Short sales drive transactions

Distressed properties account for nearly 40 percent of national sales

As foreclosures rates continue to climb in Florida and throughout the country, buyers increasingly look to

non-traditional purchase methods. One of those that continue to draw interest is the “short sale”– an agreement

by a lender to accept less than it is owed when a property is sold.

From the standpoint of the seller, the consumer convinces the lender to forgive a portion of the mortgage

balance; the borrower avoids foreclosure – a more costly event for the bank, which with a short sale is able to

minimize its losses. The buyer, in turn, purchases a home for substantial discount – 10 to 30 percent off the

previous sales price, though the property may be in need of repair. Nearly two of every five houses sold today are

the result of distressed situations, either short sales or foreclosures, according to the National Association of

Realtors.

The practice has been around for years but has accelerated in recent months, especially as nearly one in

five U.S. mortgage borrowers owe lenders more than their homes are worth, according to a recent report by First

American CoreLogic.

The report concludes that roughly 7.63 million properties had negative equity in September 2008 and

more are headed that way if home prices fall another 5 percent. Florida is among the seven hardest-hit states

(including Arizona, California, Georgia, Michigan, Nevada and Ohio), accounting for nearly two of every three

borrowers who owe more than the value of their homes while accounting for only two of every five mortgages.

Further, U.S. home prices fell a record 16.6 percent in August from a year earlier, with declines in all 20

major metropolitan areas measured by the S&P/Case-Shiller Home Price Indices.

For buyers interested in the short sales market, there are deals to be had, but only if the consumer

expends the effort to understand the process. For example, the buyer should understand the property in question.

Is the seller behind in payments and in default? These situations make for a short sale candidate and should be

known before starting negotiations.

longer – in excess of 60 days in many cases – to approve short sales proposals. In some cases, buyers can

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accelerate the bank's decision by offering to pay with cash. As a general rule, the more deficient a seller is with the

lender the longer the negotiation can take. If you begin negotiating on a short sale, talk with your real estate

attorney about a contract that provides you, as the buyer, a way out of the deal if the seller does not conclude

negotiations with the lender within a specified period of time. Make sure that all paperwork is completed on time.

Missed deadlines can delay the time before closing.

including both primary and secondary holders, before a contract is approved. Holders of secondary liens might

hold up a short sale until they’re paid to minimize potential losses. Check for holders of tax liens as well as

mechanic’s liens.

compiling a comparative market analysis, which indicates the prices of similar property in your area. Seen from the

other side of the deal, the lender is trying to minimize loss on a property when dealing with a distressed borrower.

While lenders aim for fair market value, there’s anecdotal evidence that banks may be enticed by offers that are

least 90 percent of what an independent broker figures the home is currently worth. Know market value is a

critical element in making an offer.

the other costs remain. You should get an estimated closings statement for the short sale – including expected

sales price, unpaid loan balances, real estate commissions, outstanding payments and late fees – which your real

estate attorney can compile for you.

Short sales continue to attract attention throughout the real estate industry. Consumers should explore

these and all tools at their discretion but understand the hazards so that they can proceed with maximum security.

Charles J. Kovaleski is president of Attorneys’ Title Insurance Fund, Inc., (The Fund) the leading title insurer in

Florida and the sixth largest title insurance company in the country. Acknowledged as the Florida residential real

estate expert, The Fund has been in business for more than 50 years and supports a network of more than 6,000

attorney agents statewide who practice real estate law. The Fund, based in Orlando, Fla., underwrites more than

300,000 title insurance policies for owners and lenders in Florida every year. For more information, visit

myrealestatestory.com