Think about the fraud discussed in other threads. I don’t think that the lenders will approve too many short sales below debt owed. That’ll invite fraud since the sellers can easily manipulate who the houses are sold to.

If short sales were too prevalent, then everyone will ask for one.

Who pays the monthly carrying costs in the mean time with short sales?

Until the bank forecloses, the owner is on the hook for the carrying costs, in theory. In reality, the bank isn’t likely to approve a short sale unless the owner is in default on at least one mortgage, which means they will be eating any missed payments. An owner in financial distress might also decide to forgo paying HOA dues/assessments, property taxes, and perhaps even utilities if the home is vacant. Unpaid HOA fees and taxes would create liens on the property, which would be cleared from the proceeds of any sale. That means in effect that the bank pays for them as part of its loss on sale. Sometimes government-owned utility districts can place liens as well. Private utility companies would send collections people after the old owner.

Once foreclosure happens, then the bank is on the hook for everything until it sells the property. That is one reason banks don’t like to carry large numbers of REO properties.

NSR I have a few different clients who have been tracking short sales and even some REO properties. One common theme is that in all of the cases be it short sales or REO properties there seems to be severe reluctance on the part of the bank to negotiate. It is disappointing.

SD Realtor

SD Realtor said: “One common theme is that in all of the cases be it short sales or REO properties there seems to be severe reluctance on the part of the bank to negotiate. It is disappointing.”

Could it be that it’s still early? I wonder how these are counted for on their books, and what those bankers’ incentives are at this point. They can be rewarded for two things: a) value sold (hence their strong negotiation stance); and/or b) % of such assets disposed (if the amount of foreclosure increases and time drags on)… my sense is that it’s still too early.

I guess in spring we’ll really know what shape the SD real estate market is in.

rla

On short sale the lender requires a statement of hardship from the owner/seller and the seller must be in default on the loan. The lenders will vary some on negotiations depending upon the amount of non performing assets they have on the books. The banks have reserve requirements and these bad assets constrain lending ability and hurt the quarterly reports to Wall Street. Fannie and Freddie typically will foreclose rather than shortpay but hardship will be considered. I am not aware of the motivation of Hedge Funds or Chinese investors etc. and the service companies handling the loan. Many of the 2nd loan holders will be more likely to negotiate because the added cost of foreclosure and requirement to bring first loan current. Most 2nd loans made after 2004 that are in default in Calif. will be wiped out in my opinion.

In hearing all of these conversations, I wonder how many people realize that they are very likely to be issued a 1099 for the amount of the debt forgiven? The fact that we are talking about deficiency judgments and short sales is a sad sign indeed.