Some find dreams suddenly in reach thanks to lenders’ bargains

BY WAYNE T. PRICE • FLORIDA TODAY • August 31, 2008

Three years ago, home ownership for Stephen and Cassie Treap seemed as likely as winning the Florida Lotto, because home prices were far above what the family of four could afford. It was only three years ago this month that the median price of a single-family home in Brevard County reached its apex at $248,700. The median price — the point at which half the homes sell for more, half for less — now stands at $166,400.

While not good for some sellers, the Treaps this June bought a 1,746-square-foot, three-bedroom home in Palm Bay for $121,900 in a foreclosure transaction. Nearly three years earlier, the same property sold for $215,400.
“Oh my, we thought we would not be able to buy a house for a long time,” said Cassie Treap, a stay-at-home mother and part-time student. She and her husband combed the listings and noticed houses selling in the $100,000 range that were priced at $300,000 two years ago.

“We would drive around asking each other who in this county makes enough money to be able to afford a mortgage on a $300,000 house,” she said. “Little did we know.”

Welcome to the ever-changing world of real estate in 2008, where homebuyers like the Treaps finally get a shot at ownership and sellers are forced to shave thousands of dollars off the price of a home to see movement. Adding a new wrinkle to the situation are more and more homes on the market involved in foreclosure or what’s known as a short sale.

Short sales, a growing trend in markets across the United States, involve a lender agreeing to let a borrower sell a house for less than what’s owed under the original loan terms.

For example, if a homeowner owes $100,000 on a mortgage, but is unable to make the monthly payment, he or she can sell the house. If the seller receives an offer for $80,000, the lender might let the sale to go through and write off the remaining $20,000 of the mortgage debt.

This saves the lender the legal cost of going through a foreclosure and being saddled with a property to sell.

Initially reluctant, lenders are becoming more accepting of short sales, according to Realtors in Brevard County.

Of course, not all lenders will accept short sales or discounted payoffs, especially if it makes more financial sense to foreclose. Not all sellers, nor all properties, qualify. Lenders don’t relish the loss, but it gets them out of the property-owning business.

“I can tell you that Wachovia does offer short sales to customers,” said Jamie Grady, a spokeswoman for Charlotte, N.C.-based Wachovia Corp. who was unable to provide details on the bank’s short-sale policy.
“We evaluate each situation on an individual basis,” Grady said.
Recent youjizz statistics compiled by the current president of the Melbourne Area Association of Realtors show that about 28 percent of the single-family homes for sale in Brevard County are foreclosed properties or involve short-sale agreements between the lender and the seller.

That’s a sizeable number, real estate representatives say, but hardly atypical in communities where in the heyday of an overheated market a person could buy a house one day, sell it a few hours later and make a quick $70,000 profit.
Now, buyers are in control with many types of homes, at more than fair prices, to choose from.

But the changing market comes at a cost.
Hundreds of homeowners have been foreclosed on or notified of pending foreclosure proceedings. Traditional sellers are competing against those transactions.

Foreclosure and short sales are a big part of the market, Dale Young, president of the Melbourne Area Association of Realtors, said.
“I would say a good 70 percent of the activity right now is people who are looking for bargains and at short sales. Whether it’s for their own residence or an investment, those seem to be the people that are out there,” Young added. “There’s still a pretty good market in the upper end of housing, the $500,000 and above.”

John Krause, a Realtor with National Realty of Brevard Inc., who helped the Treaps buy their home, said “there are a lot quality homes” here that are priced competitively.
Nationwide, estimates vary on how many homes are on the market due to foreclosures or short sales. Some say it’s 15 to 25 percent. Walter Molony, spokesman with the National Association of Realtors, said one-third of current U.S. housing transactions involve foreclosure or short sales.

Across the nation, 739,714 homes — or one in every 171 households — received at least one foreclosure-related notice during the quarter, said RealtyTrac, a California-based company that tracks foreclosures. That’s up 121 percent from the second quarter of 2007.

