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Short Sales Soar /John Rebchook

Short Sales Soar

Short sales are soaring in the Denver area.

All short sales in the metro area rose by 48 percent in the first seven months of 2010, compared with the same period in 2009, according to an analysis of data by InsideRealEstateNews.

The vast majority of the short sales were for single-family, detached homes. A short sale is when a lender accepts less than the mortgage amount

There were 2,270 completed single-family home short sales in the first seven months of this year, almost a 42 percent increase from the 1,610 during the same period last year, according to Metrolist data. And the number of condo short sales skyrocketed a whopping 88 percent, although the actual numbers were much smaller – 476 in January through July this year, compared with 253 in the first seven months of last year. Combined

There were a total of 2,746 single-family and condo short sales, accounting for 11.3 percent of the 24,249 closing in the first seven months of this year. In 2009, short sales amounted to 7.8 percent of the 23,803 closing in the first seven months.

Short sales under-reported?

But many brokers are convinced the number of short sales may be higher – much higher- than the official tally shows. Even officials at the Kentwood Co., which supplied the data to InsideRealEstateNews, at this blog’s request, cautioned that the number of short sales may be far greater than Metrolist shows. The number of short sales may be under-counted because many brokers are not checking the correct box on the Multiple Listing Service forms despite the rules being in effect for more than two years. Metrolist provides MLS data for about 4,000 brokers.

Many brokers believe that one third or more of the closings are short sales in the Denver area. Short sales are growing in popularity, although often it is a long tedious and frustrating process, for both the buyers and the sellers.

Short Sales: The New Foreclosures

Tom Cryer, a broker with the Kentwood Co., calls short sales the new foreclosures. Foreclosure filings, overall, were down 19.5 percent in July, but Cryer and others believe that is simply because short sales are filling the space previously occupied by foreclosures.

“Anecdotally, I would confirm that at least one in three showings I set up are short sales or disguised short sale listings,” Cryer said. “I’ve been in Highlands Ranch, Castle Rock and Parker lately, and (short sales) are pervasively present. Moving forward, the data will get more reliable as the market adjusts and absorbs the pain.”

Sonda “Sunny” Banka, a broker with Metro Brokers/Sunny Homes & Associates Inc., also thinks that short sales account for a large percentage of the market.

“If I pulled 50 listings anywhere in the Denver area – in any price range – and I had a buyer that was not interested in looking at short sales, I would probably only have eight or 10 homes to show,” Banka said.

Bobby Burnett, a broker with Keller Williams Realty, thinks that short sales account for 40 percent of the sales activity in the Denver area. His business is “45 percent of 46 percent” short sales.

He thinks that many brokers, new to the world of short sales, aren’t checking the box on Metrolist forms.

“Some brokers do not know enough to check off the box,” Burnett said. “Some of them instead might list it as a short-sale on the comments part, but it doesn’t end up get recorded as a short sale. It’s a monumental task for MLS to police this.”

He also said that he has heard that some brokers do not want to list it as a short-sale, either because their client doesn’t want them to in order to avoid low-ball offers, or because they think there is a “stigma” to a short sale. The flip-side of that is that a short sale may generate more offers from buyers looking for bargains, he said.

Challenging situation

“I will tell you it is challenge,” to make sure brokers check the short-sale box, said Melissa Olson, of Metrolist. “We have no way of validating if it is a short sales, unless, of course, we are contacted and it we look into it.” Brokers can anonymously contact Metrolist about any alleged violation, including failing to correctly list a home as a short sale.

Although the Metrolist rules requiring brokers to check the box saying it is a short sales went into effect in June 2008, some brokers may not know about it, despite repeated reminders send to them by Metrolist, Olson said. At least in the past, some brokers even noted the home was a short sale in public marketing materials, but neglected to check the box.

There are potentially penalties for not following the rules, but Olson said Metrolist is much more interested in educating brokers to the correct procedures than punishing them.

