Greater Phoenix Real Estate Blog

When Can a Short Sale Seller Buy Again?

January 3, 2010 // No Comments »

Thanks to one of my favorite Mortgage Consultants, here’s some very interesting information for those involved in or contemplating a short sale of their home.

HUD recently released its ruling on when and how soon a borrower may use FHA financing after surviving closing a short sale. Here is how it is going to work (effective immediately).

1. A buyer can immediately purchase a home if they executed a short sale on a previously owned residence, IF:

• They were current on their mortgage and other installment debts at the time of the short sale (no 30 day late payments in previous 12 months from time of new loan application for new purchase), OR
• The proceeds from the short sale serve as payment in full.

2.  A buyer must wait 3 years from the time of a short sale, IF:

• They did a short sale simply to take advantage of declining market conditions, AND
• They are looking to purchase at a reduced price, a property that is similar or superior and within a reasonable commuting distance from the property that was sold short.
• They were in default at the time of the short sale

The exact methods being used to determine bullet 1 of reason 2 were not discussed in the mortgagee letter. However, it is expected that they will need to explain and document a legitimate reason as to why the short sale was necessary. That reason would need to indicate that the client did not short sale merely to adjust their mortgage liability to current market values by selling one house short and buying a very similar or “better” house in the same marketplace.

Exceptions may be made to bullet 3 of reason 2 IF:

• The default was due to circumstances beyond the borrowers control (death of primary wage earner, long term illness etc…), AND
• The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrowers control that caused the default.

In my personal opinion, this new HUD ’statement of clarification’ provides many more questions than answers. Time will only tell, but I’ll be attempting to keep you updated.

Image courtesy of ebmorse.

Posted in arizona market conditions

Short Sales: Reality or Mirage?

August 29, 2009 // 2 Comments »

Those of us that are experienced, professional real estate Brokers, tend to have very strong feelings about them, pro or con, so I decided to share with you some of my personal attitudes toward and feelings about “short sales”.

I remember as a kid when my family would be on a road trip across the hot summer highways of West Texas.  As I would watch the horizon, and the road ahead, I would see what I would always swear was water on the highway.  I knew it HAD to be water, because I could see it with my own eyes.  The reality was that it was hotter than hell, and dry as a bone – and what I was ’seeing’ was in effect a mirage, an illusion, a distortion of perception created by the heat.  That, my friends is exactly how I feel about short sale listings.  They are nothing more than a mirage.

Lenders do what they want, when they want, if they want ~  and there is no way to predict their behavior or decisions.  I’ve facilitated short sales, consulted with short sale and bankruptcy attorneys about it, dealt with asset managers, loss mitigators and bank negotiators, and otherwise kept informed and abreast of the market and the so-called experts and short-sale-gurus’ claims.  The seller’s lender(s) hold all the power, and control, and their actions have proven time and time again that they do NOT care one iota about the homeowners, agents, brokers or buyers that are involved in the attempted transaction.

The fact is that only about 10% of all short sale listings in the greater Phoenix real estate market ever make it to closing.  Period.  And considering that the processing time on short sale transactions is typically 6-18 months, my question is, “Why would any home buyer or investor want to subject themselves to such an ordeal?”

The answer?  As one of my clients put it this week, “I want to buy a house and get a smoking deal, i.e., make a good investment!”  The unfortunate but realistic truth is that roughly 90% of all short sale properties are ultimately going to end up back on the market as bank owned (foreclosure) properties.  Most short sale listings are unrealistically priced below a price point that the seller’s lender(s) will ever seriously consider accepting – which in my opinion is why most of them fail.

But before a lender will even take a serious look at the purchase contract, they will evaluate and scrutinize the homeowner/seller.  The seller’s lender(s) will, in their sole discretion and timetable, decide:

• if the seller is truly in “financial hardship”;
• if the seller has the capability to pay their mortgage loan(s) in full;
• if the investors behind the mortgage loan(s) will agree to take the short sale loss (and amount) right now;
• if the contracted sales price is a number they will accept;
• if they will agree to the rest of the contract terms and conditions, costs, liens, property taxes, etc.;
• if they would rather just foreclose and sell the property themselves.

Lenders do NOT pre-approve short sales or lay out in advance the sales price that they will accept, so the listing/asking price is nothing but a “phantom” or imaginary price that the listing agent and seller use to attract a prospective buyer and secure a contract.  After the contract is in hand, then and only then is when the submission and negotiations begin with the seller’s lender(s).  I could go on and on, but I’ll stop here for today.  My hope is that all of my readers and clients will see the insanity, futility, false hopes and unrealistic illusions of pursuing short sale properties.

Personally, I would much rather go to Vegas and roll the dice or play the slots.  Odds of success are about the same. 

Posted in arizona market conditions