In most areas of Gainesville & Alachua County if a home was purchased any time from late 2004 through to early 2009 it’s probably now worth less than what it was at the point of purchase.
Some other owners took out an additional line of credit (for whatever reason) using the home’s rising value (2004-2009) as collateral, the amount owed (today) outweighs the remaining value (equity) there is in the home.
The coined reference or term for this is “upside down” or “underwater”.
….enter the Short Sale
These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 11% of the homes sales in Alachua County over the last 6 months. (11.7% of available homes, 11.5% of Feb 2010 closings, up from 6% of November 2009 closings). Nationally 17% of all residential real estate sales were short sales, up from nearly 13% in November, according to some sources.
Up to this point the short-sale market had been stalled and most people (including the real estate agents) would describe the process as “real estate hell”. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting many months before responding to ready willing & able buyers.
The Long Wait
In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete!! And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage. In most cases, the first lender is repaid in full before any money flows to a second-lien holder. And because most distressed borrowers are severely underwater, there’s usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.
Things had slowly been changing due in part to the diligence of the many real estate agents working on behalf of their customers.
For one thing, it has been continuously pointed out that banks make out far better financially with a short sale than a foreclosure. The lenders lose 50% (on average) in a foreclosure and only 30% on a short sale. Short sales offer a way to get distressed properties off their books quickly. The problem here has been that lenders had still been reluctant to
A) actually show on their books the depth and breadth of the bad (under water) assets
B) take any loss at all by doing short sales and foreclosures in a process of clearing their books
…..in Steps the Government
On April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.
- Under the new changes to Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 “relocation incentive” and loan servicers will get $1,500 for handling a short sale.
- The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.
- Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bona fide offers they have to be accepted within 10 days.
To learn more, take a look and see what is happening at MakingHomeAffordable.gov and as always if you have a real estate related goal (whether selling or buying), do yourself a favor and enlist the services of a real estate professional.
We are here to help and that ALWAYS means keeping the most money possible in your pocket.