I often hear “aren’t we done with short sales?” Well compared to 2011-2014, we are certainly seeing less than the numbers we experienced then. However, there will always be short sales because that has become one of the primary ways to handle loans in default among the banks, loan servicers and investors. Today, if a homeowner is two months in default, they usually start receiving information about their options with short sale as the featured option. The other options are Loan Modification, Deed In Lieu of Foreclosure and if they do nothing…Foreclosure.
Foreclosure
As long as there are foreclosures, there will be short sale opportunities. According to RealtyTrac in the past 12 months Mecklenburg County averaged more than 200 foreclosures per month, Wake County averaged more than 170 foreclosures per month, Guilford County averaged more than 150 foreclosures per month and Forsyth County averaged more than 140 foreclosures per month. With any downturn in the economy the foreclosure numbers shoot up almost immediately.
Loan Modification
A Load Modification is a good way to delay the foreclosure but usually not a viable option for the homeowner unless they want to keep the home and they are solidly back on their financial feet. The idea that the monthly payment on the present low interest loan is going to somehow be cut in half is a fantasy because the principal amount of the loan is not going to be reduced. In fact, the outstanding balance is actually going up every month that the homeowner misses a payment.
The interesting thing that we are seeing in the last few
months is that most loan servicers are requiring the homeowner to go through a
loan modification review prior to proceeding with a short sale. If the
homeowner has already attempted a loan modification on their own and been
denied, or the exercise resulted in a monthly payment that was unacceptable to
the homeowner, they are one step closer to a short sale.
Deed in Lieu
A Deed in Lieu is still a secondary option to a short sale but is not always available. A DIL can be difficult if not impossible if there is more than one loan on the property. Some smaller banks still refuse to consider a DIL, opting for short sale or foreclosure as the only options.
Short Sale
A Short Sale is usually the best option because it affects the homeowner’s credit less and for a shorter amount of time. The key to a short sale is having an offer within the sold comp range for the neighborhood.
Surprisingly Short sales have gotten more difficult in some regards over the last couple of years. I have recently seen some loan servicers doing everything they can to push the property into foreclosure just to get the file off their desk, even against the wishes and best interest of the investor (Fannie Mae, Freddie Mac, FHA, VA etc…). Fortunately, we have success in getting over 90% of our files to closing, even when they are in the beginning stages of the foreclosure process. If the homeowner waits until after the foreclosure hearing to call an agent or us about doing a short sale it is probably too late…so start early.