Lenders bail out home sellers
‘Short sales’ increase dramatically in county
WHAT: A short sale occurs when a lender forgives some of its debt to let a deal go through because the sale price is less than the mortgage.
WHY: In Southwest Florida, short sales have become common because of the plummeting price of homes in the past two years.
HOW: A real estate agent or third-party negotiator typically approaches the bank or other lender, which then decides whether to accept the sale.
ADVANTAGES: A short sale allows a homeowner to avoid going into foreclosure and thus preserve his credit rating. It saves the lender from a long, costly foreclosure lawsuit.
DISADVANTAGES: At present, the amount the lender forgives is generally treated as income by the IRS. Also, typically the bank will not go along with a short sale unless the owner is tapped out financially and also in foreclosure or at least behind on the mortgage.
— The News-Press
BY THE NUMBERS
Until recently a rare occurrence, short sales have become a significant part of Lee County’s real estate sales within the past few months.
17.5 PERCENT of listed homes are short sales
4.1 PERCENT of short sale listings are pending sales, compared with 5.4 percent for regular listings
2 PERCENT of short sale listings have sold in the past three months compared with 9.4 percent for regular listings
421: Number of short sale listings in September, up from 299 in July.
28.2 PERCENT of homes listed in the $100,000-150,000 range are short sales
32.5 PERCENT of homes listed in the $150,000-200,000 range are short sales
14.8 PERCENT of homes listed in the $200,000-300,000 range are short sales
SOURCE: Steve Koffman, Century 21 Sunbelt Realty and The Realtors Association of Greater Fort Myers and the Beach
If you owe $300,000 on a house that’s only worth $200,000, you may still be able to sell it — banks are increasingly willing to make up the difference.
But first you’ll have to go into foreclosure or at least fall behind on payments, and you’ll have to convince a banker you’re broke and not just trying to pull a fast one by selling to your mother so she can sell it back to you later.
Welcome to the complicated new world of short sales, where a lender forgives some of its debt to let a deal go through because the sale price is less than the mortgage.
As real estate prices have tumbled in Lee County, short sales have skyrocketed — accounting for almost one in five houses on the market right now from the occasional sale just a couple of years ago.
At the low end of the price range, short sales loom much larger: 32.5 percent of homes listed for sale at $150,000-200,000 in the multiple listing service of the Realtor Association of Greater Fort Myers and the Beach.
The median price of a single-family home in Lee County has fallen to $231,600 in September, the latest month available, down 28 percent from an all-time high of $322,300 in December 2005, according to the Florida Association of Realtors.
That means that for many who bought at the height of the frenzy in 2004 or 2005, they owe more than their homes are worth.
“Until recently a short sale was something that was almost unheard of,” said real estate broker Steve Koffman of Century 21 Sunbelt Realty in Cape Coral.
Now, however, so many people need short sales that real estate agents and banks alike are becoming well versed in the often complicated process, he said, and as that happens, “The short sales are definitely increasing.”
That’s because as home prices tumble, more sellers find themselves short of what they need to close the deal.
One way out of that situation is to let the lender foreclose on the home and take it back. In September, 1,220 foreclosures were filed in the county: more than five times as many as the 237 recorded a year earlier.
Banks usually insist the borrower be pretty much tapped out before considering a short sale.
One person in that situation is Josie Burdier, 34, who bought her Cape Coral house in 2006 with a mortgage of $186,600 but wasn’t able to afford payments or sell the house for what she owed.
“I tried to pay it off, paying the mortgage with my savings,” she said, “but I’m five months in default.”
HSBC Bank filed a foreclosure action against her Oct. 4, but she still hopes to get a short sale approved by HSBC.
“Basically, they’re waiting as well as me” to see if a short sale is possible, Burdier said.
Banks have incentive to make a short sale happen, said David Hall, president of First Community Bank of Southwest Florida.
“A bank, through a foreclosure process, can spend 15 grand in legal costs to foreclose,” he said. “And often the house isn’t being kept up for the 10 to 12 months it takes. There are real estate taxes, insurance on an empty house to pay. So it gets very expensive to try to maintain the property while you’re going through foreclosure.
Hall said he has been given leeway from the bank’s board of directors to do short sales, so he has an advantage over larger organizations.
“They centralize it into some location up north, North Carolina or Chicago or whatever,” he said. “They’re dealing with hundreds and hundreds of foreclosures.”
Figuring out whether to accept a short sale isn’t easy, he said, but “the bottom line is as long as the sales price is a fair price, the net proceed is reasonable,” the deal will work.
Jason Moore of Fort Myers-based Short Sale Headquarters, said he’s had to learn strategies to cut through the logjam with the big banks.
Short Sale Headquarters, which has been operating about six months, acts as a third-party negotiator on behalf of the owner, trying to persuade a lender to agree to a short sale.
“We just shuffle paper for three-quarters of it and the last quarter is really hardcore negotiating,” he said.
The company negotiates its fee from the lender and doesn’t charge the owner anything, Moore said — owners sign a form authorizing Short Sale to speak on their behalf.
Now, he said, his company will go to a bank with a number of short sale proposals instead of one at a time — offering the lender a chance to resolve a batch of problem loans at once.
That way, Moore said, he can cut through the red tape, often by dealing with a higher-up.
Banks have tough rules and rightfully so, he said: Some owners are using the short sale process as a way to commit fraud.
“There’s a lot of shenanigans out there,” Moore said. “You have a house that’s worth $200,000 and you owe $300,000. You sell it to your mother for $200,000 and she deeds it back to you.”
Still, as foreclosures continue to mount, banks are more willing to deal, said Jonas Elliott of Loss Mitigation Services of Southwest Florida, which also negotiates short sales.
“Lately it’s gotten a lot easier, especially a deal that makes sense,” he said. “Banks are willing to take 50 cents on the dollar whereas before, they’d say 80, 90 percent.”
The banks are making deals faster, too.
“Now they’ll tell you the value, they’ll tell you what they need,” he said.
But doing a short sale still carries risks for the negotiator or real estate agent, who only gets paid if the deal goes through.
Because it can take more than a month for a bank to green-light a short sale, sometimes a buyer will back out or something else will happen to scuttle a deal or the bank can simply decline the offer, said Amanda Guzman, a Century 21 Sunbelt agent in Cape Coral.
“We do all the work and then the bank says no and we don’t get paid,” she said.
Capital gains note
Homeowners who sell short are usually subject to income tax but that could be changing.
The Mortgage Forgiveness Debt Relief Act was passed Oct. 4 by the U.S. House of Representatives but still has not been passed by the Senate.
The bill, passed by a 386-to-27 vote, would give a tax break to homeowners who have mortgage debt forgiven as part of a foreclosure or renegotiation of a loan.
No taxes would be owed on the value of any debt forgiven or written off. Currently such debt forgiveness is taxable income.
While the measure is anticipated to reduce taxes of some strapped homeowners by $650 million, the cost to the government would be offset in part by limiting a tax break available on the sale of second homes.
— The Associated Press
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