When looking fora good deal onreal estate in theLowcountry, somebuyers are focusing their attentionon short sales. And a short sale canbe a good option for those whowant or need to sell a property butfind the home's value has shrunkbelow the mortgage loan amount.
In a short sale, the bank on themortgage must agree to the saleof the property for less than theamount owed. Generally, the sellermust demonstrate to the bank thathardship is involved-a job transfer,unemployment or medical problemsthat have made the mortgageunaffordable, or a military relocation,for example.
Bob Raehn, an agent with GatewayRealty who is certified as adistressed property expert, said researchshows that lenders in a shortsale typically recoup 60 percent ormore of the amount owed by thehomeowner. After foreclosure, thatamount drops to 30 percent.
"Given the numbers, it is difficultto comprehend why lenders don'tapprove more short sales," he said.
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Increasingly, local real estate agentsare taking continuing educationcourses to become "certified distressedproperty experts" to assistbuyers and sellers in short sale transactions.These transactions can becomplicated and lengthy, local agentsagree.
How long do short sales take? Theanswer is far from concise. Underideal circumstances, a short sale canclose within weeks. In most cases, ittakes longer.
In January, nationwide property valuationfirm Equi-Trax Asset Solutionsconducted a survey of about 600 realestate brokers from across the U.S.;53.6 percent of the agents surveyedsaid short sales are taking four to sixmonths, if they close at all. About96 percent said the delayed responsetimes of lenders is their biggest challengewhen negotiating the deals.
Some outcomes to attempted shortsales are illogical, Realtors say.
Sherry Larkby, owner of Broker'sReal Estate in Beaufort County, sellsmore than 100 distressed and foreclosedproperties each year. One ofher sellers had an offer of $275,000for an ocean view condo on HarborIsland, but the lender didn't accept it.Following foreclosure, the propertysold for $136,000.
"Lenders have set themselves uplike an onion; you have to keep peelingback the layers to find the answers,"Larkby said.
Last year, Bank of America switchedto a new online-based short sale system,reducing the response time toa properly submitted offer to about30-45 days. Many Realtors, buyersand sellers wish more banks woulddo likewise.
ROLE OF THE LOAN SERVICERMortgage servicers aren't motivatedto approve short sales.
"Loan servicers are making moneyhand over fist on delinquent mortgages,"said attorney Peter Pike, whoworks for a large title insurance companyin Florida, one of the states worsthit by the mortgage crisis.
How is that possible? It helps tounderstand Wall Street's role. Usingthe now defunct Countrywide as anexample, Pike described the processwhereby individual mortgages weresold and packaged to become "securitizedloans" or mortgage backedsecurities. Many became highly ratedinvestments.
"Countrywide wasn't a bank, itdidn't have money to lend. Instead,it teamed up with Wall Street, sellingmortgages it originated to GoldmanSachs and others," he explained.
In many cases, Countrywide retainedthe servicing of the loans, receivinga small fee for collecting andtransferring payments from the borrowersto the investors. When aggregated,the fees resulted in enormousprofits. Their charges actually increasedwhen borrowers stop makingpayments on their loans, said Pike.
"Because loan servicers are oftenthe decision-making authority in ashort sale, the fact that they get higherfees for their collection services whilethe loan remains in default creates acounter incentive to settlement inmany cases," he said.
OTHER PLAYERS HAVE A STAKE"Short sales are being played outat a higher level than just the buyer,seller and lender," said Hilton HeadIsland-based attorney Catherine WestOlivetti, who handles the closings ofmany short sales.
Private mortgage insurance companiesalso are involved. Even whenthe lender approves a short sale, if theborrower had mortgage insurance onthe loan, the insurance company canstill scuttle the deal.
Olivetti said mortgage insurancecompanies sometimes seek additionalcompensation from the sellerabove the amount offered. In somecases, the borrower didn't know thelender had acquired a mortgage insurancepolicy.
The government also plays a role,said Rebecca Bass, branch managerof Element Funding in Beaufort. "Ifa bank's performance is being scrutinizedby federal regulators, it mightmake more sense to carry a delinquentloan on its books rather than realize anactual loss."