Banks are contacting customers who are past due or in financial trouble and offering owners or tenants up to $20,000 in relocation assistance to move out of home and hire an experienced agent to sell the home as a short sale with a short term loan option.  Banks are also offering owners money to agree to a deed in lieu foreclosure in some instances as well.

Benefits of Short Sale Versus Foreclosure Chart
Alternatives to Foreclosure Chart

There are several advantages for taking the bank up on their offer.  If you let the property go to foreclosure, you’ll be evicted without relocation assistance.  Additionally your credit will suffer more in a foreclosure than a short sale or deed in lieu.  The owner is more in control when actively pursuing a sale through an experienced agent than giving up all control to the bank and the legal system.

A short sale is a commonly used alternative to foreclosure. Generally, when putting your home on the market, the goal is to market and sell your house for an amount greater than any and all outstanding liens against the property. Liens include all mortgages, escrows and fees on the property.

If you can no longer afford to make your mortgage payments and your house is worth less than you owe, a short sale allows you to sell your house at the current fair market value. You then have an option to move to a more affordable situation. In a short sale, the investor or owner of your loan must approve the sale because they are entitled to repayment of the loan and will be receiving less than the amount owed.

If you have additional liens on your property with other lenders, such as a home equity loan, all investors must come to an agreement in order to complete the short sale. This process takes time, and an experienced agent is required to navigate and negotiate through these challenges.

Another alternative is a deed in lieu of foreclosure. With a deed in lieu, you voluntarily transfer ownership of the property to your investor to satisfy the amount due on your first mortgage. In some cases, you may be eligible for a deed in lieu without first attempting a short sale of your home. A deed in lieu generally takes about 90 days, depending on your situation.

In either a short sale or deed in lieu you may be responsible for paying a deficiency.  There are many factors that determine this, such as if the home was your primary residence, what state you live in, your financial situation, etc.  Sometimes this can be negotiated with your lender.

In any event, most lenders agree it is much better on your credit report and they are likely to lend you money in the future faster if you agree to a short sale or deed in lieu instead of a full blown foreclosure.

If you’ve been contacted by your lender, it may be at least worth considering your options.  Don’t throw away documents sent to you by your lender.  If they make you an offer call your attorney for legal advice or an experienced real estate agent for advice on the program and assistance selling your home.

The banks really don’t want your home back.  They’d prefer that owners pay their mortgage payments.  When that’s not possible, it may be less expensive to offer the occupant relocation assistance and get on with the process of selling the home before it gets to the costly foreclosure process.  Once the home gets into foreclosure, the costs mount, the credit suffers, and owners lose options.

If we can help, call us at 239-489-4042.  Each situation is unique and it takes time to look into each program.  The good news is we have past experience with many of these programs.

 

As you can see from the graph, short sales have been on the uptick over the past two year period as lenders have geared up to handle more short sales. It is proven that banks lose less on short sales as the property tends to stay in better condition throughout the process, and the banks spends much less on attorney’s fees and vacancy on short sales than foreclosures.

SW Florida Short Sales
Fort Myers, Cape Coral, Lehigh Acres Short Sales

 

As you may recall, the government came out with programs like HAMP and HAFA as well as others, but none have been largely effective at curtailing foreclosures. You might ask yourself when has the government ever setup a big program that worked as the politicians said it would.

These programs were also mostly voluntary. Some of the banks have realized that selling a home as a short sale is in their best interests, and some must have decided it’s not. We wonder if perhaps banks don’t want to show losses on their balance sheet today, so they’d rather wait and take a bigger loss tomorrow on a foreclosure because the income statement can better handle it in the future. Perhaps the answer to that theory is best answered on a case by case basis.

Some banks have invested significant resources to address short sales. Bank of America for example has trained certain agents and put their entire short sales system online similar to how we work their foreclosure system. The beauty of an online system is that everyone involved can look at the file and upload their piece of information so the bank can make quicker decisions. We’re finding this system works miracles over previous antiquated fax and wait systems, only to find out the bank lost the fax.

Now there is accountability and tracking. Chase is another example of a large bank we’ve had good success with lately. Besides Bank of America, Wells Fargo, ASC, BSI Financial Services, and Nationstar Mortgage have also gone to the online system known as Equator for their processing of short sales. We expect to see significant improvements in the communication, processing, and closing times of the banks that have gone to online processing.

Banks such as Ocwen, SunTrust, and many others have been particularly difficult to deal with and take their time, even when they know the buyer has waited too long and is about to walk from the deal. There just doesn’t seem to be any sense of urgency or accountability at some of these banks and you get the feeling of indifference from them.

