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Why are short sales so long and drawn out?

May 19th, 2011 3:09 PM by Lehel S.

Why are short sales so long and drawn out?

It's understandable that lenders would want to squeeze as much money as possible from a deal in which a home is being sold for less than what is owed on it, but turning short sales into an ordeal is discouraging potential buyers.

The housing market may be on the ropes, but Curt Beck was ready to come out swinging. He offered $385,000 for a three-bedroom house in Acton. The seller was happy with the terms. But it was unclear if the mortgage holders would allow the deal to go through.

Beck, 56, is typical of many would-be home buyers trying to navigate what's known as a short sale — when a property is sold for less than the outstanding mortgage (or mortgages).

Real estate experts say this can be a particularly challenging process, complicated by lenders trying to squeeze as much money as possible from a transaction, even though a failed deal often results in the property being foreclosed on.

The situation has grown so problematic that the California Assn. of Realtors recently ran ads in newspapers statewide saying more needs to be done to assist homeowners on the verge of foreclosure by expediting the short-sale process.

"Horror stories abound from potential home buyers and Realtors forced to wait 90 or more days for a response to a purchase offer or being required to fax short-sale applications or other paperwork as many as 50 times," said Beth Peerce, president of the organization.

"These delays discourage potential home buyers from considering a short-sale purchase and undermine the process for those who short sales are intended to benefit — the hundreds of thousands of families facing foreclosure," she said.

April home sales in Southern California fell 9.2% from a year earlier, according to market researcher DataQuick. The figure was 25.4% below the month's average since record-keeping began in 1988. The median price paid for a home in the region fell 1.8% from a year earlier to $280,000.

Meanwhile, 21% of homes in the Los Angeles metropolitan area are now underwater, according to the real-estate website Zillow.com. That's another way of saying their mortgages are greater than what the homes are currently worth.

Lenders aren't acting nefariously in most short sales. They're going to take a bath no matter what by allowing a home to be sold for less than is owed for the property. It's understandable they'd want to minimize their loss as much as possible.

But Beck's experience illustrates how a home buyer may feel he's getting the runaround when entering into a short sale.

Beck, of Santa Clarita, had been eyeing the Acton house for months. According to real-estate listings, the house had been offered for $479,000 in October and then pulled from the market a few weeks later.

It was listed again in February for $399,000. In March, the asking price was cut to $374,000.

Wendy Ann Moore, the agent representing the property owner, said no offers were received at the higher prices. But when the house was listed for $374,000, a motivated buyer came forward.

The three lenders holding about $500,000 in loans on the property — GMAC Mortgage, Bank of America and Specialized Loan Servicing — each agreed to the terms of the short sale.

But Moore said the deal fell apart during the escrow process after the buyer lost his job. It was at this point that Beck stepped in.

He told me that as soon as the house returned to the market, he offered to pay the full list price with no contingencies. In other words, he was ready to buy the house as-is.

"My wife and I liked everything about it," Beck said. "We liked the house. We liked the land. We liked the neighborhood."

A few days after making his offer, though, the primary mortgage lender, GMAC, countered that now it wanted $400,000 for the house.

Beck wasn't pleased.


Posted in:General
Posted by Lehel S. on May 19th, 2011 3:09 PM



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