|
|
 |
|
September 2, 2010 |
|
|
|
|
| |
|
|
| November 01, 2007 |
By: Terry Sheridan |
|
acing foreclosure after a divorce and business slowdown, Tricia May sold her Coconut Creek house for less than she owed on the mortgage — tens of thousands of dollars less.
Called a short sale, the deal in 2005 allowed May to avoid foreclosure and walk away from a $460,400 mortgage. Her monthly payment climbed from $1,800 to more than $3,000 after she refinanced to buy out her ex-husband’s share of the house when they divorced.
The house sold for $428,000. Lender Encore Credit, later acquired by Bear Stearns Residential Mortgage, got $396,000 of its loan back — a shortfall of almost $65,000 after closing costs and other fees were subtracted from the price.
“I wish I had never refinanced,” said May, who is remarried and renting a home in Loxahatchee.
More than two years after May’s deal, talk of short sales in real estate circles is soaring along with loan defaults and foreclosures in South Florida and nationwide.
Sellers who bought at the height of the housing boom with no money down or who obtained exotic or adjustable-rate mortgages have been watching their properties drop in value as their monthly payments re-set at drastically higher rates. In growing numbers, owners end up owing more than the homes are worth.
Owners are “upside down” and they’re crying for help while real estate salespeople, no longer doing several deals a day, try to salvage business any way they can.
A planned panel discussion at a Nov. 13 meeting of the Broward Master Brokers Forum titled “Setting Sail with Short Sales” is a case in point. May’s broker, Michael Briche of Mizner/Bass Realty in Fort Lauderdale, will be the moderator.
But real estate insiders caution that desperate homeowners should think twice about short sales.
Sellers avoid foreclosure. But the difference between the mortgage balance and the sale price, called the deficiency, is treated as taxable income unless sellers can prove they’re insolvent.
Pending federal legislation would eliminate the tax bite in short sales, said tax attorney Martin Press of Gunster Yoakley & Stewart in Fort Lauderdale.
But sellers’ credit ratings will suffer and affect their ability to obtain future loans and mortgages. And they must prove their distress to the Internal Revenue Service with hardship letters, tax returns and bank statements. Brokers also must send extensive market documentation substantiating the lower price.
“If the borrower can pay the shortfall through a 401(k) or other assets, there’s no hardship,” said Briche, who recently sent a lender 147 pages of market data to substantiate a short sale. “Many try to use a short sale to dump their poor investment and use it as a get-out-of-jail-free card. If you’re employed and have assets but your home lost value — and it’s amazing the sense of entitlement that people have out there — you can’t do a short sale.”
In May’s case, her business as a freelance ultrasound technician had lost accounts, and conventional efforts to sell the house were unsuccessful.
While sellers in her neighborhood were asking $50,000 more for similar homes, May agreed to Briche’s proposal to sell the house for less —far less than she owed.
The number of short sales is expected to increase, fed by declining values. South Florida home values dropped 7.8 percent in the year ended Aug. 30, according to the S&P/Case-Shiller home-price index released Tuesday.
But short sales also are the toughest transactions that real estate agents and their customers will face, warned Timothy Allen, market production manager for SunTrust in Lee and Collier counties and president of the Mortgage Bankers Association of Florida.
Real estate agents may push the tactic, but financially desperate homeowners should talk to their lenders before resorting to short sales, he said.
Increasingly, lenders are willing to work out reasonable terms with borrowers who are facing foreclosure.
Fannie Mae and Freddie Mac, the government-chartered agencies that are the biggest secondary market buyers of mortgages, also encourage working out loans in default for people in trouble with their primary residences, Allen said.
But real estate agents who need deals to make a living aren’t likely to be pushing that option.
“That’s not the advice the Realtors are giving because they are selling a house and the lender is the screwdriver and the Realtor is the hammer,” Allen said. “If the only tool I have in my toolbox is a hammer, every problem will be a nail.”
If troubled homeowners contact the company servicing their mortgages, alternatives that no one has even considered — like six-month abatements normally reserved for military personnel — may be offered, Allen said.
But even with loan workout options, lenders are preparing for more short sales, he said.
“I hate to be the harbinger of doom, but short sales will increase,” and lenders already are writing down their loan assets in anticipation of an increase, Allen said. “We’re going on new ground here.”
Attorney William Randol of National Title in Miami, who recently shut down his loan-servicing business, said lenders are weighing their alternatives.
They can foreclose on properties, hold them as assets for sale and postpone showing losses. Or they can await an auditor’s order to write down home values that have dropped.
“The write-off more accurately reflects your assets, and if lenders sell the house for more, they can put the excess back on the books,” he said.
With the obvious goal of keeping losses to a minimum, lenders generally will take a short sale offer within 15 percent of the mortgage balance with little fuss, Briche said.
But brokers will have to prove a lowball offer is valid, especially when lenders will ask other brokers or appraisers for a valuation.
“What’s killed many of our deals is a broker’s price opinion where some broker is paid $50, doesn’t drive by the property and comes up with a $100,000 value more than I’ve had it listed at,” Briche said. “And I have to argue with a guy making $9 an hour as a loss mitigator [for a lender] as to the value.”
But lenders want to make sure short sales are legitimate. The sales are increasingly seen as a reflection of mortgage fraud on properties that were overpriced when they sold with cash back to the buyers at closing.
A Miami-Dade mortgage-fraud task force has put short sales on its watch list, said member Nancy Hogan, a Coldwell Banker manager in Coral Gables and a member of the Florida Real Estate Commission.
Investigators are watching for sales involving buyers who never made payments on homes now valued less than the mortgage.
Other frauds involve sellers posing as short-sale buyers who want to reduce their mortgages and buy back their own homes.
Companies that offer sellers short-sale assistance as liaisons with lenders for a flat fee also have sprouted, Hogan said.
As Press put it, “Any time you find a way for people to make something work, they find a way to scam it.”
But there are many homeowners out there who are stuck with mortgages well above the market value of their homes.
In May’s case, she says she learned her lesson.
May is planning to buy the home she is renting in Loxahatchee. “This time, I’m going to keep the mortgage [amount] to no more than the price of the house.”
Terry Sheridan can be reached at (954) 468-2614.
Michael Briche photo by Melanie Bell
|
Search the archive for more stories.
|
|
|
 |
|
lawjobs Featured Ad
Associate
Dynamic, multi-practice law firm seeks associate with 1-2 years exp. for litigation in workers' comp. department; excellent salary and benefits.
Please fax resume to
(954) 938-7902 |
|
|
|
|
|
|