According to Metrolist data, the number of single-family short sales peaked in June at 457, and then fell to 271 in July. That is a 40.7 percent drop, even though all closings only dropped 19.5 percent in July from June. Condo short sales also hit a high in June with 96, and then fell by 36.5 percent to 61 in July.

“I have no idea why that would be,” said Dave Liniger, co-founder of RE/MAX International, when he was shown the data earlier in August by InsideRealEstateNews. “It might just be an anomaly.”

Liniger said that he thinks that short-sale activity will pick up in the Denver area and nationally. Lenders typically lose about 15 percent on a short sale, compared with about 34 percent on a foreclosure sales, according to a national study released in late June by RealtyTrac.

Liniger’s take

Liniger helped draft new federal guidelines for lenders to that went into effect on April 5, under the federal Home Affordable Foreclosure Alternatives, or HAFA program. Although the program did not go as far as Liniger wanted, he said it is a step in the right direction and will help. Fannie Mae was not part of the April HAFA guidelines, but on Aug. 1 began implementing its own version of trying to streamline the short-sale process. FHA and VA also have their own guidelines for short sales.

At first, Liniger said, short sales weren’t as popular as they should have been, because most brokers didn’t know what they were doing. Now, tens of thousands of brokers have taken courses teaching how to navigate the tricky paper-work required for short sales.

Also, lenders are finally beefing up their loss-mitigation departments, after being over-whelmed by homeowners seeking short sales instead of losing their homes in foreclosures. While not perfect, they are much better than they were a year ago at handling the incredible volume of business, he said.

The final piece of the short-sale puzzle are the investors, who bought securitized mortgages, Liniger said. Many consumers may be surprised that it is often nameless investors, not their loan servicer that collects the monthly mortgage check, that actually owns the mortgage and has to sign off on the short sale.

Overseas investors’ role

“Of those investors, 65 percent are overseas,” Liniger said. “They felt they were left holding the bag. After all, they are the only ones not getting paid. The real estate broker got paid a commission at the sale, the mortgage company got its cut, the title company was paid at closing. But the investors are coming around, because they realize they are typically going to lose a lot less if they accept the short sale than if it goes into foreclosure.”

But Ron Woodcock, a broker with RE/MAX Southeast, who has been primarily working with short sales and distressed properties for more than two decades – first in Florida and in recent years in Colorado – couldn’t disagree with Liniger more.

RE/MAX broker disagrees with Liniger

“Dave Liniger is a genius,” Woodcock said. “He is way smarter than I ever will be. I know he is the CEO of RE/MAX, but I think he is wrong on short sales.”

First, Woodcock thinks the short-sale training programs are not very helpful. He said that experience will trump a few hours in a classroom,

And he thinks the April 5 HAFA guidelines have not helped at all, in the vast majority of the cases.

“They maybe help with one out 10 deals,” Woodcock said. “For most lenders, they are voluntary guidelines and they are worthless.”

On two recent deals, Woodcock had to put in calls to the CEOs of Bank of America and GMAC to close short sales. While he didn’t reach the CEOs, he said he got close enough to the top to have have them put the pressure on the local officials to have them close the deals.

Burnett, of Keller Williams, also said the April guidelines have been a bust.

“I think it’s made it worse,” Burnett, of Keller Williams, said about the April 5 short-sale rules. “If it speeds up anything, it speeds up their denial of that short sale.” What happens then is the process returns to square one, he said, wasting the time of both the buyer and sellers.

Fannie Mae getting in the way?

And Woodcock is concerned but what appears to be a recent policy change by Fannie Mae loans. In the past, lenders would routinely postpone foreclosure sales if the owner was working toward a short-sale solution. But last week, a lender told him Fannie Mae’s new rules would not allow it to postpone a foreclosures sale. So instead of a short sale, the home was sold at a public auction last Wednesday by the Arapahoe County Public Trustee.

“If this is their new policy, it is going to lead to a wave of new foreclosures,” Woodcock said. “It is going to be devastating.”

