I Am Facing Foreclosure – Should I Bother With Trying To Do A Short Sale?
June 25th, 2008 categories: Short Sales
Given the market conditions in the Phoenix Metro area, buyers, sellers and real estate agents are beginning to develop some opinions about short sales. There is also many buyers, seller and agents who are misinformed and are spreading facts that are simply untrue. As a seller, it is hard to separate fact from fiction.
One of the most common untruths I hear is that a short sale will only drop a credit score 100-150 points while a foreclosure will drop a credit score 200-250 points. The fact is that there is no grading scale for anything in a FICO score. Fico scores are an algorithm that utilize many pieces of information, so credit scores are impacted differently depending on other factors.
Some sellers facing foreclosure have been told that there will not be much difference between a short sale or a foreclosure on their credit score so why go through the “hassle” of trying to do a short sale. In my opinion, a short sale will ALWAYS be better than a foreclosure. If your credit score is impacted in a similar way, the fact that short sale is reported vs. foreclosure is still better. Also, when doing a short sale there is always a chance that the short sale will get reported as something as neutral as “Paid as Agreed”. Yes, you will have mortgage lates, but over time those will roll off.
I have also been told by one lender that they would cooperate with my seller if they continue to pay their mortgage on time. This would be a first in my world as my experience has been that the lenders will not pay attention to those who are current and requesting a short sale…they have too many files to contend with who are in default. I will continue to report on the success of that transaction to see if they do cooperate.
In conclusion, I feel like the landscape of short sales is changing. It has taken months for the lenders to ramp up their loss mitigation departments to handle the amount of defaulting files on their desks. However, for those of us who are in the trenches in this daily, we are feeling some progress is being made. The lenders are feeling the pain of all of the homes they are taking back as REO’s and realizing how deeply they are having to discount those when they come back on the market as an REO sale. We are even perfecting our strategies in dealing with this short sale market and are excited about the opportunity to prevent foreclosure for sellers. Give me a call at 480-201-4185 if you want to discuss your situation.
Copyright © 2008 The Sunshine Broker | Desert Ridge Real Estate Blog 
I think more banks should adopt payment strategies like the way Wachovia does. In this market it would be better for some cash flow instead of no cash flow.
Wachovia has a flex payment plan where you have a choice every month whether you want to pay more principal or pay interest only or even less than interest. These just end up on the back side and collect more interest.
Seems like a win win to me.
Karl,
A lot of the Option Arms that were done did offer those payment scenarios. Unfortunately many people always paid the minimum resulting in several thousand dollars in negative amortization. Not too bad for a short term strategy, but not good for long term. I do agree it is a good structure for a disciplined payer.
I’m glad that you feel like the short sale climate is shifting . . . I can say that I feel like I’ve been hitting my head against the wall for 18 months now in the short sale arena, always thinking that it had to get better, but not finding a lot of improvement, really. Just had a property in San Bernardino go to Trustee Sale. I gave them multiple offers in the $175K-$200K range, but they kept insisting that they wanted $280K, which was absolutely out of touch. And, they wouldn’t acknowledge my comps and analysis no matter how many ways or times I sent it. I’m not sure what it’s listed for now, but as there are tons of REOs, they will probably only get $150K for it by the time they’re done, (if they’re lucky and don’t chase the market down). If it goes to REO auction, they’ll probably only get $115K or so.
I think my frustrations with the lenders over short sales has only fired my resolve to pursue my first love, which is to put deals together without dealing with any financial institutions whatsoever. There are a variety of seller financing strategies out there.
Dawn,
I have a couple of those frustrating stories, but I also have some success stories and positive signs about certain banks. I intend to publish some of those (names anonymous of course) and will always continue to be brainstorming way to be more successful on getting short sales approved. I think it is very important if we are ever going to see our inventory levels decrease in the near future.
Hi Kim,
I hope you won’t be keeping the names of the banks a secret, I look forward to hearing the success stories and which banks are involved in the success! It’s all about getting the approvals, isn’t it?
How do you think the banks will be or are starting to handle the short sales that are not hardship cases, but folks simply walking away from a loss of equity that could take 10 years to recover? I realize that the MI companies have a lot to do with the ultimate decision, but isn’t it still in the bank’s best interest to take the short sale if the home is being sold at or near market value?