Contra Costa Times
Posted: 06/01/2011 10:10:59 PM PDT
Updated: 06/03/2011 05:09:45 PM PDT
When it comes to short sales, the real estate transaction involving a mortgage that is worth more than the home it is tied to has long belied its name as a quick deal.
That is starting to slowly change, thanks to increased bank staffing, a Department of Treasury program that aims to speed up the transactions and more of a general acceptance of the deal.
Just ask first-time homeowners Michael and May Manlapeg, who were renting a house in Walnut Creek a few months ago. After signing a pending sales contract for a home in Pleasant Hill in late January, they thought it would take as much as six months for the deal to go through. Escrow ended up closing in slightly less than three months. Regular home sales typically take 30 to 60 days to close escrow after a pending sales contract is signed.
"I knew it could it could be a long, difficult process. It went faster than we expected," said Michael Manlapeg, 34, of the four-bedroom, three-bathroom property in Pleasant Hill they purchased in a short sale for $550,000.
The family moved to the Bay Area five years ago after Michael Manlapeg accepted a job as an information technology manager at an employee-benefits administration company in San Francisco.
The Manlapegs were looking for a home in the Walnut Creek/Pleasant Hill area that could accommodate their four young children, but they found places that fit the bill were out of their price range. So, they turned
to a short sale, which allows for a home to be sold for less than what is owed on the mortgage -- provided the transaction is approved by the lender.
Unlike foreclosures, which can sell at substantial discounts, short sales tend to be priced closer to fair-market value. Still, some short-sale bargains can be struck by negotiating down the price based on work that needs to be done on a property.
The $550,000 price the Manlapegs paid reflected a $50,000 negotiated discount to offset needed roof work and minor repairs.
The couple financed the property with a 30-year, fixed-rate Federal Housing Administration loan with a 4.75 percent interest rate and a 3.5 percent down payment. Their new home features a pool and creekside deck area; it was once listed as a regular sale for $1.1 million in 2008. "We got a great price," Michael Manlapeg said.
Short sales are taking less time to do now than a year ago, said Kevin Kieffer, a real estate agent with the Danville office of Keller Williams Realty, who represented the Manlapegs in their purchase. "Banks have staffed up and put systems in place," he said.
Still, Kieffer said time challenges can pose a problem for short sales. "I generally tell (buyers) to be prepared to wait up the 120 days to close, and it could go longer. Those who are renting can be the ideal candidate."
In April, short-sale transactions accounted for 18.6 percent of existing Bay Area home sales, up from 17.6 percent in April 2010 and up from 12.9 percent two years ago, according to MDA DataQuick, a real estate tracking firm.
Work in progress
While some short sales are not taking as long as they used to, there is room for improvement, said Colleen Badagliacco, head of the California Association of Realtors' short sales task force and an agent with the San Jose office of Altera Real Estate.
A California Association of Realtors survey conducted during the last two weeks of 2010 found that fewer than three of every five short sales in the Golden State closed last year.
Sixty-three percent of those surveyed said that it took more than 60 days for lenders to provide a written response that approved or rejected an offer from a buyer.
However, many large lenders have begun streamlining the process in response to changes made earlier this year to a voluntary Department of Treasury program that aims to speed up short sales, even though that program has seen less than 5,500 short sales completed since it began in April 2010.
Banks participating in the Home Affordable Foreclosure Alternatives program, or HAFA, are making progress in speeding up short sales, Badagliacco said.
"One of the key components (of HAFA) is that lenders will give a response to an offer within 45 days. "... Because of that, they have had to streamline their processes, which is helping them respond faster to loans that are not in the HAFA program. That certainly is a step forward," she said, adding that most smaller lenders have not done as much streamlining.
HAFA provides financial incentives to lenders and $3,000 in relocation assistance to sellers to encourage short sales. It is geared to homeowners who qualified for a trial loan modification through the Home Affordable Modification Program but were unable to obtain a permanent modification. Homeowners struggling to pay their mortgages can request to be evaluated for the HAFA program.
When HAFA was launched in April 2010, there was no time requirement for participating lenders to provide a yes-or-no answer to homeowners seeking approval for a short sale.
That changed Feb. 1, when a new requirement required an answer in 30 calender days, which has since been increased to 45 days starting June 1. The 45-day deadline also applies to homeowners not in the program who already received an offer and want it to proceed as a HAFA short sale.
The program applies to loans that are not backed by mortgage giants Fannie Mae or Freddie Mac. However, Fannie Mae and Freddie Mac rolled out their own short-sale programs in August. While some differences exist, a $3,000 incentive paid to sellers who close a short sale applies to all three programs.
Many homeowners who fell out of the Home Affordable Modification Program now are turning to short sales, said Anastasia Stephanopoulos, a real estate agent with the Walnut Creek office of J. Rockcliff Realtors, an East Bay brokerage. Most of the short sales her office is handling are not HAFA short sales, she said.
"The banks are becoming more automated with how they are approaching the process. (Short sales) are moving much more quickly," she said. "It's really more cost effective to accept a short sale than to let it go to foreclosure. "... I'm finding a lot more short sales and fewer foreclosures."
However, she noted, short sales can be complicated when there are two or more loans on the property.
Normally, when a loan amount is forgiven by the lender as a result of a foreclosure, loan modification, or short sale, the amount is typically treated as taxable income.
But a temporary change to the tax code revised that through tax year 2012, which means forgiven debt can be excluded from taxable income at the state and federal level if the loan was used to acquire, build or substantially improve the taxpayer's primary home. Consult a tax professional for more details.
The seller's credit score also may be affected, although not as much as it would be in a foreclosure, Stephanopoulos said.
Even though the seller may face some financial drawbacks from a short sale transaction, "They are able to sell their house and put some closure behind them. I think sellers are happy to put it behind them," she said.
Contact Eve Mitchell at 925-952-2690.
A short sale doesn't necessarily mean a great deal.
A buyer who needs to be in a home by a date certain should not attempt a short sale purchase.
Sometimes at the 11th hour, a buyer may be asked to participate financially to provide fees for short sale negotiators or money to the second lien holder.
Sometimes foreclosure proceedings are also taking place. Because of the length of time required for bank(s) approval, it may be foreclosed upon before the short sale can be successfully completed.
Live in the home or have lived there in the past 12 months.
Have a documented financial hardship.
Have not purchased a new house within the past 12 months.
First mortgage is less than $729,750.
Obtained a mortgage on or before January 1, 2009.
Must not have been convicted within the past 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.