Will it get easier to buy short sale homes?

I agree with your closing comments. In our area, we have always had short sales (even at the height of the market); however, now they have become quite common. Many agents refuse to "deal with them", as they can be quite a pain and time consuming with all of the bank required documents and frequent repetitive phone calls to the lien holder (even more "fun" when there are two mortgages-hope you sense my sarcasm). We keep hearing that the banks/lienholders are going to be more co-operative; however, it seems, in our area, as if they are becoming more difficult. If you do get assigned to a person at the bank, they are still tight lipped about their bottom line and still take 6+weeks to respond to offers, and usually buyers don't want to wait that long. I too hope there is light at the end of the tunnel.

I have heard rumors from several credible sources that banks are dragging their feet selling REO. The reason for this is that REO assets have not been adequately written down on bank balance sheets. The book value far exceeds market value. This means bank executives have a choice. They can either unload REO now and realize big losses (note: this will affect their current bonuses), or hold onto REO and delay the day of reckoning.

If the rumors are true, it's easy to see why the short sale process is so cumbersome. And frankly I don't see how a couple thousand dollars of “incentives” sprinkled here will change anything.

“It is about time we came to terms with the fact that not everyone will qualify for a loan modification. The alternative does not have to be a foreclosure. Short sales are definately a better option but unfortunately many realtors do not know how to execute them. This often results in the short sale falling apart and foreclosure. If you are going to short sale, use a company that specializes in them like www.housingassist.com or shortsalescenters.com”

There are many pitfalls in short sales, and the best thing a realtor can to is to insist that the homeowner get a lawyer as soon as an offer comes in, to try to guide it through the bank approval process. The lawyer’s fee is part of the HUD statement at closing, so having one doesn’t really cost the homeowner anything.

The main pitfall for a homeowner, and the reason a homeowner really needs a lawyer, is that banks may try to recoup their loss by going after the homeowner for the difference after the closing. The other pitfall to keep in mind is that, if the property is a two or three family, the homeowner will have some tax liability, as part of the sale will be treated as investment property. In that case, the lawyer will try to get as high a price for the property as possible, to reduce the tax liability for the homeowner.

As a realtor, one of the most difficult aspect of short sales I’ve found is that the houses are often very hard to show. Often there are tenants living in them, and they have no incentive to be disrupted. And, when you think about it, even homeowners are not usually anxious for these homes to sell, as they may be living rent-free for the moment. So the times that short sales can be shown are often very limited.

Some short sales are so impossible to get access to, and stay so long on the market and then are sold by the listing agent, that I become suspicious that the sale is not an “arms length transaction.” In other words, the property sits because it is so hard for agents to get access to it, and then the price keeps getting lowered, and then it is bought by a friend or relative of the owner.

Short sales remain difficult in our market in Palm Springs, California. The latest average is 2 out of 10 short sales transactions go through. A year ago, the average was 1 out of 24 short sales are accepted.
By contract, foreclosure transactions are much easier. Recently banks sometimes respond to offers within 24 hours; the paperwork process has improved immensely as well over the past few months. We can close Foreclosures within 45 days...the biggest delay is lenders getting loans.
Thanks for your post.

It is about time we came to terms with the fact that not everyone will qualify for a loan modification. The alternative does not have to be a foreclosure. Short sales are definately a better option but unfortunately many realtors do not know how to execute them. This often results in the short sale falling apart and foreclosure. If you are going to short sale, use a company that specializes in them like www.housingassist.com or shortsalescenters.com

I would recommend any buyers be patient, there is a TON of shadow inventory (in the form of REO) that will eventually flood the market driving prices down much more. Sit tight, and save your money, sometimes the smartest approach to investing is to sit and do nothing, we haven't seen anything yet...

I think short sales are better all around at this time in our economic crisis. Trying to get people into houses they can realistically afford in the shortest amount of time is the best bottom line for everyone. Streamlining the short sale process will work once the lenders clear up all the red tape on their end. Realtors are starting to streamline the search process for short sale buyers to find only pre-foreclosure properties like www.shortsense.com .