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Is the Hey Day of the Short Sale Over?

Is the Hey Day of the Short Sale Over?

Probably not.  I think the hey day of the “strategic short sale” is at least taking a breather while the future of the Mortgage Forgiveness Debt Relief Act is still being debated.  However, there is still a ton of negative equity out there.  And even though many are reporting housing prices trending upward, it would take a rabbit being pulled out of a hat to transform the situation of many borrowers who are more than 50% underwater into a positive equity position any time soon.  And just as the lack of inventory drives buyers to bid up prices, many report that low appraisals are hindering those same bid up sales from closing.  So, the upward price trend seems guaranteed to be a slow process, and some borrowers simply can't hold on that long.

I do think short sales will be around for quite awhile.  That is unless or until the negative equity goes away.  Whether the number of short sales will trend up, or whether we have already seen the peak is yet to be seen.   However, some borrowers who receive the proper tax advice while batting around the idea of a
short sale may learn that they qualify for tax relief due to “insolvency,” so the Mortgage Forgiveness Debt Relief Act may not be their only pathway to some "relief."  And, the principal hardship reasons that cause many short sales continue nonetheless:  divorce, unemployment, death of a borrower, disability, and employment transfer.

In my opinion, the biggest influence on the high number of short sales continues to be massively underwater borrowers.  Whether it is a wise decision or not, I know many borrowers who would gladly gut their 401K to avoid a
short sale if they were anywhere close to breaking even.  However, many borrowers still cannot "afford" to avoid default when they encounter hardship. Very little has been done to address the negative equity problem and extension of the Mortgage Forgiveness Debt Relief Act will not escort that elephant out of the room.  So, while some would-be “strategic short sale” sellers wait in the wings over the Mortgage Forgiveness Debt Relief Act, short sales will continue to happen due to massive negative equity and the need to sell now.

Before deciding whether to short sell your home, it is essential that you obtain legal and tax advice, and consult with an experienced local short sale agent. If you are considering a short sale of your Santa Maria, Orcutt, or Nipomo home and would like a complimentary short sale consultation, please call my office to schedule an in person meeting or a telephone consultation at (805) 938-9950.

Tni LeBlanc is an independent Real Estate Broker, Attorney, and Short Sale Agent. She is a Certified Distressed Property Expert (CDPE), Short Sale and Foreclosure Resource (SFR) and Certified HAFA Specialist (CHS) serving California's Santa Barbara and San Luis Obispo Counties.

* Nothing in this article is intended to solicit listings currently under contract with another broker. This article offers no legal or tax advice. Those considering a short sale are advised to consult with their own attorney for legal advice, and their tax professional for tax advice prior to entering into a short sale listing agreement.

Copyright© 2012 Tni LeBlanc *Is the Hey Day of the Short Sale Over?*

Tni LeBlanc, Broker
(805) 878-9879 mobile/text

tni@mintprop.com
www.MintProp.com
CalBRE #01871795

Comment balloon 35 commentsTni LeBlanc, Realtor®, J.D. • December 08 2012 02:19PM

Comments

Short sales are still here, for awhile, but getting more streamlined and not such a nightmare. I used to avoid them like the plaque but anymore they seem to be a lot easier.

Posted by Joel Weihe, Helping you to use your VA home loan benefits (Realty World Alliance) over 5 years ago

Good topic and great article Tni.  It's an interesting situation which, as you say, won't be going away any time soon, unfortunately.

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) over 5 years ago

I believe it will just send more people with negative equity who must sell straight to bankruptcy court.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 5 years ago

Tni, I have seen many more short sale closings in Lincoln County this year than any other time. My own experience has been successful, but difficult. Your blog was well written and informative, thanks for your thoughts! I am sending this to a fellow broker who just closed on one yesterday, high five to all who tackle these time consuming and emotionally draining transactions. It takes a well informed and strong professional to get them closed.

Posted by Barbara Le Pine, Your agent for the Central Oregon Coast! (Advantage Real Estate, serving Lincoln County) over 5 years ago

Tni, I was hoping your answer was yes it's almost over.  I can't imagine it will be anytime soon in this area.  Short sales have just passed REOs as the bigger distressed property sale in this area.  Blah!