RealtyTrac monitors default notices, auction sales and bank repossessions. Banks took back more than 222,000 properties nationwide in the second quarter, the company said. Bank repossessions accounted for 30 percent of foreclosure activity, up from 24 percent in the previous quarter.
Locally, Palm Bay leads Brevard, where 46 percent of 1,515 homes on the local Multiple Listing Service are foreclosed or short-sale properties, according to figures compiled by Young at FLORIDA TODAY’s request. For people attempting to sell homes in the traditional manner, the changing dynamics are forcing them to make tough financial decisions.

Thomas Stewart had been trying to sell his Palm Bay home on Appleby Street for nearly 13 months.
Before he moved to South Florida, Stewart invested thousands of dollars in upgrades, including hurricane shutters and a permanent generator. He had the 1,270-square-foot, two-bedroom home on the market for $139,900. Unfortunately for him, he was forced to drop the asking price.
He sold it last month to Jody Ballard for $99,900. Stewart declined to comment on the sale. Ballard was thrilled to buy his first home.

“I knew there was no way I could have afforded a home at the prices like they were three years ago,” said Ballard, who works for the Palm Bay Parks and Recreation Department. “This one kind of fit just right. He put a lot of money into the house and I took advantage of that.”

Cassie Treap has similar emotions.
“I think $215,000 is much too high of a price for this house, but others might disagree with me,” she said of the previous sales price. “But I do think we got a great deal on our home.”

by Chelsea Schneider Jul. 16, 2008 11:37 AM
The Arizona Republic
There are two basic criteria homeowners should meet to know if a short sale is right for them:
•  The homeowner is not able to afford the mortgage payment.
•  The homeowner owes more than the property is worth.

Travis Hamel Olsen, president of the National Short Sale Center based in Scottsdale, said short sales are growing “like crazy” but numbers are hard to track because it depends how the seller lists the property in the Multiple Listing Service.
There are about 1,500 to 2,000 short sales on the market in the Valley, more than double the 700 last year at this time, Olsen said.
“Really there should be so much more,” Olsen said. “It’s the best way for people to avoid foreclosure.”
A short sale is xvideos when the lender agrees to take less money for the house than what the seller owes. The seller generally has to be significantly behind in payments. The bank forgives the seller the difference but the seller walks away with no money and a credit hit.
Olsen said most short sales come from homeowners with adjustable-rate mortgages or subprime loans, but people with traditional loans are now seeking short sales as well.
Randy Lewis, with Short Sale 1000 and RE/MAX Professionals, said he’s getting more short sales approved than ever. Success rates have increased to 70 to 80 percent.

By Les Christie
CNNMoney.com
June 2, 2008: 11:40 AM EDT

• Housing rescue on the rise; so are foreclosures
• Banks miss an easy housing fix
• Home sales rise – still near 17-year low
• Housing relief: Help, but for how many?

NEW YORK (CNNMoney.com) — Weeds stand waist high on the front lawn of the wood-frame, single-family house in Cleveland’s Slavic Village neighborhood. Trash spills out open doorways into the driveway and yard.
The city will have to pay someone to come in and clean up the lot, board up the windows and cut the lawn. Similar scenarios are playing out in communities all over the country wracked by soaring foreclosure rates, where vacant, rundown homes are springing up as quickly as the weeds in their yards.

But now these communities are fighting back, demanding that property owners – often the banks that repossessed the properties – pay to keep these houses from falling into disarray. The state of California as well as Providence, Rhode Island and Trenton, New Jersey are all pushing initiatives to prevent taxpayers from having to bear the burden of the housing crisis.
“Cities are trying to push the costs of maintaining these properties off on the people holding title to the properties,” said Chris Hoene, director of policy for the National League of Cities.

It’s an expensive proposition.
It costs seven cents a square foot to cut an overgrown lot down to size in Cleveland, according to Tony Brancatelli, a city councilman from the Slavic Village neighborhood. Since the average lot is about 4,200 square feet, that comes to $300.

