Has the Time Come to Get a Smokin’ Hot Deal on a Short Sale?

Is it possible that the time has finally come for investors to buy short sales and get smokin’ deals? Over the past year or two, it has become increasingly more difficult for investors to purchase short sales for cents on the dollar. Banks see the properties listed for short sale as pristine and scarcely want to give them up for a song.

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However on Wednesday, March 30, 2011, bank regulators and the Attorneys General met with regard to a proposed settlement associated with the robo-signing debacle of 2010. You may remember that in late 2010, some servicers (most notably GMAC) were foreclosing on properties without verifying the validity of the debt.

As reported by dsnews and the Los Angeles Times, those servicers involved in the robo-signing settlement may now be forced to permit modifications, principle reduction settlements, and short sales. While the terms of this proposed settlement are still being negotiated, the impact of the settlement could have some positive effects for both short sale sellers and purchasers of short sales. As a result of the settlement, it would seem that banks would have to be significantly more flexible with respect to their determinations of value.

As it stands right now, it is often difficult to come to some sort of agreement with the short sale lender on the value of a subject property. Frequently, values need to be appealed using comparables or a full appraisal conducted a certified or licensed appraiser. The Los Angeles Times compares distressed properties to “day old bagels”: the point being that banks need to reduce the price of their assets in order to unload their inventory. However, the additional costs associated with foreclosure don’t always make foreclosure the best option. So, even the most difficult lenders (if they are part of this proposed settlement) would now be compelled to consider short sale more seriously.

As a Realtor® and founder of a third-party short sale negotiation company, I can tell you that at present the only party who thinks that a property should be given a distressed value is the buyer. Short sale lenders (particularly, short sales with Fannie Mae as the investor) are sometimes asking for above market value on their properties. Bank-owned homes (at least those in San Diego County) are frequently listed with a sales price equivalent to market value—not the distressed value associated with vacant and abandoned homes. The buyer wants a deal; the buyer wants a day old bagel. But, the question is, will the bakery ever lower the price? In order to find out, I guess we will have to wait and see what happens as a result to the settlement.

What say you?

Photo: flickr creative commons by ezra.wolfe

Andrew

Replied over 8 years ago

Excellent Article. As someone who exclusively negotiates short sales, I believe the banks, willingly or not, already shifted their focus to short sales once they realized they potentially lacked the legal authority to foreclose on thousands of homes. In US Bank v. Ibanez, the Massachusetts SJC held that the lender did not have the legal authority to foreclose because they couldn’t actually prove that they owned the mortgage. Coupled with the robo-signing crisis, banks quickly realized they had to come up with an alternative means to divest themselves of their glut of housing inventory. If the MERS shoe drops, banks will have an even larger, perhaps unmanageable, problem on their hands. While I agree with Ms Zavela, who correctly points out that the settlement could have positive effects on short sales, I think the impetus for price flexibility came about months ago when the bank’s questionable foreclosure practices were called into question. The proposed settlement may force banks to be more flexible with respect to their determinations of value, but I’m not certain the agreement is nothing more than the loan servicers seeking assurances that they won’t face additional losses, by way of lawsuits, further down the road. Once banks obtain these assurances, they will likely begin to realize the losses on their current inventory of homes. Keep in mind, many of these banks have yet to report these losses because, if I understand the accounting rules correctly, they don’t have to report the losses on their balance sheets until they get rid of the asset. Once thing is clear, the housing sector is going to get a lot worse before it improves, and short sales are going to be viable option for years to come. Andrew Coppo Greater Boston Short Sales, LLC

Melissa Zavala

Andrew: Thanks for chiming in, and I do agree with you. The good news (in spite of all this mortgage madness) is that you and I will have plenty of work to keep us occupied for quite awhile.

Aaron Ayotte

Good article, Melissa! I too own and operate a 3rd party loss mitigation company and it seems that the biggest challenges in short sales of late, is not how long they take, not Bank of America’s lack of trained employees, not finding buyers, but VALUE! We see this ALL THE TIME. The BPO agent runs out to the property, 1 of 10 for the day, to earn their $50 and could care less about a REAL evaluation, even if we meet them there. Then, even if the value IS reasonable, the lender LIES by countering at a value HIGHER than what the BPO agent turned in (we can often find out the number). Then, yes, it’s time to buy a certified appraisal and start the process of “arguing” about who’s right. Changes in the valuation process and “encouragement” of lenders to provide better discounts are long overdue!

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