Posted by Mike Cooper, Your Winchester, VA Real Estate Sales Pro (Cornerstone Business Group Inc) over 5 years ago

Joel - They are indeed getting more streamlined.  Some are downright easy these days.  Others continue to be difficult, but I can spot a difficult short sale a mile away and try to prepare all those involved.

Thanks Carla - I agree not anytime soon.

Hi Lenn - Unfortunately, that is probably the case.  If they don't re-authorize this Act bankruptcy will be the best alternative for many people.  Legal advice is so key in these situations.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 5 years ago

For the owners sake, hope the short sales days are over. But seems like many owners are still underwater, out of jobs, have bad laons, and appraisals not coming in for refi's.... short sales may be here for few more years...?

I sure would like to know.

Posted by Mahesh Mike Patel, Call Me And Consider It Done! (First Team Real Estate) over 5 years ago

Barbara - It certainly does in many cases!  Sometimes I forget that over 4 years of experience may make some short sales easier for me than most.  There is a learning curve.  Congrats to your colleague.  I do look forward to when we can all get back to selling real estate instead of calling Bank of America. LOL.

Hi Mike - My area is similar.  I get calls daily from people who are massively underwater.  They won't catch up for 10 years.  If any hardship happens during that time period - they will probably have to do a short sale.  Many of these people have loan mods, but if any life event happens that requires them to sell, they will have to short sell.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 5 years ago

Mahesh - So true.  Even when negative equity doesn't force the short, you still have unemployment and adjustable rate loans forcing people into selling now.  I can't tell you all the appraisal horror stories I hear on refis which are supposed to be helping homeowners in this environment.  I just wonder why principal reduction is completely off the table.  Even now.  Until that happens, short sales will be here for quite awhile.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 5 years ago

Tni - I don't think short sales will be going away anytime soon as long as the debt reduction act gets extended.  If it doesn't then we will probably go back to lots of REO properties like we had a couple years ago. 

Posted by Jim Patton, Realtor - Stanislaus & Merced county Realtor. (Century 21 M&M - 209-404-0816) over 5 years ago

Great article TniLeBlanc.  People also need to understand a short sale is not a fix all solution and like many of the drugs on tv advertisements they have definite side effects or in this case consequenses depending apon where you live.  Good thing people only need to make one phone call to get short sale and legal advice in your neighborhood.

 

Posted by Joe Kenny, Better Than Your Average Joe (Realty Executive Midwest) over 5 years ago

We certainly have not seen the end of the short sales..  I think anyone considering a short sale definately should consider seeking legal and tax counsel.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 5 years ago

Tni - We have too any upside down owners for me to believe short sales will be a thing of the past any time soon, though you may be right about the strategic short sales.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 5 years ago

A past client of mine in 2010 approached Chase to do a loan modification, they turned her down, so she stopped making payments, and in June of this year was given a loan modification without applying for one--she felt that it was to good to believe. The principal on her home was reduced by $100,000 and her payment was also reduced. Go figure.

Posted by Lorraine or Loretta Kratz, Certified Negotiation Consultants (Crescent Moon Realty, Inc. & Land N Sea Auctions.) over 5 years ago

I suspect short-sales will go on for awhile longer, even though inventory in Sacramento is greatly reduced, and we are beginning to experience price increases.  However, I am already hearing rumblings from those who lamented they were considering short-sale or other remedy a year ago.  They seem to understand some recovery in value may make staying in their homes for the long haul, may not be as disasterous as once thought. 

Posted by Myrl Jeffcoat, Greater Sacramento Real Estate Agent (GreatWest Realty) over 5 years ago

Tni we are far from being past the short sale issues here in Phoenix.  If the act is not extended, clearly there will be a different strategy for short sellers.   

Posted by Anna Banana Kruchten CRB, CRS, Broker, Arizona's Top Banana of Real Estate! (Phoenix Property Shoppe) over 5 years ago

Jim - I always tell short sale sellers to check with their tax adviser about the tax consequences of foreclosure as well as short sale.  That is because I've found that many of the former owners I meet with who underwent a foreclosure also received 1099s that they had to deal with tax wise.  Of course, whether there are more short sales or foreclosures, I'm sure current buyers will just be happy to see more inventory period.

Hi JoeKenny!  Yes, its true when you start missing payments a short sale can really drag on your credit.  I think short sales with no missed payments are ideal.  And, if you miss payments it can be years before you can buy again.