Cleaning up a yard filled with trash can cost $1,000, he said, and boarding up an empty house runs about $500.
City coffers run dry Cities want to spruce up vacant homes to maintain nearby property values as well as the quality of life for neighborhood residents. ktunnel But many of the towns with significant swaths of foreclosed properties are cash-strapped themselves; fewer property-owners mean lower municipal tax revenues.

In California, where foreclosure filings are up 112% this year, the State Senate passed a bill in April that would authorize local governments to impose fines of $1,000 a day on banks and mortgage companies for failing to perform proper upkeep on foreclosed homes.
“The idea is that a local government may impose a fine or do all the work itself and impose a lien on the property to get repaid,” said a spokeswoman for State Senator, Don Perata, D-Oakland, who sponsored the bill. A house can’t be sold until the lien was satisfied.

In Providence, R.I., a proposed law would impose a vacant property tax of 10% annually. The idea is to encourage banks to sell repossessed properties quickly so that new owners will properly maintain them again.
There are currently about 1,500 foreclosures in town, up about 60% this year, according to Mayor David Cicilline; most stand empty.

“We don’t want people to hold these vacant properties to see if prices go up,” he said.
The $10 tax on every $100 of assessed value is on top of regular property taxes. “It’s a substantial disincentive to hold on to most properties,” said Cicilline. “The longer they stand unoccupied, the more likely they are to be looted.”

Providence also performs routine maintenance jobs in abandoned homes and attaches liens for the expenses.
“We have a very aggressive system so that costs of maintenance are transferred to the owners of the home and not borne by taxpayers,” said Cicilline.

Smaller towns are opting for similar fixes. The Columbus, Ohio suburb of Whitehall recently raised the fees it charges property owners when the town has to pick up trash outside a house or mow neglected lawns.
“I think that will get their attention,” said Mayor John Wolfe. “They get a bill for $250 for cutting the grass and think, ‘I can get it done myself for $50.’”
The mayor, whose town of fewer than 20,000 only has about 10 to 15 vacant single family homes, said he believes the new law has already made a difference, noting that the properties are looking better.

Keeping up property values
Foreclosures have an immediate, sometimes devastating impact on nearby property values.
For every foreclosure within a one-eighth of a mile radius of a single-family home, that home loses approximately 1 percent of its value, according to Dan Immergluck, a professor of city and regional planning at Georgia Tech. “For neighborhoods with multiple foreclosures . . . property values are impacted even more,” he said in testimony before Congress last year.

A 2001 Temple University study found that homes located within 150 feet of vacant properties in Philadelphia lost an average of $7,627 in value.
Congressional legislation is also trying to address this problem. A bill before the House, sponsored by Representative Maxine Waters, D-Calif., would allocate $15 billion to be used for neighborhood renewal. The housing bill by Senator Chris Dodd, D-Conn. similarly allocates $4 billion.

“We would be able to use that money for boarding up and maintaining houses and occasional demolition,” said Kent Ashworth, a spokesman for Trenton Mayor Doug Palmer. Trenton is projecting 1,400 foreclosures this year, a lot for a city of 85,000 residents and more than double last year’s total.
City workers in Trenton do go in to do minor maintenance work and the city charges owners for these services and attaches liens to the properties to make sure the fees are paid.
“But who knows if we’ll ever collect on those liens,” said Palmer.

Article published 05.30.08
By Mary Ellen Podmolik
Chicago Tribune
Homeowners in danger of foreclosure increasingly are looking to beat the bank to the process by selling their homes for less than the value of the mortgage, with their lender’s permission.

Dumping a house for a fire-sale price ordinarily would not be encouraged by banks. But the housing crisis is so severe that both lenders and struggling homeowners see so-called short sales as an acceptable alternative: The home seller avoids the trauma of a foreclosure, and the lender gets back as much of the loan as possible, without the expense of being saddled with a foreclosed property.