Nothing hurts a business more than indifference. A customer can receive bad service, but as long as they feel like somebody cares they’ll still repeat. When a customer feels like nobody cares, bad service is remembered and even talked about. Sometimes I wonder if indifference in tough times will be remembered by customers when the good times flow again and how this will affect these banks business in the future.

Each short sale is different though and even though we may be dealing with a bank, there may be an investor on the backend that just doesn’t want to accept less than the full amount owed. You would think by now most of these investors would look at the BPO (Broker Price Opinion), the appraisal, and the payment history of the borrower and realize doing the short sale may be in their best interest.

Sometimes we blame the banks, and believe me they deserve much blame, but we must remember that they also may be dealing with an investor and they’re just the middle man. It’s always easy to blame the middle man, but a little communication would go a long way in a tenuous process.

Short sales can also be complicated when there are liens on the property such as utility, or homeowners associations, property taxes, or even unpaid workers who worked on the property. Adding to the complexity is when we have to deal with multiple loans or home equity lines of credit, PMI companies, etc.

The short sale process isn’t easy for amateurs. While it is complex, we do salute the lenders who are taking it seriously and utilizing today’s technology to facilitate communication and expediency. It will be nice one day when we never have to do a short sale. Until then, it is the new normal so we might as well master the process, and that includes agents, lenders, appraisers, title companies, lawyers, and everyone involved in an intricate process.

It’s been a little while since we released the official SW Florida Real Estate Current Market Index.  This index accurately predicts the near term forward direction of the local real estate market by analyzing current market activity against inventory levels and assigning a value.  A lower index level indicates a hotter the market, and a higher number indicates a cooling market. 

Current Market Index-Southwest Florida Real Estate
Ellis Team SW Florida Current Market Index

As you can see, the forward indicator heated up in February and we witnessed strong sales since that time.  We have noticed a slight cooling trend since May.  As we write this article official numbers haven’t been released yet, but we have spoken with several agents and loan officers who have also indicated a cooling trend since May. 

At 4.94 the index still boasts very strong numbers; however the trend has been rising lately so we’ll want to keep an eye on it.  One reason the market has cooled a bit is because bargain based foreclosure property inventory levels have fallen off which has cooled buying demand.  SW Florida has been a price sensitive market and buyers are off the fence and buying because they perceive real bargains.  The looming question has always been what will buyers do when the real bargains begin to dry up? 

We have heard reports that banks will be unloading more foreclosures to the market soon, and already we are seeing that.  Banks are not filing new foreclosures at the pace they once were, so we wondered how this could be true.  The answer may be that the banks have not released the entire inventory they foreclosed upon in the past few years. 

To give an example, we just pre-listed a bank foreclosure we’ll be bringing to the market soon.  From the time an agent receives a pre-listing it can take 1-6 weeks or so before property is ready to bring to market.  Several reports, valuations, and decisions must be made, and in some instances repairs, water hookups, etc before the property is ready for market. 

This particular property had suffered some fire damage.  The bank of course wanted a fire report from the fire department once they learned this new fact.  Keep in mind, the banks don’t know what they’ve got on their hands until the appraisal and agent reports inform them.  We obtained the fire report and determined the fire occurred back in 2007.  It’s obvious the borrower has not lived in the property since 2007, and presumably hasn’t made a payment on a damaged property they weren’t living in. 

So the question is, if the buyer wasn’t making payments, why did it take from 2007 until now for the bank to foreclose and/or bring the property to market.  The bank is just now discovering there was a fire over 3 yrs ago in the property.  

The answer is either the banks have held back inventory, or have just been too busy working their backlog.  So just because foreclosure filings have been down in the past year doesn’t mean there couldn’t be more ready to hit the market.

In addition to the banks we’re dealing with, we’ve also been working on FNMA listings.  We’ve been told by various sources to get ready for an influx of FNMA properties as well, and already we’ve been assigned several pre-listings. 

Banks have been more diligent on short sales, but they’re still not quick enough.  Short sale closings have been rising, but they’re still a drop in the bucket compared to the struggling homeowners out there. 

With short sale closings rising, and the possibility of more bargains hitting the market, we could see the index drop again, but for now it is rising and we’ll want to monitor.  Nationwide sales have slowed, so it’s not just a SW Florida trend.  We’ll be watching sales volume and pricing trends closely in the coming weeks and update you.

Tune in to The Future of Real Estate Video Show.

We’ve been talking quite a bit the past several weeks about HAFA (Home Affordable Foreclosure Alternatives) program and other programs designed to make selling a short sale easier.  Going forward, these programs should provide some much needed relief for many sellers, and open up the market for more buyers.

