A recent stat shows that 23.3% of all US homes are underwater, meaning that the owners of these properties owe more on their home than what it is actually worth.  If these homeowners need to sell, they generally have to do it by means of Short Sales. Unless they have reserves of Cash stashed away, which thy usually don’t, this is about the only option to avoid foreclosure.

Because of the high numbers of short sales, banks are losing a ton of money. In my recent America First Credit Union annual newsletter, it was made apparent that the 2009 loss from bad loans was substantially worse than the year before.

Mortgage Insurance was created to insure banks losses from default home loans. However, the Mortgage Insurance providers are going out of business because they never anticipated losses would be this bad.

In effort too salvage some money, and make up for the lack of funds covered by mortgage insurance, Bank of America is attempting to collect promissory notes from the owners requesting short sales. One of our Cornerstone Agents is working with a client who owes more than $300,000 on a house. They currently have a short sale offer on it for $200,000. The bank is willing to approve the short sale, IF the owner will sign a 20 year promissory note for $55,000. This would give the default borrower a payment of about $250 for the next 20 years.

This is a good move by Bank of America, but the problem is that for borrowers like the one in this example, short sales are less appealing than just letting the home foreclose.  At this point the borrowers credit is already shot, and the only thing they would be saving is the term “foreclosure” on their credit report. Is it worth $55,000 to avoid that term? Not for these borrowers.

From Bank of Americas standpoint, by not approving the short sale they are going to lose even more money by having to pay the legal fees associated with foreclosure. Then, after the foreclosure, they still have to sell the house at a price that is nowhere near worth what the owners borrowed against it.

While it is a good move to try and make the default borrowers more accountable, they have to do it in a way that will actually make sense. Making the guidelines too strict will just make things worse for all parties involved.

Banks are making the short sale approval process easier, but they want the default borrowers to have some skin in the game. This should definitely dissuade sellers from taking low ball offers on short sale homes.

Cache Valley Short Sales Remain Stable

For the third straight month there are exactly 47 short sales in Cache County Utah. 13 of these short sale homes are found in Logan while the remaining 34 are found in the outlying communities in Cache Valley. While the number of short sale homes for sale has remained the same, the percentage of Cache County homes for sale that are short sales has actually declined, because the number of total residential home listings has gone up. There are currently 747 active residential listings in Cache Valley, meaning that 700 of the homes for sale are not short sales. 6.29 percent of the current listings are seeking short sale approval.

Click this link if you would like to view the current short sale homes for sale in Cache Valley.

Home values in Cache Valley are staying pretty steady. The price declines are gradual enough that Cache County isn't seeing the high numbers of short sales that other parts of Utah County have.

One of the popular and increasingly prevalent terms in real estate is “Short Sales”

The term Short Sale typically applies to homes that have negative equity. That is, homes where the owner owes more than the home can be sold for. Short sales usually apply to homes that are “in distress” or behind on mortgage payments. These homes are often referred to as pre-foreclosures.

Because banks don’t want homes to foreclose, they will accept an amount less than what is owed on the property to prevent the foreclosure. For this reason, banks usually won’t approve a short sale unless the home owner is behind on their payments, and has had some financial hardship that prevents them from making payments.

Why are we seeing so many more Short Sales now?

The main reason we are seeing more short sales now is because lending practices were too loose and home prices went too high. Most home buyers also purchased these homes with little or no money down. When home prices started to sink, these homeowners had no equity.

What is the different about purchasing a Short Sale

When writing an offer on a short sale property, you not only need the approval of the home owner, but also the approval of one, and sometimes several banks. Because the homeowner isn’t going to be getting anything out of the sale, they are often not very motivated or cooperative.

Banks also are slow to respond. It can sometimes take months before they will even get to a file. They are overwhelmed by the number of short sale requests they now have. Most banks usually won’t even look at a short sale file until there is an offer.

For this reason, Realtor’s generally price short sale homes very low in order to generate a quick offer. A lot of the time the list price won’t actually even be approved by the bank.

Attempting to purchase a short sale can be a very frustrating experience. The one thing you can be sure of is that buying a short sale is not a short process.

Living in Cache Valley we are lucky. We have far fewer short sales than the rest of Utah. Our home prices never rose as high, and so the decline has been less drastic. Currently less than 7% of the homes for sale in Cache Valley are short sales.

Click this link if you would like to view all the current Cache Valley Short Sales for Sale

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Tags: pre-foreclosures, Short Sales

In Utah, Utah County has the most short sales. Nearly one in three homes in Utah County is listed as a Short Sale. Cache County on the other hand has less than seven percent of its active listings as Short Sales.