Short Sales Aren’t Short
They aren’t actually happening much either. One of the posts in yesterday’s Carnival of Real Estate pointed out that in high foreclosure area Sacramento, less than 5% of sales are successful short sales.
Two key reasons are behind that number. First of all, lenders are simply overwhelmed. Secondly, and this is the most important, lenders are letting homes be foreclosed to collect on the mortgage insurance that pays 20% of the loan amount. This provides income and cash flow to the lenders.
I’m witnessing this play out in real life with my clients purchasing distressed homes in California and Florida. Now lenders are much more responsive to bank owned properties or REOs and the Sacramento numbers bear that out. Over 60% of sales in Sacramento are bank owned. This trend bears out in what I’m observing in Las Vegas and Phoenix.
An article today on CNN confirms this trend on a wider scale. Our friend Duane LeGate said -
Lenders are taking much longer than necessary to approve short sales, according to Duane LeGate, of House Buyers Network, a short sale specialist.
“There was a much greater chance of success with these in the past,” said LeGate
A short sale is not a guarantee. Remember, the buyer and seller are asking the lender to take a loss. The example in the CNN story concludes, “Says Laura Pereira, ‘I feel the bank really let us down.’” No Mrs. Pereira, you let the bank down. You’re the one that failed to make your payments. The bank collected their insurance for liquidity and luckily managed to find a buyer at auction, and still managed to lose an estimated net of $28,000. They actually came out $2,000 better than taking the short sale assuming a mortgage insurance policy existed.
For would be home buyers hoping to get into today’s lower priced market, short sales are nearly a dead end with a low single digit success rate. It seems bank owned, or post foreclosures are where the best deals and greatest likelihood of success exist.