We’ve noticed a trend this past year developing in the Lee County SW Florida real estate market.  As we’ve reported, sales numbers hit record levels in 2009, and prices look like they may have stabilized.  We’ve noticed that total distressed sales are down significantly since last May.  Our definition of a distressed sale in either a bank foreclosure where the banks sells the property on the open market after they’ve foreclosed, or a short sale by a seller hoping to avoid foreclosure and protect their credit.

Short Sales and Foreclosure Sales in SW Florida
Distressed Sales in SW Florida

Fort Myers is showing the most strength with only 47.83% of sales being distressed in March 2010.  Compare that to Cape Coral at 62.0% and Lehigh Acres at 74.19% Lehigh Acres is down from the whopping 88.5% set last June, even though they have leveled off about 75% the past 4 months.

Cape Coral has also declined, down from 78% last May to 62% now.  This chart explains why prices have stabilized in Fort Myers and Cape Coral, and why Lehigh Acres is a little shakier at the moment.

Inventory levels are down in all three segments, and sales are up significantly over February in Fort Myers and Cape Coral, and up moderately in Lehigh Acres.  Officially sales numbers have not been released at the time this article was written, and we believe going forward we’ll see some median price increases in Lee County, and especially in Fort Myers and Cape Coral.

We’re studying preliminary numbers, and we’re seeing an approximate 28% jump in sales over February numbers for single family homes.  There was an increase in distressed sales, but the majority of the increase was regular non-distressed sales, and this is encouraging going forward in 2010.

We’ll be keeping our eye on the market after the home buyer tax credits expire on sales after April 30, and on interest rates which are creeping higher.  Nationally consumer confidence is rising, and eventually that should trickle into job growth.  SW Florida has been hit hard with high unemployment, and we really want to study these numbers as ultimately employment will be the engine that fuels SW Florida real estate prices in the future.

Always consult a CDPE (Certified Distressed Property Expert).

A few weeks ago we wrote about attending a recent bank foreclosure and short sale conference.  We told you that banks and the US Treasury department have learned that home retention and loan modifications are not working, and that 2010 will be a year of “The Transaction” either by short sale or foreclosure.  More banks are actually pursuing both simultaneously. 

We’ve been illustrating graphs showing the percent of distressed sale activity in Fort Myers, Cape Coral, and Lehigh Acres for months now, and this week we decided to update Short Sale activity.  While analyzing MLS data this week we noticed foreclosure sales have dropped in January and February to about 579 per month, down from approximately 700 or so the previous 5 months.  This can be attributed to a backlog of foreclosures in process and a moratorium in place early in 2009. 

Closed Short Sales in SW Florida

We also noticed a stabilization and recent up tick in short sales, reversing a decline in December 2009.  Will these trends continue?  Let’s start with the foreclosures.  We believe foreclosure sales will increase in 2010 as the backlog comes to the market. In fact, we’ve received a large volume of foreclosure listings we’re working to bring to market.  It typically takes time to secure the property, assess the condition, the value, workup a Broker Price Opinion, compare that against the bank’s new appraisal, and meet with the investor to develop a marketing strategy on each property.  All of this is done through the use of a bank asset manager, either an employee of the bank or 3rd part asset manager.  Either way, asset managers specialize in disposing of REO (Real Estate Owned) bank foreclosures. 

Once the value and strategy is determined, the property goes from a pre-listing to an actual listing complete with instructions.  The agent then lists the property in MLS and solicits offers.  Many times the property elicits multiple offers, and the agent presents all offers that match the bank’s criteria.  For instance, we are not allowed to present any offers where we have not personally verified cash funds to close on all cash deals, nor are we allowed to present any subject to financing offers without pre-qualification from that bank’s in-house loan officers.  Banks do not want to take properties off the market simply because a buyer presents a pre-qualification letter from an unknown or out of town bank or mortgage broker.  Speaking from experience, banks and agents have had bad experience with pre-qualification letters.  They are easy to get, and are rarely worth the paper they’re written on, so it is quite natural the bank wants their own people to look at the qualifications of the buyer if they are getting a mortgage.  The borrower doesn’t have to use that bank, but the bank will not look at the offer unless they are offered their pre-qualification letter with the offer. 

So we know 2010 will offer more foreclosure properties that have been initiated in 2009.  What about short sales?  Banks are not offering loan modifications as much as they have proven that they do not work long term.  Politicians still promote the idea as it sounds politically correct, but it further exacerbates the problem.  We are seeing large banks making a push to go online.  Bank of America for example now negotiates their short sales online through a system called Equator.  We have been using Equator to handle Bank of America foreclosures for years.  We hear that banks such as Wells Fargo and perhaps others are in the process of adding their short sales to Equator.

