TODAY, AS MORE HOMES HEAD TO FORECLOSURE, BANKS SEEM MORE WILLING TO ACCEPT SHORT SALES!
HERE IN CHICAGO AND THE SUBURBS, ONE ARIZONA RESEARCH COMPANY PROJECTS A 380% IN PROPERTIES SOLD SHORT IN THE PAST YEAR!
As we at Dean's Team look for new homes or condos for our buyer clients, we are simply stunned by the number of homes selling short - where the ultimate sales price is less than the mortgage balance owed to the bank.
On the Chicago MLS, distressed, or "Short Sale" Properties are often referred to as "Corporate Owned," "Bank Approval Required," or "Motivated Seller" in the listing remarks copy. Only recently has the Chicago MLS required its members and Real Estate Brokers to indicate whether a property is bank owned or selling short.
A couple of years ago, during better times in the Real Estate Industry, before the recent sub-prime lending crisis, and current very high levels of home inventories in many areas, banks were very hesitant to talk to delinquent borrowers about short sales.
Today, however, lenders are listening! They feel its far less expensive to them to negotiate a short sale, and receiving a considerable portion of the loan amount back, rather than completing a lengthy foreclosure, and getting the property back, which they then need to sell themselves. The homeowners avoid the full credit hit and emotional blow of a foreclosure, and the buyers pick up a home in generally good shape for a very attractive price.
The following example is a bit distressing, but it exemplifies how the process works.
Stephen J., of the Chicago Suburb of Crystal Lake IL, worked as a Branch Manager for a mortgage loan broker that went out of business last year. A little over a year ago, he had his house appraised for $290,000, and applied for and received a refinance loan and an additional line of credit totaling 100% of the home's appraised value. He used the money from the equity line, at a higher rate of interest, to help pay his wife's tuition in law school.
His job loss, however, forced Stephen to miss some mortgage payments. By October, 2007, his lender had already begun the foreclosure process on his home - even though Stephen found another job at about the same time.
Concerned about the seven-year black mark a foreclosure would make on his credit report, Stephen listed his home for sale. The only offer that he received, last January, was for only $220,000 - $70,000 less than the balance of his mortgage.
The lender finally approved Stephen's short sale in mid-May - nearly four months after he applied for this consideration. The transaction is scheduled to close by mid-June. Although Stephen's credit score will be adversely affected, the impact will be far less if the lender were to complete the foreclosure and take back his home.
Short sales do impact the local real estate market. Typically, homes sold short close for roughly 20 percent below the market-average price. This could directly impact the appraised property values of other homeowners nearby. Also, short sales can take four or more months for the necessary lender approvals to complete the transaction - even more if the seller has his primary home loan and equity line of credit at different lenders. Many short-sale buyers become impatient with this lengthly delay, and terminate their purchase contract to buy another, non-short property.
Further, short sales do not provide an easy escape hatch for many home buyers. Homeowners have to prove true financial hardship - such as job loss or considerable unanticipated expenses - to get approved.
However, selling short can help many who would have otherwise lost their property, their credit standing, and a good portion of their dignity, in a completed bank foreclosure.
See Mary Ellen Podmilik's story in Friday's Chicago Tribune for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
