Time for some straight talk on ShortSales!!

Stay away from them…..believe it or not I was very tempted to stop right here. I feel however that I owe my reader(s) a thorough explanation of my thought process, so let’s start at the beginning.

A long, long time ago when homeowner’s stopped paying their mortgage to the bank the bank simply took the home back and the deadbeat was out on the street. But, now there is a new game in town and it’s called stop making your payment, live in your house for another year for free, then at the last possible minute offer the bank a 50% less than what you owe them and walk away from your home with no financial obligations or penalties i.e. A Shortsale.

“WHAT……….no, this can’t be, that sounds crazy!”

Exactly, crazy….crazy if you go and look at these homes that are listed for sale. Crazy if you think the bank is really going to take less than 50% of what’s owed. And you have really lost it if you have a time frame for buying a home and you even mess around with these.

O.K., maybe you think I’m being to harsh on the whole shortsale thing. Well let me give you some “in the trenches facts”.

1. Per the MLS: 1 in 10 shortsales actually close escrow.
2. The average days on the market and escrow period for those closed are over 210 days.
3. Every offer I have submitted (20+) on a shortsale has been accepted by the owner and 3-4 months later the bank counter offer’s me 10-15% more and wants me to close in 3-weeks.
4. There is no real benefit to the owner to play ball. In fact the home owner gets to stay there longer if they just let it be foreclosed on by the bank.
5. Per Senior Management at IndyMac, Tim M: “There is no such thing as an Approved Shortsale.”

I could list another 10 reasons with no problem, but I won’t because I think you get the point. “So Brent, why are there so many shortsales out there then?”

“GREED”

Let me share with you who benefit’s from a shortsale:
1. The listing agent. (get’s a commission for selling the home)
2. The company’s that “negotiates” your shortsale for you. (get’s a percentage of the commission for scaring you into a shortsale)
3. The buyer less than 50% of the time. (sometime finds a diamond in the rough at a better than market price)

So if you have stopped making your house payment as a home owner my advice is to let your home go into foreclosure (I’m not qualified to give this advice and please don’t listen to me) because there is no real benefit to you to do a shortsale. The IRS law that was created to allow shortsales was put into effect when the banks had recourse on the amount that you shorted them; like filing a deficiency judgment to put a lien on you. Since there are new laws that stop the bank from coming after you for the shorted amount in most cases, you do not have to pay taxes the shorted amount; I ask you where is the benefit for the homeowner to shortsale?

Brent, doesn’t my credit get hurt more from a foreclosure than a shortsale?

“NO, call a educated loan broker if you don’t believe me.” Both foreclosure and shortsales wreck your credit and are looked at in the same light when you go to get a new home loan. By the way, you can get a FHA 3% down loan in 2-years after a S.S. or Foreclosure.

So if the rule is “don’t do shortsales,” then there must be an exception to prove this rule. And lucky for me there is….If you refinanced your home the bank CAN come after you for the deficiency between the amount you owe them and what they ended selling your home for through foreclosure. In this case I would do a shortsale because you will most likely have an opportunity to negotiate with your bank more favorable terms for payback than the default rate and terms that the State allows your bank after foreclosing. The technical terms are called a “purchase money loan” and a “cash-out refi” loan, look it up.

So my heart is beating fast now and I’m all amped up because the shortsales are causing way more damage than people realize. We have no idea what the true values of homes are because 40% of the inventory under $500,000 is Shorts, and only 1 in 10 get sold. In the mean time 9 out of 10 are undercutting each other to get the attention of the buyers which drives the perceived price of homes down and it all just a big giant mess.

The quickest way I can see to solve the housing crisis is to take all the shortsales off the market and just deal with the one we can actually sell today and work with decision makers not negotiators.

Brent
Professional Realtor and not a Ambulance Chaser