The Long and Short Sale of It

There are some tall stories about short sales that have crept into real estate lore during the housing crisis. These tend to give both buyer and seller a false sense of hope when quite the reverse may be true.

As what is traditionally home-buying season, the end of the school year, gets into full swing, let's look at what a short sale is and is not. Hopefully this will prevent any expectations of a miracle in a housing market that is still a mess in many places.

A short sale is simply the term used for a homeowner selling his or her house for less than they owe on it. This is usually intended to forestall foreclosure and must be done with the permission of the lender.

Everyone makes out, right? The owner gets out from under a mortgage he or she can no longer pay. The bank gets rid of a property in arrears and for which it may already be paying carrying charges such as maintenance, repairs and taxes. The buyer gets to pick up a more expensive house for a less expensive price.

Now, if that were really how it worked all the time would I be writing this? It's not so clean or simple. "Short sales are really not worth the effort," says Serina Lancia, a real estate agent in Old Tappan, New Jersey. "We've had a few attempts by interested buyers, but they seem to get the short end of the stick and end up walking away," she explains.

How can that be? It sounds like such a good deal on the face of things. "The banks really drag their feet on these," says Lancia. "People wait and wait on commitments and contracts, until they're just tired of waiting, she complains.

So, what takes the banks so long? One reason is they just haven't been used to dealing with selling for less than the mortgage remaining for years and years. During the real estate boom years there was almost never an occasion where a house actually depreciated barring ghosts or thirty cats and dogs living inside. A second reason is the bank may not really be interested in selling for less than they are owed, especially if the owner is already in arrears and the bank has had to spend money to maintain the property.

Where does this leave buyers who hope someone else's bad luck will be good for them? Many real estate agents say they now discourage any potential client from thinking seriously about a short sale offering. They say frequently the banks don't even call them back.

On the other hand, short sales are described by some real estate agents as absolutely successful. "There are many of them and if a real estate agent today isn't trained in handling one, they are out of much of the market, " says Laurie Hathorn, of Keller Williams Realty in White Plains, New York. "Last year only two of my agents even knew what one was. Now at least a dozen are handling them, " adds Hathorn.

"Between 10% and 15% of the house sales are short sales these days in Westchester County," says Gary Leogrande, also of Keller Williams in White Plains, New York. That's a big difference from two to three years ago when selling short accounted for maybe 2%.

"You have to get familiar with the process," says Leogrande. He says buyers have to be patient because bank approval can take months and sellers can expect close scrutiny that they aren't trying to shrug off their legal debt without real hardship.

There are no shortcuts to a short sale," he says. Leogrande recalls one instance in which the seller had to get bank approval for not one, but three mortgages. While that all finally went through, he admonishes a short sale is not for someone on a short schedule.
(for more of my stories go to: www.nbcnewyork.com)