Here come the Short Sales
October 3rd, 2009, posted by Mathew Padilla
BurnsMore troubled homeowners will do short sales as the Obama administration pushes a previously announced incentive plan, says the latest newsletter of John Burns Real Estate Consulting in Irvine.
Back in May, the U.S. Treasury said if borrowers met the minimum requirements for the Making Home Affordable plan but didn’t get a loan modification or couldn’t sustain payments under a trial period then they could get a $1,500 incentive payment to pay moving expenses after doing a short sale or died-in-lieu. The lender or servicer can get $1,000.
Burns expects an update announcement from Treasury sometime soon.
A short sale occurs when an owner sells a property for less than debt owed. The bank must approve the deal. A deed-in-lieu refers to when a borrower turns ownership over to the bank without going through foreclosure.
I’ve heard both short sales and deeds-in-lieu are bad for one’s credit but not quite as bad as foreclosure.
It’s never been clear to me why government officials would use taxpayer dollars to facilitate outcomes that are only marginally better than foreclosure. Burns’ newsletter explains (bold added):
The fees are designed to help compensate the servicer for the extra effort, and to incent the seller to be cooperative and leave the home in good condition. Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure.
To date, short sales haven’t been particularly effective for a variety of reasons, including:
1. Banks have been slow to approve the high bid, particularly when it is below the last appraisal in the banks’ file.-Agents Short Sales Solutions Solves
2. Realtors typically don’t want to deal with all the extra work involved in a short sale-Agents Short Sales Solutions Solves
3. Buyers typically don’t want to deal with the length of time involved in a short sale, which can take 4 to 5 months because of the bank bureaucracy.-Agents Short Sales Solutions Solves
Nonetheless, we expect short sales to increase if the Treasury department is offering incentives to encourage them, and as banks and realtors figure out how to work together.
Burns expects some increase but remains skeptical of widespread acceptance.
By the way, the government’s August report on Making Home Affordable said just 12% of eligible borrowers at least two months late on their mortgage were in a trial modification. So, theoretically, those that didn’t qualify are moving into short sales, deeds-in-lieu or foreclosure.
