Short Sale New England In The News

First of all what is a short sale?

A short sale is the process through which a mortgage company essentially allows a distressed homeowner to sell their property for less than the mortgage. So a great example is someone who owes $400,000 on their house and it’s worth 300,000 and they have to sell it and the bank forgives the difference in most cases.

How is that different from a foreclosure?

Light years different! I mean a foreclosure essentially is the bank coming in and taking the home and in many cases pursuing the borrower for the difference. A short sale is a much more responsible way of going and selling your home in most cases getting the difference owed forgiven, it’s much less of a credit impact, allowing those folks to move on and close that chapter.

Part of the reason I would imagine why it’s a more responsible way to go is because if you’re at the point where you’re looking at your mortgage and you’re saying to yourself I need to get out of this, then you’re probably talking with your lender far before the foreclosure process.

Yes and there is plenty of time. We have people calling all the time trying to get a loan modification for 12 months they realize finally they can’t and then they say ok we want to try a short sale and that’s when we help them negotiate with a bank to allow the short sale and in most cases they forgive the difference.

How does a short sale affect your credit?

It all depends. The biggest impact on credit is how far behind you are. So in some cases clients will stay current and still perform a short sale and the credit impact is very slight but if somebody comes to us with 6 or 12 months delinquency at that point their credit is already shot.

Another thing that’s happened recently is we just saw President Obama in Nevada sign a proposal that would expand which lenders could refinance their mortgage. In a lot of cases that would allow you to even avoid a short sale. Do you see this as a good tool for homeowners?

Absolutely, if someone’s hardship is a temporary one. For example we get people who call where say a woman’s pregnant, she’s going to be out of work for 6 months and then she’s going back–in cases like that it’s a good thing. The jury is still out on whether that will work. The program that President Obama talked about came out 2 years ago, it’s been pretty unsuccessful, and now they’re saying they’re going to loosen some of the constraints so we expect it to work better. When people want to keep their home and truly afford it with a slightly lower payment then I think they should go for it. But if they’re having trouble paying even if the mortgage was cut in half then it’s not going to help them.

When it comes to short sales in terms of buyers, is it a good deal if you can get it?

It can be. The biggest thing we always push on to buyer agents and buyers is to make sure that the agent who’s representing the seller in a short sale is experienced, they understand who the banks are, that there’s definitely a track record of success for that agent so the buyer feels confident that the deal is actually going to stick together. But they need to be careful we’re not going to lie and say that every agent and every short sale is a given there are some pitfalls to look out for.

It certainly helps to have someone like you who knows the process and can walk them through it.

Short sales have been around for awhile, but the Obama administration is paying homeowners and their lenders a little extra to part ways. With a short sale, homeowners lose their homes, but also the debt. Lenders get cash on the barrel.

Danielle Tocco and her husband bought their house more than three years ago. It was their dream to be homeowners.

“When we got there, we could do it, but once my husband lost his job, I couldn’t do it any more. So what do you do?” said Danielle Tocco.

She agreed to a short sale. Under this arrangement, banks approve a sale for far less than what’s still owed on the mortgage. In Tocco’s case, it was $70,000 less.

Short sales have become increasingly popular since the Obama administration recently added incentives such as home sellers getting $3,000 to walk away while the banks get an extra $1,500. Tocco’s credit rating was spared the hit of a foreclosure.

“If the bank forecloses on the property, it costs them substantially more in legal fees,” said Anthony LaMacchia of McGeough LaMacchia Realty. “They typically have to fight with borrowers to get them out of the home, and it’s pretty much a win, win for borrower and bank.”

Some critics say it is more like panic selling and that the seller’s credit rating is preserved only marginally.

“All you’re doing is rebranding a foreclosure as a short sale. But the fact of the matter is that you should not get to that point,” said Bruce Marks of the Neighborhood Assistance Corporation of America.

Marks believes loan modifications could keep most people in their homes, but that banks prefer getting the cash immediately. As for the homeowner, they don’t always walk away free of responsibility once they sign on the dotted line.

“About 80 percent of the time when we receive a short sale approval, it says right on it, that it’s forgiven,” said LaMacchia.

But for the other 20 percent, they could still be on the hook for the balance of the unpaid mortgage, although they’ll know it at the time of the signing of the short sale agreement. In those cases, the bank could come back a few months later looking of the rest of their money.

Nearly 5 million homeowners are “underwater,” or “upside-down,” meaning they owe more on their house than its worth. A large number of those homeowners can’t easily access loan modifications that would make their homes truly affordable.

But Tocco walked away free of future debt and is glad to be rid of the house.

“It’s a little slow, it takes a bit of a process. It’s hard, you have to wait. You have to be patient. But once it’s over you’re released,” said Tocco.