April 2011 Report Highlight
The share of distressed sales, both short-sales and foreclosures, surged relative to TOTAL sales in Connecticut and other New England states during the 1st quarter. With no tax credit in 2011, fewer traditional sellers are on the market and entering the sales mix. Foreclosures sales rose from 8 percent of total home sales to 20 percent in the first quarter of 2011 as compared to the 2nd quarter of 2010. During that same time-frame, short-sale rose from 8 percent to 12 percent. The two combined accounted for almost 1/3 of all home sales taking place in the current market.
In the 1st quarter foreclosures were discounted below market value by an average of 28 percent while short-sales were estimated to be selling for about 18 percent below market value. I think a brief definition of what a “short sale” is and why the increase in these types of sale might be helpful in education the local readers and homeowners of Tolland, Windham and New London County.
What is a short sale?
A short sale is a transaction in which the lender, or lenders, agrees to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
Why is the number of short sales rising?
Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.
A short sale can also be the best option for homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.
The rapid increase in the number of short sales, and the short sales process itself present a number of challenges for REALTORS®. Major challenges include:
- Limited experience
Many REALTORS® are new to the short sales process; a difficulty which is compounded by many lenders' lack of sufficient and experienced staff to process short sales. Even if the REALTORS® are experienced, most servicers are under-staffed and still not adequately trained, making negotiating a short sale particularly difficult.
- Absence of a uniform process and application
Until HAFA guidelines were established, both short-sales documents and processes were lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions.
- Multiple lenders
When more than one lender is involved, the negotiations are much more difficult. Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing.
As a result of these challenges Realtors® have reported difficulties with: unresponsive lenders; lost documents that require multiple submissions, inaccurate or unrealistic home value assessments, and long processing delays, which cause buyers to walk away. For more information on updates to the HAFA program, check http://www.homesellingteam.com/instaprice.php
If you are interested in learning more about “how to sell your property in today’s market” or your refinancing options please contact us (confidentially) at firstname.lastname@example.org or contact Brian McCarthy directly at 860-450-8121.
Information for this article was gathered form a variety of resources including local attorneys, Province Mortgage Company and Realtor.org.