But the question begs to be asked….will “speedy” short sales give Home Buyers the best deal? And, is buying a short sale the best way to purchase a home in our Orange County and Laguna Beach Real Estate Markets?
The government’s Home Affordable Foreclosure Alternatives (HAFA) program is scheduled to go into effect on April 5, 2010. Proponents believe that “Any structure is better than what we’ve had” as commented by Kathryn Bovard a broker of Prudential Americana Group in Las Vegas.
When a homeowner is able to short sale their property it is believed that their credit is impacted less than if that homeowner was to walk away from the home and allow it to go into foreclosure and be taken back by the bank. That is really the only benefit since regardless of how much money they have put into the home, the homeowner will get nothing when the home sells.
A short sale also works better for the bank. They are alleviated of the potential liability of an empty home and can mitigate their carrying costs of holding a portfolio of non-income producing investments on their books. They can also, at least in theory, have a say in the negotiation of the price and costs incurred by the sale as well as avoid the costly legal fees involved in a foreclosure.
So it seems that if a Loan Modification to the existing homeowner is not possible, which would allow them to restructure their current loan and stay in the home, then both parties have a pretty good motivation to seek a short sale for the home instead.
So…why, then is a government program necessary to encourage banks to clear their books of unwanted inventory in a more speedy manner than we have seen so far?
The Home Affordable Foreclosure Alternatives program is expected to improve the process by:
- Issuing pre-approved short-sale terms before listing the property so that sellers will know what the lenders will accept before they even list the property;
- Implementing a timeline to keep lenders and sellers on track;
- Allowing homeowners up to $1500 at closing to assist with moving costs;
- Providing Servicers of the loans up to $1000 compensation;
- Providing up to $3000 to distribute to subordinate lienholders so that they can, in theory, recover some of their costs. Some short sales have been held up when, for example, a 2nd mortgage holder with a $100,000 loan is not willing to allow the short sale. Under this government program $3000 would be offered to that 2nd mortgage holder to encourage them to allow the short sale.
Some believe that the banks are trying to put programs in place to facilitate more short sales in a shorter period of time.
As reported in our earlier post, there is also money being given to the banks by the Treasury to lessen the gap between the price of the home and the amount due the lender by the seller of the home.
So, are the banks finally “on board” with allowing short sales…or is the government Treasury “on board” with lessening the financial impacts to the banks?
This new program for short sales brings several questions to mind when a home buyer in today’s market is looking for an opportunity to take advantage of well-priced homes, low interest rates and a good inventory of homes for sale:
- In a short sale, if the bank is now telling potential buyers how much they will sell the home for, will that make buyers less inclined to make their own evaluation of what they believe the home is worth?
- Will it result in a shift of who is in control of the price paid for the property?
- Will it result in homes being purchased for more than they are worth?
- Will new buyers just pay the asking price – no questions asked?
- Will home buyers see more opportunities in purchasing a home that is a “regular” sale…in other words one where the seller is not the bank, but an actual person with equity in the property and the ability to negotiate based on what make sense?
By one set of statistics, short sales typically sell for 91% of their listing price. This could suggest that these homes are coming onto the market well-priced.
However, most will agree that the process of getting through a short sale purchase of a home has been, for most, a long and frustrating process. As in most real estate transactions, it is important to have an agent and team that are tenacious and persistent in the follow up with the lenders. With the massive amount of short sales that each lender representative handles, it is easy to get lost in the paper shuffle unless you have a “squeaky wheel” to keep grease on the wheels of progress.
Until next time…
