Looking through the multiple listings in South Florida, we find that close to one third of homes listed are in short sales. Las Vegas, which underwent a boom and bust cycle similar to that of South Florida, is also awash in short sale properties.
While the short sale process can take months to complete, it has provided thousands of upside down home owners with a financial out that puts only a 2 year hit on their credit rating, rather than the 10 year credit problem that comes as a result of a foreclosure.
However, according to Business Week, some lenders are starting to crack down on this practice. Instead of simply allowing the sellers to walk away free and clear after the sale, these banks are pursuing policies such as demanding money from the sellers at closing or asking for promissory notes to be repaid over a period of years.
While banks have always had the right to demand this additional payment, most have not asked for it because of the tacit understanding that owners who sold their homes via short sale had nothing left to bring to the table.
Now, however, as profit pictures improve at banks, and money is more available, some banks are showing no mercy. They want their money and they don’t care how they get it. The result of this policy will mean additional foreclosures and fewer short sales.
With more than 7 million foreclosures already expected to hit the market within the next three years, an elimination of short sales will only exacerbate the difficulties in the real estate market. Right now, banks are parceling out foreclosures at a relative modest rate. This helps to keep prices relatively stable. If foreclosures are dropped into the market in large quantities, prices of existing homes will drop further due to market oversupply.
Short sales usually sell somewhat under market price. While these sales typically take anywhere from 4-9 months to consummate, they save buyers money, and they allow the sellers to come back into the market within 2 years as new buyers. With the over-supply of homes that is expected to be with us for the next few years, we need these buyers to return to purchase again. If banks make foreclosure the only option, these potential homebuyers will not be able to return to the market for at least 10 years.
While short sales are problematical for realtors and potential buyers – something like 8 out of 10 short sale deals fall through the first time – these properties still serve a purpose. They act as a dam against a sudden flood of foreclosures hitting the market and causing greater economic damage to an already fragile market. If banks are prudent, which rarely seems to be the case, they will allow short sales to continue. If banks can learn to expedite this short sale process – and make the word short apply to the selling end of the process – they will be doing the housing market, and our overall economy, a great service.
Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com / 561 / 213 – 6139
www.marcjablonhomes.com/
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