The practice offers good deals for buyers, but real estate agents say the growth of the short-sale market is having a detrimental impact on the overall housing market because it brings down comparable-sales data, making neighborhoods look less valuable.

“It screws up a lot of stuff,” said Jason Pietrucha, a broker at Koenig & Strey GMAC Real Estate in Glenview, adding: “It’s without a doubt the healthiest part of the market right now, that and bank-owned properties.”
Because there is no requirement to denote a property as a short sale, real estate agents can’t measure the trend precisely, but some sales are flagged and the National Short Sale Center Inc., an Arizona-based company that acts as a negotiator between real estate agents and lenders, recorded a 380 percent increase in its short-sale activity in the Chicago area between the first quarter of 2006 and this year’s first quarter

“When I go through the MLS, and I do it daily, I see ‘pre-foreclosure, must need bank approval’ all over the place,” said Bo Buchanan, a real estate agent at Kettley Realtors in Oswego. “Short sale is the new frontier in discount or deal real estate. That’s where the new opportunities are.”

Stephen Johnson of Crystal Lake, a former branch manager at a wholesale mortgage lender, is selling his home short for $220,000, when it appraised 14 months ago for $290,000, the same amount he said he owes on his mortgage.

Johnson had borrowed 100 percent of the home’s value in 2007 at 10 percent interest to pay for his wife to attend law school and had hoped to refinance at a lower interest rate. But he lost his job when the lender he worked for folded, and by the time he found another job in October his mortgage company already had begun foreclosure proceedings.

Well aware of what a foreclosure would do to his credit report, Johnson opted to list the home as a short sale. He submitted the buyer’s bid of $220,000 in January to his lender and was told less than two weeks ago that the bid was accepted and the transaction would have to close by June 15. His credit report will still take a hit, but Johnson reasons that showing that the loan was settled for less than the full amount is better than looking like he just walked away from his responsibilities.

“If the short sale hadn’t been approved I would have had to be out Aug. 15 as a foreclosure,” Johnson said. “The last thing you want your neighbors to see is the sheriff knocking on your door and putting your stuff out on the street. I feel bad because prior to this I was always the one who paid [on time] and understood the market.”

Increasing jitters

As short sales gain steam they are increasing some jitters in the market. Short-sale properties typically sell for at least 20 percent under market values, so the closing prices of short sales, like foreclosures, are skewing comparable sales prices in neighborhoods, affecting traditional sellers and their own homes’ market values. Also, the protracted buying process—in some cases it is taking up to six months for lender approval—is removing potential buyers from considering non-short-sale home listings.

Greg Grojean, a senior vice president at Home State Bank in Crystal Lake, said he is seeing more short selling and said that at times it’s a good alternative in a struggling real estate market.

“The declining markets have created a position where a lot of people owe more on their house than it’s worth,” he said.

The downside, other than the lender not getting full repayment: “It does keep market values depressed,” he said.

A short sale isn’t the easy answer some suppose. Real estate agents say they are hearing from many homeowners who see it as a way to unburden themselves rokettube of homes that just aren’t selling in a depressed market. To qualify for a short sale, homeowners have to prove true financial hardship, and a Lexus in the garage, a six-figure salary and a well-funded 401(k) plan don’t help a homeowner’s case.

Missed payments

Typically, homeowners who do qualify already have missed mortgage payments, have been served with notices of default and a lender has started pre-foreclosure proceedings against them or else they are current with their payments but are facing circumstances that will cause them to fall behind.

Many are upside down in their mortgage, meaning they owe a lender more than the house is now worth.

A year ago, Elburn resident Angie Zelensek had to quit her job because of illness, which left her and her husband struggling with one paycheck to pay the mortgage on their home as well as that of her deceased mother.

