Short sale ordained

By Charles Bogue
Real Talk

Most real estate techniques that become standard practice are born not by a lawyer in a big building, but by individual Realtors working with buyers and sellers in the field. The short sale is no exception.

As home values declined, more and more owners found the value of their home to be less than the balance of the loan on which they were making payments. In 2008, as the number of foreclosures reached dramatic heights, lenders began to look at loan modification and short sales as better economic options to foreclosure.

In this situation the homeowner would turn to their Realtor and ask what should I do? This convergence resulted in a compromise of sorts called a short sale. Having exhausted the loan modification, the seller, with buyer in hand, is willing to sell a home to minimize damage to their credit. The bank agrees to accept less than the balance due on the note to avoid the cost of time-consuming and expensive foreclosure.

In today’s real estate world, the short sale, like other forms of distress sales, is affecting more than just subprime borrowers. In this market, a far broader swath of owners, including those with middle- and higher-priced homes, are affected by economic decline, job loss, investment loss and shrinking available credit. Obtaining appraisals and meeting loan qualification requirements becomes more difficult.

The short sale, a derivative of this declining market, was an occasional event in 2007, common in 2008 and dominant in 2009. So common is the short sale that this week the Obama administration announced inventiveness and uniform procedures for short sales.

Under the Foreclosure Alternatives Program, participating servicers (lenders) must comply with the requirements as long as they are not in conflict with their investor contracts. Among the incentives in the program is $1,000 for servicers who successfully complete a short sale, $1,500 to assist homeowners in relocation, and up to $1,000 toward the cost of paying junior lien holders to release their liens.

The program stipulates that sellers be given 90 days to market their property for sale, with the condition that the home is listed with a licensed real estate professional with experience in the neighborhood. It also requires streamlined and standardized documents with the intention to minimize the complexity and increase the use of the short sale option.

In this specific effort to pre-empt the foreclosure process the government has recognized, as have lenders, that settlements and short sales reduce the supply of distressed homes coming on the market and provide a more profitable option for lenders.

Initiated by the National Association of Realtors, this program will not turn the real estate market around overnight, but the Obama administration deserves credit for recognizing reality and the benefit the short sale brings to the market. To ordain its existence as a “standard practice” by adopting this program is one more step in the right direction. 

Charles Bogue is a broker with Coldwell Banker Brokers of the Valley in Napa. Reach him at 258-5221 or cbogue@cbnapavalley.com.

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