Our Real Estate Blog

Short sales frustrating, but better than foreclosures

June 20th, 2011 3:16 PM by Lehel S.

Short sales have been anything but short in duration.

As lenders grapple with the huge volumes of distressed properties and navigate the complex web of loan ownership created by bundling mortgages, transactions have stalled for months.

Real estate professionals and homeowners are frustrated - and the California Association of Realtors has been pushing to speed up the process. The trade group is working with lending institutions such as Fannie Mae to shorten the time brokers and agents must wait for approval on short sales.

Short sales, in which the lender agrees to accept the sale of a home for less than is owed on the property, help lenders and homeowners avoid foreclosures. And such transactions make up a significant portion of the housing market: 19 percent of total home sales in California were short sales in April, according to C.A.R. statistics on existing single-family homes.

Doug Shepherd, the president of the Inland Valley Association of Realtors, C.A.R.'s regional chapter, spoke on the present state of the short sales process and ongoing improvements in streamlining the process. Shepherd is also the owner of Shepherd Realty Group based in Riverside.

Q: Are short sales a relatively new type of transaction in real estate?

A: I started doing short sales in the early 1990s in the Inland Empire, the last time we had a real downturn, when they closed the Air Force bases around here and property values dropped. It occurs often after a run-up on prices and when equities can't catch up. It's always been there.

Q: Why are we experiencing big delays in short sales today?

A: Inefficiency and sheer volume. Because it's a national issue and the way mortgages are bundled today, who owns it? Bank of America services or collects payments on hundreds of thousands of loans in the United States. But they can make decisions on only 10 percent of loans. So on 90 percent of loans, people are making payments to BofA as the servicer, but someone else owns the loan. So it's this whole thing of who really owns the loan. Nine out of 10 times you're not talking to the decision maker.

Q: How has the short sales process been for real estate agents and Realtors?

A: It's very frustrating. And our national and state associations are trying to put forth some measures to help alleviate this. It's the time involved and the uncertainty. If I take five listings, it could be five different banks and each could have their own processes. So it's very inconsistent and time consuming. You can imagine you can open an escrow today and not see a paycheck until December or sooner. A buyer may say I don't want to wait anymore and you have to go out and find another.

Q: What kind of changes are the associations pushing for?

A: Fannie Mae and Freddie Mac are working with us. We're trying get a streamlined program or a consistent set of guidelines so a homeowner can say, "I can start this process, I know what to expect. I qualify or I don't."

Q: Do you see signs of improvement?

A: There's an online platform banks use now called Equator. It's streamlined, the homeowner or Realtor can go online and enter information rather than faxing over papers that get lost. Those kinds of things are speeding up the process for many institutions.

Q: What role are short sales playing in the housing recovery?

A: First and foremost they lessen the amount of distressed properties that are foreclosed on and come onto the community as vacant property. A homeowner in a short sale tends to maintain it before moving out. In a foreclosure, they may move out and get evicted and property may become a blight on the community, so it will pull down the community as well as the individual homeowner.

Another reason we want to do short sales is it's good for the homeowner, institution and community. It's good for the homeowner because it lessens the credit impact and allows them to be in control when they move and how they go about it. It's good for the institutions because they lose less money and don't have to take properties back. And it's good for the communities because the housing stock stays in a better condition.

Posted in:General
Posted by Lehel S. on June 20th, 2011 3:16 PM



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