Monday, February 25, 2008

More Short Sale follies

I recently had a client email me about a listing he saw online. He wanted to see it in person, so we scheduled a time to meet at the house. The home mentioned short sale in the MLS description, so in the meantime I contacted the listing agent to see what I could learn about the seller and the bank.

We arrived at the home and were not disappointed. It was a much higher quality home than most of what we had seen in this price range. It was also one of the least expensive homes available for its quality. Either way you look at it, this home represents a great value.

Unfortunately, as is often the case, this great value might be more mythical than real. Here's what I learned from the listing agent:

The seller owes about $350,000 in 1st and 2nd mortgages. The market value is probably somewhere around $300,000, but the home is currently listed for $250,000. The buyers have not yet missed a mortgage payment, but are trying to be proactive because their situation is about to become dire. They expect the 2nd mortgage to be wiped out, regardless of whether the home is foreclosed on or sold short. They have not yet talked with their banks about approving a short sale.

In reality, this home is probably a couple of months away from being a viable short sale, if it's viable at all. The banks aren't likely to approve a short sale while the owner is still current on the mortgage. Also, the only reason a bank would ever approve a short sale is if they believe they can minimize their loss (as compared with a foreclosure). If the second mortgage is getting wiped out either way, what is their incentive to help us facilitate a short sale?

My guess is that, even though this homeowner is very conscientious and wants to do the right thing, he is merely clogging up the MLS and confusing potential buyers. We're going to keep our eyes on this one to see what happens...

Your prefers 'bank-owned' to 'bank approval required' Realtor,

Chris Butterworth

[tags] short sale, foreclsure [/tags]