In March she defaulted on the mortgage for her mother’s small one-bedroom house and had a real estate agent put it on the market as a short-sale listing. Originally priced at $149,000, the price was dropped to $129,000 and will drop this weekend to $119,000. Zelensek owes $162,000 on the property and has already applied to her lender for the hardship designation that will help speed through any offer she receives.

“At this point it’s definitely affecting my health,” Zelensek said. “I can’t wait until someone makes an offer. We’re just very scared at this point about losing our [own] house.”

Along with price, one advantage for buyers in a short sale is the property’s condition, which usually is decidedly better than foreclosed homes because sellers frequently are still living in the homes.

Gene Carey, a broker associate with Re/Max Advisors in Lake Villa, posts video tours of short-sale listings on his Web site so potential buyers can see the insides of the homes.

“A lot of them are leaving beautiful appliances,” he said. “You don’t have wires dangling from the ceiling. These houses are in good shape.”

Article published 02.22.08
By Edmund L Andrews and Louis Uchitelle
New York Times
WASHINGTON — Prodded in part by some of the nation’s biggest banks, the Bush administration and Congress are considering costly new proposals for the government to rescue hundreds of thousands of homeowners whose mortgages are higher than the value of their houses.

Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody’s Economy.com.

Administration officials say they still oppose any taxpayer bailout for either people who borrowed more than they could afford or banks that made foolish loans during the height of the speculative bubble in housing.
But with the current efforts to arrest the housing collapse so far bearing little fruit, Washington is being forced to explore new ideas, among them the idea of a federal mortgage guarantee for troubled borrowers.

And policy makers are listening to proposals from industry and community groups to use government funds to purchase and refinance billions of dollars in mortgages now in danger of default.
Many owners are only gradually becoming aware that their homes would sell for less than the debt against them — a phenomenon, said Richard T. Curtin, director of the Reuters/University of Michigan Surveys of Consumers, that is “beginning to weigh on people, making them uncertain and nervous about the future.”

That nervousness is evident across the country, particularly in places like Memphis, a city of nearly 1.3 million people where falling home prices and negative equity are new experiences.
The housing slumps of the mid-1970s and late 1980s were confined to the coasts. The current bust, while leaving some cities relatively unscathed, has cut a far wider path and it comes just when home debt is at its highest level since World War II.

For Stuart B. Breakstone, the problem hit home when he was forced to come to the closing on the sale of his eight-year-old custom-built house with a check for $65,000. The money, out of his own pocket, was to pay the difference between what he still owed on the mortgage for his home and the lower selling price.
Mr. Breakstone, a 42-year-old lawyer, and his wife, Lori, chief of customs agents at Memphis International Airport — who together earn more than $250,000 a year — managed to extricate themselves by paying off the mortgage. But millions of others are trapped in their homes. They have jobs, make their mortgage payments on time, but cannot raise enough cash to cover the shortfall.

Some eventually default, surrendering to foreclosure. But the vast majority — embedded in their communities, their children in public schools, their reputations at stake — wait nervously in hope that prices will bottom and rise once again, eliminating their negative equity and restoring their freedom to sell or refinance.

“People can’t believe this is happening to them,” said Robert Moulton, president of the Americana Mortgage Group in Manhasset, N.Y.
In Washington, it will be difficult to engineer a bailout similar to the one for savings and loan companies in the early 1990s, because Democrats and Republicans alike cringe at the very word bailout and fear a backlash by people who never became overextended.

But with millions of homeowners already underwater and the prospect that millions more may face the same situation, Democrats and Republicans alike are scrambling for ideas to keep people from simply walking away from their homes and to help those struggling to pay their bills.

Bank of America, which is in the process of acquiring Countrywide Financial and has potentially huge exposure, has circulated a proposal to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans.
The bank warned that tightening credit conditions were leading to “escalating levels of delinquency and default among borrowers” and “an unprecedented number” of homes that would enter foreclosure.

