Livermore Homes Blog

I’ve been writing lately about Short Sales, where banks agree to take less than the value of the loans and Foreclosures, where the lender owns the property and these links will give you a good background on what they are and how they work.  And as a disclaimer for what I am about to write, Joan and I currently have three short sale listings all with offers on them and one looks like it will close…maybe.

What got me to digging a little deeper into why short sales are such a headache was an article in the Washington Post with the headline; “Be ready for short sale to stumble”.  It was a brief but depressing look into some of the problems that come up during a short sale.  Though short sales technically always have existed, they were rarely seen in the last ten years.  The above article quoted a Virginia Realtor who said after checking his multiple listing service data that of every 20 short-sale listings that draw a contract only one makes it to closing.  That’s depressing!  What the article explains is that short sales are currently structured so that a home owner and a Realtor have to take a gamble that the lender(s) will agree to a short sale, but only after they have found a buyer, who is willing to take a shot (a 1 in 20 chance in Northern Virginia) at getting this home and willing to hang out for 2 to 6 months or more to find out if they did.  Lenders don’t want to do anything with a potential short sale until they have a live one on the hook.  Then the waiting begins.  The best case scenario for a successful short sale is there is only one loan and there is no Private Mortgage insurance.  Lenders will most likely let a property go to foreclosure, because they can only collect PMI in a foreclosure situation.  The second best scenario is if both a first and second loan are with the same lender.  They’ll negotiate among themselves.  With two lenders, it can get ugly, especially if the second lender, who will receive almost nothing wants to be difficult.  In California, in a non-judicial foreclosure, the first lender can not come after the owner for the difference between what the home sold for and the loan.  The second lender is in the same situation except if the second lender gets nothing, so that’s why it’s important to give the seconder lender somthing.  The other thing that can go wrong is that the potential buyer goes and buys something else, why the negotiations are going on.  There are many other reasons things can go wrong on a short sale.  Rather than deleving deeper into these reasons, let’s look at some imperfect results.  Since last September only 25 short sales of all types of homes have closed according to the MLS, in Livermore.  That’s out of 550 homes closed during the same 10 months.  Short Sales were just 4.5% of all closings overall, which is suprisingly close to the number the Realtor in Northern Virginia came up with, although the percentage has climb to about 8% in the last couple of months here in Livermore.  Short Sales are making up about 16% to 18% of the overall inventory.  I am not going to go any further down the slippery slope of statistics here, but while we see some improvement in short sales, there needs to be a lot more done to speed up the process and avoid a costly foreclosure.  This isn’t charity, this is business and it needs to be run as such to avoid bigger losses to everyone.  To be continued…