Making Short Sales a Viable Option

As published in The News-Press October 30, 2010

By D. Michael Burke

How many real estate owned properties do we have on the market right now that could have been short sales instead of foreclosures? Lenders may drag their feet during the short sale process, but the fact of the matter is, a short sale is better for everyone involved. It keeps a foreclosure off the homeowner’s record, of course, but on average the bank loses only 30 percent on a short sale, instead of 50 percent on a foreclosure. And of course, you can’t ignore the benefits to the real estate market: Fewer foreclosures means less of an impact on prices.

My point is, there is strong incentive for us to make the short sale process more easily navigated by homeowners who are in trouble. Luckily, we are already starting to move in that direction with the Home Affordable Foreclosure Alternatives Program (HAFA). The program is designed to shorten the short sale process and make it easier for both buyers and sellers to navigate.

HAFA changes the short sale scene in quite a few crucial ways. First of all, it enables qualified homeowners to get answers on the lowest sale price a lender is willing to accept before they list the house for sale. If the homeowner is determined eligible for the program, they will receive a Short Sale Agreement (SSA), in which the homeowner and the lender agree on a list price, how long the house will be kept on the market, and how much mortgage the homeowner has to pay in the meantime. In addition, the lender agrees not to move to foreclose as long as the homeowner complies with the agreement, eliminating another of the common problems with completing a short sale.

Another issue that HAFA resolves is the length of time it usually takes to complete a short sale. The lender must determine whether the homeowner is eligible for the program within 30 days. Considering traditional short sales could take as long as six months to close, this shortens the wait time considerably. Furthermore, since the homeowner’s eligibility is determined before they list the home on the market, and a list price is pre-approved by the lender, there are no hurdles to left to cross once you list your home for sale. If you get an offer, you don’t have wait for the lender to approve the amount (which is what usually takes so long in a short sale), since they have already determined the lowest amount they are willing to accept.

Obviously, HAFA makes significant changes to the short sale process, streamlining it in ways that enable homeowners to sell their homes and stay out of foreclosure. So what’s the catch? The answer is that not every homeowner is eligible. In order to qualify, you have to meet the program requirements, to ensure that you aren’t engaging in "strategic default" – in other words, that you aren’t missing payments by choice rather than necessity. Because the legislation allows homeowners to get out from under homes free and clear, without any responsibility for the difference between the short sale price and the amount owed on th e mortgage, it is reserved for homeowners who have real need.

Although there are some gaps in who HAFA covers, the legislation is an important step in a necessary direction. Short sales are often ineffective in preventing foreclosures because lenders take a long time to approve a sale price, and in the meantime may start foreclosure proceedings. Therefore the National Association of Realtors has voiced strong approval for a bill introduced in September by Florida’s own Rep. Tom Rooney, which would require the lender to respond within 45 days. H.R. 6133, if passed, would make short sales a viable option not only for homeowners who qualify under HAFA, but for the rest of us as well.

When housing values fell several years ago, they left many homeowners owing far more than their homes were worth. To add insult to injury, jobs have suffered too, and many of these homeowners can no longer afford their homes. While most would prefer a short sale to foreclosure, getting approval from the lender can take so long that many homeowners have been forced into foreclosure anyway. Unfortunately, this has serious implications not only for the homeowner and the lender, but also for the real estate market as a whole.

Obviously, it is in everyone’s best interests to make short sales a more viable option for everyone. If you would like to find out more about the short sale process to find out whether it is for you, or discuss HAFA to see whether you might qualify, please don’t hesitate to give me a call. With my short sale experience and resources, I can help you make educated decisions and successfully navigate this difficult process!

Contributed by D. Michael Burke, P.A. Keller Williams Elite Realty
Michael@CoconutPointRealEstate.com / www.CoconutPointRealEstate.com