Joan - I agree.  They are here to stay and professional advice is essential.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 5 years ago

Christine - I agree too much negative equity to think short sales are done.  I do think the strategic bunch is waiting on the sidelines right now, but those who have "classic" hardship can't wait.

Lorraine - I love to hear those stories.  Wish they weren't so random and rare.  I think we would all be better served to keep people in their homes and deal with the errors of the past straight ahead.

Myrl - I think many of the people who have hung on this long would like to keep their homes at any cost.  However, the longer this goes on the less chance that those with significant negative equity will be able to hang on without a short sale or foreclosure.  Many people have already been unable to make a move for 5-6 years already.  The longer it goes on the more likely a life event will happen that will force them to sell now.

Anna - I agree I think a lot of strategic short sellers will delay if the Act is not extended.  But the need clearly will still be there in Phoenix and in my area as well due to negative equity.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 5 years ago

I just saw some article earlier today that stated that if history serves us corrently, we are headed for a dip in July. Not sure whether I believe it, but if there is one, that would be another indicator that we should not take off our short sale hats.

Posted by Melissa Zavala, Broker, Escondido Real Estate, San Diego County (Broadpoint Properties) over 5 years ago

Tni, there are still plenty of people out there with negative equity and some of them will have to move for various reasons, with or without the mortgage debt relief.

Sharon

Posted by Sharon Alters, Realtor - Homes for Sale Fleming Island FL (Coldwell Banker Vanguard Realty - 904-673-2308) over 5 years ago

Tni, short sales are here to stay, for a while. I was surprised that the act wasn't extended before the election, but now I really hope they figure something out.

Posted by Eric Michael, Metro Detroit Real Estate Professional 734.564.1519 (Remerica Integrity, Realtors®, Northville, MI) over 5 years ago

Tni, with so many 'courses', 'webinars', 'seminars', I, too, DO believe that short sales are HERE TO STAY! It's just how many agents will still continue to focus their business on short sales...

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (LAER Realty Partners) over 5 years ago

Hello Tni. I agree that this isn't the end of short sales and its just more of a strategic short selling. We will definitely recommend you Tni as Top Santa Maria short sale agent.

Posted by Katerina Gasset, Get It Done For Me Virtual Services (Get It Done For Me Virtual Services ) over 5 years ago

Tni, as always you share great information on the longevity of short sales and we have a ways to go here too...going to re-blog!

Posted by Ginny Gorman, Homes for Sale in North Kingstown RI and beyond (RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate) over 5 years ago

Hi Tni.  Great post.  The Congress is dropping the ball in so many areas.  The Mortgage Relief Debt Relief Act needs to be extended.

Posted by Conrad Allen, Webster, Ma, Realtor (Re/Max Professional Associates) over 5 years ago
Tni, wow! What a great blog title to get some chatter on the Rain, I personally see short sales sticking around like your artcle indicates, I just wish home owners would seek legal and tax advice first before jumping into a short sale. Good Stuff and best wishes Bob
Posted by Bob Ratliff, "Sold on Bob" (Canyon Vista Realty) over 5 years ago

Definitely not Tni. Though the opportunities may have been reduced, the situation just calls for strategy. Thanks for sharing this Tni and stay as best Santa Maria short sale agent.

Posted by Erika Rogers, St George Utah Real Estate & Relocation Specialist (Red Rock Real Estate ~ Southern Utah's Largest Independent Brokerage) over 5 years ago

There are attorneys reccomending that owners just forget about doing short sales in cases where the the borrowers contacted their lenders, and the lenders agreed to waive deficiencies. People are going to lose the home one way or another, so the idea is for people to just stay in their home as long as possible and save up money since they aren't paying their mortgage, and hire an attorney to fight the foreclosure instead. ( of course, some states move faster than others with foreclosures, so I'm not sure how that would work state by state)? I do know people that have lived for free for 6 months - 2 years while waiting for bank to get around to foreclosing),( actually did a DIL), and then the bank even pays some of the owners $3000.00 when it was time for them to move out. I guess it just requires evaluation on a case by case basis? Personally, I have noticed an increase in people that choose to just stay as long as possible, ( until they find a rental), then one day they will just pack up and abandon the house). And in some cases, they take appliances, and anything of value in the house with them.