This online venue will allow greater efficiency and allow more people to touch the file, reducing the time it takes to approve a short sale.  The short sale is still a complex transaction and homeowners should not attempt it alone.  In fact, your bank will refer you to use an agent who is familiar with the process.  Short sales are not for every agent and should only be tackled by agents who are committed to learning and operating in a very rigid and complex process.  Buyer agents regularly interview listing agents to make sure the listing agent knows what they’re doing, because if they don’t, the process will fail. 

Look for 2010 to see rising foreclosure sales throughout the year, and perhaps rising short sale numbers as well.  The banks are committing resources to it. We’ll keep reporting the numbers we track, so check back often.

Printed in the News Press, News Press Online, and Ellis Team Blog.

We’ve been reporting for weeks now that distressed property sales are moving.  One component of a distressed sale is the Short Sale.  A short sale is when a bank agrees to take less than what is owed on the mortgage so the property owner can afford to sell the home at today’s lower market values.  Banks in the past have taken much time to decide and some have been stingy on accepting these deals, for good reason. We’ll come back to the reasons later on. 

Many agents have been reluctant to show short sales to their buyers because banks have been declining a lot of these sales.  We have a bit of good news to report, and that is short sales are rising.  We’re not saying they happen overnight, or that they’re easy.  We’re just reporting the fact that they’re happening more frequently now as banks develop systems to more adequately deal with these sales, and they realize they may lose less in a short sale than a foreclosure sale. 

 

SW Florida Closed Short Sales 2009
SW Florida Closed Short Sales 2009

As you can see from the monthly chart, Cape Coral leads the county in short sales.  All three areas, Cape Coral, Fort Myers, and Lehigh Acres are experiencing an increase in short sales from the banks.  Cape Coral had 113 short sales in May compared to 151 in October.  Fort Myers had 29 in May compared to 73 in October.  Lehigh Acres had 30 in May compared to 49 in October, so you can see a definite increase in banks cooperating in short sales in just a few short months, no pun intended. 

Why is it that banks are cooperating more?  We’re not exactly sure, however we can speculate that banks have learned they lose less in a short sale than a foreclosure.  Real estate agents have also learned what banks are looking for through education and are presenting better packages to the banks, which are key.  Perhaps that Tarp money has freed banks up a bit to sell distressed properties.  Most likely is that banks have been hiring and training people to deal with the barrage of requests and heavy paperwork load and they’re getting better at dealing with this issue. 

Let’s look at some of the reasons banks take so long so we can understand the delays.  Banks obviously don’t want to lose money.  Banks generally qualify the seller and make sure there is hardship.  Being upside down on a mortgage is Not considered hardship.  There must be documentation proving the seller’s hardship, and this is why our sellers fill out a complete financial survey that is included in our short sale package to the bank. 

The bank also wants to verify that the seller is selling at today’s fair market value, not some super spectacular deal for an investor or relative so they can make money on the bank’s losses.  Keep in mind, the bank is taking less, so it is the bank’s loss. 

The bank wants to make sure it’s an arm’s length transaction.  They don’t want a family member buying it at a discount or an LLC being used as a vehicle to transfer property to a family member at a reduced price so the mortgagee can escape being upside down.

There may be more than one ban involved, and each one has limits on how much loss they will take on the short sale.  They will weigh the current loss vs. and anticipated loss they may receive at foreclosure.  They may wish to order appraisals before making a decision.  We submit a BPO (Broker’s Price Opinion) to substantiate today’s market value with all accepted contracts. 

We don’t let our sellers sign more than one offer and submit to the bank due to legal ramifications.  And we don’t have our sellers accept an unreasonable offer that the bank will reject, so we do all the homework upfront.  Why waste everybody’s time?  Because all listings agents don’t do this, buyer agents are skeptical to show short sales and waste their client’s time and money. 

Even if the listing agent does everything perfectly, there is no guarantee what the banks will do, and yet there are far too many listings being taken at incorrect prices and inappropriate situations, and that is bogging down the system.  This is not the time to just throw something out there and Try because seller is desperate.  Decisions made are impacting the buyer and seller’s lives, and a lot of time and energy is expended by all involved.  It pays to do things the way the banks require them for maximum results. 

If you understand what the bank is looking for, and work with someone who has experience actually selling short sales, buyer agents will be more likely to show these types of properties.  Agents are getting better, banks are getting better, and hopefully we’ll see more short sales go through so neighborhoods don’t have to suffer through abandoned properties and all the negatives associated with foreclosures.