Short Sales in Oregon
By Charles TurnerOur sales meeting topic yesterday was short sales. The meeting started something like this, “What is a short sale?” “It means that someone is taking it in the shorts.” Actually a very accurate response but there is more to it. RMLS and OREF, which produces the forms that are standardized for Oregon real estate, have acknowledge the increase of this type of sale in our market by modifying the rules and creating new forms.
For our purposes here, the RMLS rule change doesn’t really matter, it is just about how an agent handles the switch from Active to Pending while waiting for third party approval. OREF new Short Sales- A Brief Summary is great disclosure describing short sales. The is also a new addendum that goes along with short sale transactions.
From the Summary:
1. DEFINITION. The term “Short Sale” is used to refer to those real estate transactions in which the agreed-upon purchase price is insufficient to pay off all of the secured debt on the property (such as mortgages, trust deeds, state/federal income taxes, liens, property taxes or other local assessments) including the costs of closing, such as escrow and recording fees, title insurance premiums, real estate commissions, etc. If the seller is in bankruptcy, a trustee for the seller’s creditors will take control of the sale. In most Short Sales, the seller must secure an agreement from one or more third-party creditors to accept from the closing proceeds something less than the remaining amount of the debt due them. In other words, the debt is “shorted” or reduced. The one thing common to all Short Sales is that the final decision on price and terms of the transaction, as well as the identity of the ultimate buyer, will be in the control of third parties, usually creditors, whose consent to the transaction is required in order for the seller to convey clear title to a buyer.
Emphasis added.
With continued positive appreciation I am surprised that this is such a hot topic! A couple of years ago this was not as much of an issue as it is today…
Here’s another measure of market conditions: When the RMLS and OREF acknowledges an increase in short sales, such that they need to be studied so that forms adjusted.
I’d suggest that short sales are very negative for the overall health of the market. Since short sales are generally not a first response, there have been a few months of time lost in addition to the recognition of a lower selling price. Similar to foreclosures, I’d also suggest that short sales place a high degree of downward pressure on prices in a given neighborhood.
One thing I should add from the definition:
This Summary [and I only included part of it] is not intended to be a complete explanation of Short Sales, does not constitute legal advice, and should not be relied upon in lieu of securing competent legal, tax and consumer credit advice.
JP, I think you would be surprised how many listings start as short sales as the first listing. Not always the case but more than you would expect.
Charles-
Short sales seem a little like marriage: What buyer buys a home planning to sell short? It never ceases to amaze me how some marriages last less than a year… …and some only last a few days or hours, Britney Spears, for example. “Total time as a married woman: 55 hours.” “Spears decided to get married ‘just for the hell of it’”
http://www.msnbc.msn.com/id/3869708/
Outliers never cease to amaze me, but they really do not reflect on the norm.
One of the big problems with short sales it the amount of time it takes to put the deal together. The buyer must be aware of this or may move on. I read of one of the bank personal handling short sales had 300 offers on his desk. If the lender is already loosing money on these deals, they are not likely to hire more people to speed up the job.
One of the big problems with short sales it the amount of time it takes to put the deal together. The buyer must be aware of this or may move on. I read of one of the bank personal handling short sales had 300 offers on his desk. If the lender is already loosing money on these deals, they are not likely to hire more people to speed up the job.
In a market with a down trend closing a sale sooner is better than later. Lenders are, as has been well documented, not good realestate investers.
Were I the buyer I would make sure that I could exit with my earnest money with 2 business days notice. There may well be a better deal down the road. Snooze, they loose.
Nell Plotts-
“In a market with a down trend closing a sale sooner is better than later. Lenders are, as has been well documented, not good realestate investers.”
When do you think the lender wants to record the loss?
These properties are like a wart on the tip of their nose. The longer it stays without removal the uglier it gets.
The lender has write down concerns and few are known to be strategic managers (else they wouldn’t have these problems).
IMHO, buyers shouldn’t fall in love with a short property. Make an offer with contingencies that don’t stop you from continue keep looking for a better deal.
Nell Plotts-
Short sales are not as much of a wart as foreclosures. In fact, as a lender I am not real quick to approve short sales.
On an actuarial basis which is better:
1. Not approving any short sales.
2. Putting short sales through an approval process that is not as quick as the seller would like.
3. Quickly approving short sales.
Of course this will depend on discount rates, how far below the interest rate that the market is performing (if the market is performing above the interest rate, it’s generally better to wait), the chance that the owner will be able to find outside funding (relatives, lottery, etc.), the chance and ultimate cost of foreclosure.
Call me dumb if you like, but when someone calls me up and asks, “I just want to walk away, will you make it happen by discounting the loan a few thousand today,” I am not so quick to say, “I better take this deal right away, and I am sure it is in my best interest to do so.”
Once it is realized that the property is going to sell short, take notice how the existing homeowner doesn’t really care about the final sales price. As the lender, I am very sensitive to the final sale price, and I am not so sure what has been done to protect my interest–and from past experience, warts and all, I am better off protecting my own interest, even if the exiting owner and prospective buyer is not happy. Of course I have lost out on good offers too, but the too low offers outweigh the few good offers.
Great article….but something to keep in mind on a short sale. If you have two different lenders (ie a second loan), make sure
they are from the same bank. For example, primary loan is with countrywide and secondary loan is with countrywide.
The reason for this is that more than likely the seconary lender will not work with you on the short sale. Reason: Simple, they won’t be getting back any of their money.The primary may want to work with you…but without the secondary loan your home will not be sold through a short sale..
how does a short sale effect bargaining power for inspection contingencies? We are looking at several short sales and wondering if we should avoid paying for inspections and look for something else if the lenders aren’t going to reduce the price for what comes up in an inspection…..as a first time home buyer with a small budget, I wonder if we should be avoiding any short sales at all..