Posted by Jeff Pearl, Full Service Full Time Realtor (RE/MAX Distinctive / LIC in VA) over 5 years ago

Tni, short sales are here to stay for some time.  An artificailly inflated market through non-pursuit of foreclosres will be the demise of the short sale though once again leaving consumers behind.  Expiration of the Emergency Economic Stabilization Act will see to it. 

Posted by Kevin J. May, Serving the Treasure & Paradise Coasts of Florida (Florida Supreme Realty) over 5 years ago

Hi Melissa - I'm hoping to see an increase in inventory at the beginning of the new year.  It feels like the banks are holding back and I know some short sale sellers are waiting on the result with this Act.  If we do see an increase in inventory, I don't think a dip is that far out of the question.  I'm already seeing short sales for people who bought as late as 2009!

Sharon - Exactly people may be able to carry negative equity until they have a life event.  The amounts of negative equity are so large even people with some resources still haven't been able to fish themselves out of a short sale.  Bankruptcy is a possibility for some... but not for all.  Legal and tax advice are essential for people in these situations.

Eric - I was a little surprised by that as well.  But with this whole fiscal cliff issue, I think it is being swallowed up.  Plus now politicians get credit for doing something about the housing crisis even though this is just extending the status quo.  Big deal even if they do pass it.  What about all the negative equity out there?  We need this but we also still need to deal with all that negative equity to really solve the problem.

Praful - In my area I see more and more agents directing their short sales to 3rd party negotiators.  Or I see one agent at their brokerage who just takes over this type of work and a majority of the files.  They do the real estate and someone else does the short sale. In my area at least, many agents don't want to deal with short sales personally anymore.  They are tired of them.   I handle them myself and within my brokerage.  You have to be organized and be able to deal with paperwork and bureaucracies.  My legal background is a definite plus when going up against a bank.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 5 years ago

Thanks Katerina! And I agree short sales are not over just yet.

Thanks for the re-blog Ginny

Conrad - I agree and it does.  The American people are still waiting to be bailed out, but I guess that's a moot point, right?  Now we have to fight for tax forgiveness for people who are forced into short sales.  When we "win" this battle we will have managed to keep things exactly as they are.  These expiring Acts really keep politicians looking good without having to really do anything new.  Great business plan on their part.

Bob - I do too.  Some really don't think they need it and they do.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 5 years ago

Thanks for stopping by Erika.

Jeff - Interesting.  If you don't mind ruining your credit for an additional two years I suppose that works.  We all know it is the late payments that really kils someone's credit score.  With two years of late payments, you are really taking a hit and then of course you are extending the time frame to come back and buy again.  If they miss no payments, they can immediately buy again (with a few restrictions) using an FHA loan.  I think they are sacrificing a lot -- but of course it all depends what your situation really is.  If you are unemployed, you may not even be able to get a lease on another place so your concern may be just keeping a roof over your head and using your unemployment check for gas and food.  I'm curious though, where does the money come from to pay the attorney to fight the foreclosure in that scenario?

Kevin - It will be interesting to see how it all plays out.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 5 years ago

Tni, I really appreciate your post.  Lots of good information here and in the comments, too.  The belief in my area is that we will continue to see many short sales and to plan accordingly.  Thanks for your post.

Posted by Christina Sanchez Hood, #SiliconValleyHOODS | Inspired Living over 5 years ago

Tni, I suppose the attorneys think that people that are still working are actually saving the money that they use to use for mortgage payments, and using that money for attorney fees? Many people plan to rent and aren't concerned with buying again. ( Maybe in 5-10 years they will change their minds)? " If " they miss no payments is right, but many lenders still want owners to be deliquent to qualify for a short sale. The 90 day lates on their credit add up sometimes for 6 months or more while waiting on lender approval on short sales anyway, and many times they already had 3-6 90 day lates while trying to sell and get an acceptable contract. I guess each person has to make their own decision based on what their long term plans are? The other source for attornry fees come from the sales commission. Some firms are offering to manage the short sale process for 1% of commission.

Posted by Jeff Pearl, Full Service Full Time Realtor (RE/MAX Distinctive / LIC in VA) over 5 years ago

This wave of short sales may be leveling out but as the value of the dollar continues to drop and with 91.5 million adults not working its only a matter of time until they will all be short sales

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