Administration officials have given the Bank of America plan a cold reception. But the idea is similar to one proposed by Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate Banking Committee.
The Federal Housing Administration, meanwhile, is examining ways to expand its new insurance program, known as FHA Secure, to help people replace their costly subprime mortgages with federally guaranteed fixed-rate mortgages.
Mortgage industry executives have complained that the F.H.A.’s eligibility requirements are so restrictive that the new program has helped only a trickle.
Credit Suisse executives said they have held lengthy meetings with F.H.A. officials and have urged the agency to relax rules that currently disqualify many borrowers.

One idea, company officials said, was to allow borrowers who had simply made six payments during the course of their mortgage to qualify.
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, has ordered his staff to come up with options for a broader rescue bill. An aide to Mr. Frank said his bill would, among other things, allow the government to buy up at least some troubled mortgages.

A more modest plan is being developed by John M. Reich, director of the Office of Thrift Supervision, the agency that regulates savings and loan companies. His plan, still in rough form, would create a voluntary system under which mortgage lenders would reduce debt and monthly payments to reflect the diminished sales value of a home.
It would take the remainder of the mortgage as a “negative amortization certificate,” a lien that the investor could recoup if the house were later sold for its original mortgage value or higher.

In an interview, Mr. Reich said he hoped that most of the old mortgages would be replaced by cheaper mortgages insured through the F.H.A.
“It isn’t a bailout,” Mr. Reich said. “It is a market-driven solution.”
For Americans caught in a mortgage trap and owing more on a home than it would sell for, consumer spending and confidence are the most immediate casualties, Mr. Curtin reports. But the damage goes deeper.

People cannot move easily to jobs in other cities if they have to sell their homes at a loss. The $168 billion federalstimulus package is likely to be less effective than intended because many homeowners may simply use their government checks to pay down their debts.

Housing prices in Memphis fell by 2.5 percent last year, only the second decline since records began to be kept in 1968, and by far the largest dip, according to Chandler Reports, which gathers this data for Greater Memphis.
The Memphis redtube metropolitan area highlights the larger national trend, with the average first-mortgage debt, at $153,764, edging above the average home price, $152,815, for the first time. And that does not count refinancing and home equity loans, as well as closing costs.

Collie Tuttle, in her early 60s, is caught in this bind. Four years ago, she purchased a newly built four-bedroom three-bathroom house in the Memphis outer suburb of Olive Branch, Miss., for $270,000. She put nothing down, relying on her six-figure income from selling furniture to pay down the mortgage, reducing it to $248,000.
But then she lost her job, and in her next one — also selling furniture, but at lower pay — she is being forced to choose between her home and the rest of her life.

“It was a big mistake on my part to buy this house,” she said. Divorced, with two grown sons, she rattles around in it alone. She had thought the house would add to her wealth.
But now, to sell it for the $269,000 a potential buyer was recently willing to pay, “I would have to come up with $6,000 from my pocket,” Ms. Tuttle said, explaining that she cannot afford to invade her meager retirement account. “All I’m asking is for enough so that I come out even.”
Her house payments and utilities come to nearly $2,400 a month. That is affordable, she said, on her present income. But very little is left over to replace her 11-year-old car, to travel, to pay down her credit card debt, or even to buy new clothes.
“I’m stuck,” she said. “I’ve tried everything and I can’t get rid of this house.”
The reluctance to sell at a loss helps to explain why the number of homes listed for sale in the Memphis area has climbed to more than 13,000 from 9,000 a year ago.

Jane and Kevin Naus, in their mid-40s, have had their home on the market since last May; their attempts to sell for a price that covers their debts are skewing their lives.
Mr. Naus took a job in Greenville, N.C., last March, at a local bank. His wife stayed behind, putting their house up for sale, just a month before prices began to unravel.