Sunny Banka was the broker on the other side of that transaction, and was as equally as unhappy.

“I went back to my Metro Brokers office, and about three other brokers told me the same thing had happened to them,” Banka said. And Woodcock said a broker in northern Colorado recently told him that she also was told a lender told her that Fannie Mae no longer would postpone a foreclosure auction, even if a short sale is in process.

Fannie Mae, in its new short-sale rules, notes that if foreclosure proceedings have been initiated, the servicer must attempt to schedule a foreclosure sale after a 120-day marketing period, whenever feasible. Also, without Fannie Mae’s prior written consent, a servicer must not consider a Fannie Mae short sale or deed-in-lieu (DIL) of foreclosure,  if a foreclosure sale is scheduled to be held within 60 days of the borrower’s request for a short sale or DIL or if it is determined that the borrower is ineligible for the government’s Home Affordable Modification Program, or HAMP.a foreclosure could be initiated and reasonably be expected to result in a foreclosure sale being held within 60 days of the borrower’s request for a Fannie Mae HAFA short sale or DIL or a determination that a borrower is ineligible for HAMP;.

Henry Cisneros, the former HUD director who was in Denver recently, said he has no knowledge of Fannie Mae not stopping foreclosure sales if a short-sale is pending.  “This is the first I have heard of it,” Cisneros told . “But I do think we need to do everything we possibly can to keep people from losing their homes in foreclosures.”

Failed tax-credit deals factor

Meanwhile, Katherine Jolliffe , a broker with 8Z Real Estate, said that some first-time buyers had placed short sales under contract to get the $8,000 tax credit, but are now unable to close on them by the Sept. 30 deadline, and so they are coming back on the market.

Some first-time home buyers snapped up short sales priced $30,000 or $40,000 under the market, but are now finding that there is little to no chance of them closing by Sept. 30. “There is no closing date when you place a short-sale under contract,” she said.

Jolliffe fully preps any prospective buyer who is interested in a short sale.

“I tell them that that it takes a lot of patience,” she said. “If you are not in a hurry, they can be very good deals.”

But she said there is no point in prospective buyers calling her weekly on the status of the short sale. “You might call the bank and they’ll put you on hold for three hours, and when you get someone at the other end, they hang up on you,” she said. Paperwork is frequently lost and has be be misplaced.

“And banks will only work on one short-sale at a time,” so if a deal falls apart -sometimes after months or even a year of waiting -it’s back to square one, she said. Indeed, she said the prospective buyers have walked away from a lot of homes listed in the MLS as “active short sales.” The broker often is hoping to slip in another buyer at the last minute, but she said more often than not, the bank will shut them down and make them begin the process over.

Deal of the Year

Yet, what she calls her “Deal of the Year,” was a short sale.

A family in Wyoming bought a home at the eastern edge of Fort Lupton for $280,000.

“It’s probably worth $100,000 more than that in a half-way good market,” she said. “It’s a brand new home with a five-car garage on a third of an acre. The family didn’t even know where Fort Lupton was. But after seeing this house, she told me, “I guess we’re moving to Fort Lupton.”

But that deal almost collapsed because the husband’s name was listed as a co-owner in the purchase contract at the 11th hour.

“No one told me they were doing that,” Jolliffe said. “It was a nightmare. It took over two weeks to just to get a response from anyone at the bank,” to approve the relatively minor change. Thankfully, the bank did agree to add his name, but it delayed the sale.

“They were homeless for a week, while we were waited for the approval. But they finally were able to close, and they were so excited. That makes it all worthwhile.”

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Month 2009 SF 2010 SF 2009 Condos 2010 Condos
January 102 244 12 51
February 127 257 32 72
March 236 331 29 71
April 237 373 47 72
May 253 337 42 53
June 308 457 32 96
July 338 271 59 61
TOTAL 1601 2270 253 476

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Contact John Rebchook at JRCHOOK@gmail.com

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