn't want to simply wait for her lender to foreclosure on it. Earlier this month she listed it as a short sale, priced at $1.15 million. Within a week, she had a cash offer of $1 million that she sent to her lender.
"I have no idea whether the bank will take it," Cabrera said. "I have an offer that's solid and they're willing to wait."
Frank G's Comments: I personally have closed successfully 90% of the short Sales I have taken and with the right team I will be on my way to closing my 10th short sale this year.
Your first step to succesful Short Sales is hiring a good attorney to handle most of the negotiations with the bank and make sure he is aware of the new laws in the state.
Your job as a Realtor is to find the Short sales and close them.
To learn if you are a good Short Sale candidate, contact my team today.
The only short sale The Godfrey Realty Group can not do is the one I am not working on.
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