But there were no offers at the $239,000 the couple asked for their four-bedroom brick house on a one-acre corner lot, so they gradually cut the price to $220,000, barely enough to cover the $192,000 in mortgage debt and an additional $22,000 in closing costs and broker’s fees. It still did not sell.
Mr. Naus says prices are under downward pressure because of competition from the auctioning of foreclosed homes at bargain prices. There were 5,714 foreclosures in Memphis in 2007. “In our neighborhood alone,” Mr. Naus said, “five houses were sold last September and October, and four of the five were foreclosures.”

Mrs. Naus joined her husband in Greenville in December but he lost his job in January, when his division was shut down. The couple decided to stay in Greenville, to be near the family of Mrs. Naus, who has multiple sclerosis and no longer works.
Her $1,800-a-month in disability pay, however, falls short of the $1,400 in monthly payments on the Memphis house and the $700 in rent for an apartment in Greenville. The Nauses make up the difference with his severance pay, and occasional dips into their savings, which have fallen below $100,000.
“We don’t want to lose the house or cut the price,” Mrs. Naus said, “and end up owing money.”

“Basically,” she added, “we are praying that the house sells before my husband’s severance runs out.”
The Breakstones are similarly in danger of sinking, despite their high income. After forking over $65,000 on the house they just sold, they are struggling with $670,000 in debt on their present, larger home — perhaps more than the house itself is worth.

The Breakstones, each previously divorced, married in 2006, bringing three children to their union. They needed a bigger house than the one Mr. Breakstone had built.
Mr. Breakstone thought that he could sell his other home quickly, but it sat on the market for 17 months and finally brought only $170,000. He covered the shortfall by borrowing against his present home — bringing it closer to being underwater, too.

Now the Breakstones are saddled with $4,000 a month in house payments, and $14,000 more in fixed outlays, including child support, car leases, taxes, consumer debt and utilities, using up the bulk of their income.
“I used to think,” Mr. Breakstone said, “that I would pay the piper later and enjoy life now. I’ve totally reversed that view.”
Edmund L. Andrews reported from Washington and Louis Uchitelle from Memphis and New York.

Article published 01.09.08
By David van den Berg
Arizona Republic
Thanks to recently passed federal legislation, getting out from under mortgages with a short sale is a bit less painful in the troubled real-estate market.

In short sales, homeowners are able to sell their houses for less than they owe and avoid foreclosure. But struggling homeowners must be able to show that they can’t make the payments, get lender approval and the necessary appraisal

A lender may forgive the difference because it would get more from a short sale than a foreclosure, said Randy Kutz, co-owner of Phoenix Heritage Real Estate Group and Arizona Short Sale Experts.

Avoiding foreclosures helps homeowners, too.

Short sales do less harm to the seller’s credit than a foreclosure. Short-sellers can face an 80- to 100-point hit on their credit scores, while people who lose their homes in foreclosure can see their credit docked 250 to 280 points. Other circumstances like late payments also can damage credit scores, Kutz said.

Before the recent passage of Mortgage Forgiveness Debt Relief Act, the amount forgiven in a short sell was considered taxable income for the seller.

“It’s going to help a lot of people,” said Travis Hamel Olsen, president and principal of the National Short Sale Center in Scottsdale. “A lot of people were not doing a short sale because they were afraid they were going to get taxed on it.”

Investors aren’t exempt from the tax, said Julie Bieganski of First USA Realty.

Nick Martini, 28, of Mesa, may be one homeowner who gets a break from the new law. In 2005, Martini and his wife bought a house and owe $315,000 on it now. The couple have completely remodeled the home’s interior, but right now it would probably sell for $280,000, Martini said.

The couple have an 80/20 mortgage, with the 20 percent portion adjusting each year, Martini said. In November, he was laid off and said he is now working a lower-paying job.

His wife is five months’ pregnant with the couple’s second child. They struggle to make their house payments now, he said.

“Come April, we’re going to fall on our face,” he said. “Basically, we need to make more money.”

If the Martinis short-sell their house, they won’t be alone.

“I think the short-sale situation is going to be with us for five-plus years,” Kutz said.

