A long and winding road: the short sale conundrum

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A classroom of Certified Distressed Property Expert candidates learn the basics of short sales from Tiffany Lachnidt.

A classroom of Certified Distressed Property Expert candidates learn the basics of short sales from Tiffany Lachnidt.

Apparently, the only thing “short” about the current short sale process is the price.

It takes from six to 12 months to complete a short sale, a time frame that real estate agents and brokers say hurts both homeowners and mortgage holders.

David Liniger, co-founder and chairman of the board of Re/Max International, is one of a handful of National Association of Realtors members who plan to lobby Congress this fall for help in streamlining the short sale process.

Liniger said he believes that too many vulnerable home sellers are being forced into foreclosure because lenders and governmental agencies are overwhelmed — mired in a backlog of short sale applications.

Many homeowners don’t even realize they have a short sale option, he said, adding that more than 70 percent of homeowners facing foreclosure never list their houses for sale.

“Families in this situation need to understand that listing and selling their home as a short sale can offer some very real advantages over going to foreclosure,” Liniger said. “Many homeowners can’t qualify for a loan modification, especially the unemployed, who have no income for making monthly mortgage payments.”

According to the NAR, the unemployed are contributing as much to the foreclosure problem as sub-prime loans.

“Here in Colorado, we’re lucky that our unemployment rate is lower than the national average,” Liniger said. “I would think that problem is less severe here. Let’s hope it stays that way.”

Banks and lending institutions face a typical write-down of 15 percent to 20 percent of a home’s mortgage to get short sales off their books — usually at the request of a home seller forced to discount the sales price in order to avoid foreclosure.

But once a property goes into foreclosure, properties can sell for 50 cents on the dollar, leaving a lender facing an even larger write-down, said Tiffany Lachnidt, a broker with Re/Max Properties Inc. and a Certified Distressed Property Expert.

“The trouble is that right now the average short sale takes months to complete,” she said, “and the foreclosure clock is ticking.”

And Lachnidt’s not the only agent who believes that short-term short sales losses would make sense for everyone involved.

On his Realtor.com blog, Orlando broker David Welch has crunched the numbers to find out just how much the banks are losing from their short sale foot-dragging.

“The consensus is that the average short sale is taking about eight months to approve and another month to close,” he said. “That is nine months of payments on the pendings (short sales and bank-owned real estate) that ‘the bank’ is not receiving. In the Orlando market alone, I figure nine months of interest at 6 percent on $690 million is about $31 million that the banks are losing while they are busy not approving the short sale. If these numbers continue, the total amount of annual interest income at 6 percent for the $1.66 billion is almost $100 million.”

Locally, Joe Clement, president of Re/Max Properties, has decided to make sure his sales force is trained in how to assess and, if accepted as a listing, execute a short sale.

“We’ve already got 120 of our 240 brokers certified, and even though July sales picked up, a lot of those were distressed properties that were purchased at a discount,” he said. “It’s a reality we all have to face.”

A reality which Lachnidt is all too familiar with.

“I got into this to help my sellers,” she said. “After hours and hours on the phone, waiting to talk to a lender who could make a decision and then finding out there were 600 steps involved to qualify a homeowner as a distressed property owner, I realized there was a whole education process necessary for Realtors as well as lenders and clients.”

One Response to A long and winding road: the short sale conundrum

  1. Here in Florida. Short Sale is the way of life. 90% of our listings are short sales and the rest are foreclosures.
    We all needed serious education and got it from Certified Distressed Property Experts. A 2 day course that is worth every penny.

    If you are dealing with short sales you need this course.

    Barbara McMillan
    September 5, 2009 at 9:45 am