Short Sales

The impact of "Short Sales" on our real estate market is far more significant than many believe. 

A "short sale" is a conveyance of real property that involves a mortgagor that permits a mortgagee to sell the property for less than is owed.  The market currently contains large numbers of properties that are available to buyers via a "short sale". 

Rumors abound about deficiency judgements and other horrors.  I have yet to find any of the lenders filing for these, but I would be willing to bet that they would sooner file against a homeowner that leaves the keys on the counter as opposed to one trying to procure a buyer.

One of the problems with "short sale" listings is that they are difficult transactions that take a long time to close.  They are difficult because, the seller, (realizing no cash from the transaction) has little or no interest in procuring a large price.  The mortgagor however, still wants to get as much as the market will provide.  If a listing agent under prices the property just to get a contract, the mortgagor will kick it back.  There is the first problem for the parties involved in a short sale.  If the mortgagor would be able to react to the offers in an efficient manner, the deal wouldn't take too long.  The problem now is that the mortgagor doesn't react quickly.  Why?  I have heard many reasons, but the main theme of these is that the mortgagor is not just one person or even just one company.  There has to be a consensus within the servicing company, the investors and the mortgage insurance company.  Getting these all together to date has been challenging.  The mortgagors have to develop a more streamlined approach.

The other twist to "short sales" is the involvement of a second lien holder.  Second mortgages are fighting to get a bigger piece of any settlement from a "short sale".  They really don't have any security because of the diminshed value of the property and their position behind the first mortgage.  The only leverage they have is to try and halt the short sale by not agreeing to their small payment.  This has been the cause of many "short sales" not closing. 

If we were able to sell "short sales" more easily it would serve to minimize the time on the market and that would provide some stabilization in our market.  If the market weren't overloaded with these types of properties, we would be able to shrink our inventory even more efficiently.

I don't really have a great solution, but I am optimistic that the lenders will continue to get better at doing these "short sales" and that in turn will help to get us out of this Real Mess.  By the way, they are getting better.  They may get to the point that they won't ask the sellers to destroy their own credit before allowing them to take this course.  That's a topic for another day!