Even if the Valley’s housing inventory is reduced, Kutz said, many portions of the region are down to 2004 prices.

Kutz said his team rarely sees short sales resulting from subprime-mortgage problems. The sales can result from events including divorce, job losses, deportation and incarceration.

But Kutz said the majority of short sales he deals with result from people who bought or refinanced houses at the peak of the real-estate market and now have to sell.

“It’s a very tedious process. It’s a very calculated process,” Kutz said. “It’s the brain surgery of real estate.”

Short sales became an active part of the Valley’s real-estate market in late 2006 and early in 2007, said Jay Butler, director of Realty Studies at Arizona State University. The sales can’t be tracked.

Homeowners may have a difficult time evaluating people to work through a short sale with them, Butler said.

“Most of these short-sale companies don’t have much of a track record,” he said.

When properties go into foreclosure, that information is public, said Brent Larsen, owner and operator of First Class Realty and National Short Sale Negotiators in Tempe. That means investors may knock on doors of homeowners facing foreclosure. Those homeowners need to be careful, Larsen said. “There are investors who want to help and those who don’t.”

Article published 12.16.07
By Jerry Gleeson
The Journal News
Your adjustable rate mortgage has reset and you can’t afford the higher monthly payments. In a sluggish real estate market, the property isn’t worth the same as the day you bought it. What’s next?

For homeowners and lenders who share a devalued asset, the answer may be a short sale.
Short sales are deals between borrowers and lenders to sell a house for less than what is owed on the mortgage. Such deals are uncommon in the Lower Hudson Valley, where property values climbed sharply in the early part of this decade before slowing down a year ago, but some in the real estate business expect their numbers to grow.

The growth of foreclosures in the region in the past year has been attributed to the increase in adjustable rate subprime mortgages. Such loans allowed people with less than perfect credit to buy property, often with little or no money down. Those resets are now pricing some homeowners out of their houses.
Short sales come with advantages and disadvantages for both borrower and lender.

For the homeowner, short sales avert a foreclosure process that can damage their credit record. Travis H. Olsen, president and principal partner of the National Short Sale Center in Scottsdale, Ariz., said foreclosure histories can keep someone from obtaining new credit to buy another house for up to 10 years.

Short sales aren’t perfect solutions for consumers, however, since they can still reduce a credit score by 75 to 100 points, said Burt M. Hoffman, a Stamford, Conn., attorney for whom such sales are becoming a growing part of his practice.

Lenders will consider such sales as an alternative to foreclosure because the latter process is time-consuming and costly, Olsen said.
Banks in New York can lose up to half of the mortgage’s value in foreclosure because the process can take up to 280 days. Interest payments go uncollected, unpaid taxes pile up, and lawyers and real estate agents must be compensated for their services. Disgruntled homeowners in arrears may let the property’s condition slide, or they may even damage the property out of spite or frustration.

“The numbers start to add up real quickly,” Olsen said. Selling a property short of what’s owed on the mortgage can get an unproductive asset off an investor’s balance sheet quickly.
There are conditions for doing such a deal, he said. The borrower must be unable to pay the existing mortgage, and the property must be worth less than the borrowed amount.

Homeowners walk away from short sales with nothing, and often less than that. The house is worth less than what they bought it for, so they’ve lost the closing costs and any equity in the property that might once have existed.
There may also be tax implications. The IRS treats the difference between what the homeowner borrowed and what the lender accepted to settle the mortgage as income to the homeowner.

That difference can add up to tens of thousands of dollars, and the homeowner will be expected to pay taxes on that amount. Congress is currently debating legislation that would reduce such penalties.
Not all lenders will accept short sales as a complete solution to the debt owed. Hoffman said a few banks want promissory notes from borrowers that require them to pay the full amount of the mortgage even after the short sale has been closed.

Short sales have “a lot of moving parts,” Hoffman said. “It’s a very tough deal to work. You have got to do it properly.”