Short Sale Avengers

Sales of vacation homes dropped nearly 31 percent last year, while investment-home sales fell just over 17 percent according to the 2009 National Association of Realtors Investment and Vacation Home Buyers Survey. While the market was down in all segments, these two categories fell by a greater amount than the sales of primary residences, which fell by just over 13 percent.

Second home sales accounted for 30 percent of all home sales in 2008. This reflected a drop of 33 percent from 2007 and 40 percent from 2005 – the peak year for second home purchases.

Even with the decline in second home sales, demand is expected to remain relatively strong due to the fact that a large segment of the population is in the prime age range for buying vacation or investment property.

By the time a person reaches their 40’s, interest in owning a second home increases dramatically. Currently there are 44.8 million people in the USA between the ages of 40 and 49 and another 40.7 million between 30 and 39.

Second home buyers tend to be more confident in today’s market. With prices down, interest rates down and consumer confidence on the rise, sales of second homes are expected to rise in the months ahead. A survey indicated that 80 percent feel now is a good time to buy a second home, compared to 71 percent of primary home buyers.

Sales facts on vacation homes and investment property purchases:

• 9 percent of home buyers in 2008 purchased a vacation home

• 21 percent of home buyers in 2008 purchased an investment property

• Median price of a vacation home in 2008 was $150,000, down 23.1 percent from 2007

• Median price of an investment property in 2008 was $108,000, down 28 percent from 2007

• Median distance from primary residence for a vacation home purchase was 316 miles; for an investment property purchase it was 19 miles

• Vacation home buyer profile: 46 years old, married, household income of $97,200

• Investment property buyer profile: 47 years old, married, household income of $85,000

• Top Reasons for buying a vacation home:
  • For vacation or family retreat (89%)
  • To diversify investments (27%)
  • To provide rental income (27%)
  • As primary residence in the future (26%)

• For use by a family member, friend, or relative (17%)

• Top reasons for buying an investment property
  • To provide rental income (58%)
  • To diversify investments (38%)
  • For use by a family member, friend, or relative (19%)
  • For vacation or family retreat (15%)

• For tax benefits (13%)

Jeff Scislow has led the industry for years in a variety of categories having sold over 2500 homes. For help with purchasing a Vacation Home or an Investment Property, contact Jeff Scislow, CDPE, CRS at RE/MAX Results (952) 431-3900.

A Short Sale results when the homeowner sells their property, the net proceeds are insufficient to payoff the mortgage balance, yet the mortgage company agrees to accept less than the mortgage payoff amount in order to close the sale. All Short Sales are subject to mortgage company approval and require an extensive amount of work to reach a successful outcome.

There are no guarantees a Short Sale will be approved or ever close, but when the process has been professionally handled by a Realtor familiar with short sale transactions, preferably a CDPE (Certified Distressed Property Expert), the odds of success are greatly enhanced.

A short sale is NOT the same as a foreclosure! There are major differences between the two. A foreclosure should be avoided at all costs, as it does serious, long-term damage to a person’s credit.

In addition to avoiding possible foreclosure, homeowners who have a successful short sale negotiated on their behalf are forgiven large sums of money; oftentimes without a deficiency judgment or requirement to repay!

Short Sale Complexity

Short sale transactions are highly complex. Real estate agents are expected to follow a myriad of specific guidelines incorporated by the mortgage company, as well as by the investor(s) of the mortgage notes. Each mortgage company is different and has their own rules, which of course adds complication and challenges ones understanding of the process. A particular mortgage note could be owned by several investors in different parts of the world, thus requiring multiple negotiations with respect to what each investor will accept as a loan payoff. When a seller has a second or third mortgage on their house, the level of complexity increases almost exponentially and the likelihood of a successful short sale diminishes.

These complex negotiations with the investor(s) and the mortgage companies do not commence until after the real estate agent has negotiated a sale with a buyer for the seller’s house. Finding the buyer is the easy part (relatively speaking). Following the lender and investor guidelines, then successfully negotiating the short sale with multiple parties and closing the deal is the tough part. The average real estate agent has not been trained in the complexities of a short sale and is the reason they close on such a low percentage of attempted short sales.

Sellers experiencing any type of hardship today (i.e. loss of job, death in family, reduction of income, divorce, separation, illness, transfer, too many bills) may qualify for a short sale of their home, even if they are current on their mortgage payments.

The latest Obama plan designed to help homeowners stay in their homes by modifying their mortgages and avoiding foreclosure has made some progress over the past two months. The program is called “Making Home Affordable” and has a price tag of $75 billion.

While some 50,000 homeowners have been offered lower-cost mortgages through the program, lenders have not been able to implement the proposed benefits to homeowners as hoped for. The main reason for this is that the demand for loan modifications has lenders swamped and not fully trained to process the applications. As a result, there is growing concern as to whether the plan will be able to reach its goal of helping 4 million distressed homeowners.

Theoretically the plan makes great sense, but practically speaking it has been very difficult to implement. This is leaving numerous homeowners frustrated. Some homeowners have described the process as, “A comedy of errors.”

Basically speaking, the loan modification program will pay lenders to reduce borrower’s payments by lowering their interest rates and extending the term of the mortgage. Nearly 55,000 homeowners have been offered loan modifications to date and an additional 20,000 have already accepted the new terms of a modified loan.

In some locations around the country, court orders have been obtained to stop the foreclosure process; hoping that the additional time will allow more loan modifications to be processed.

The U.S. Treasury Department is also working on plans that will inject another $10 billion towards an insurance plan that will protect lenders from losses tied to falling home prices. Additionally, the Treasury Department will soon unveil plans to offer lenders incentives to participate in “short sales” of homes; a means of working with owners who choose to sell their homes when they are underwater on the mortgage. Approximately 75 percent of the major lenders have agreed to participate in these proposed governmental programs.

The results of the “Making Home Affordable” program, while a far cry from what is needed, contrasts sharply with the miserably failed “Hope for Homeowners” governmental program that was launched last October, whereby only a single homeowners was helped.

Another program offered last year by the government called “FHASecure”, had only helped 4000 targeted sub-prime borrowers before the program was allowed to expire at the end of 2008.

With millions of home mortgages in some form of distress, the greatest concern seems to be over the homeowners who are underwater; a situation where the borrower owes more on their mortgage than what the home is worth. Currently there is a governmental program targeted to help these borrowers by allowing them to refinance their home if they have little or no equity, providing they have a loan backed by Fannie Mae or Freddie Mac. Thousands have already refinanced under this program, but since the program is limited to borrowers who owe no more than 105 percent of the value of their home and since values have continued to decline, fewer borrowers are able to qualify for this program as time goes on. As of May 2009, it is estimated that 1 million homeowners with Fannie or Freddie backed loans are too far underwater to qualify for the program.

All the governmental programs to date are designed to lower monthly payments, but not loan balances. Home values are expected their continued decline for the balance of 2009, pushing more homeowners underwater and putting more at risk of foreclosure.

If you or someone you know is challenged with their current mortgage payment(s), or is jeopardy of a possible foreclosure, contact me at my office (952) 431-3900 to confidentially discuss options and possible solutions including loan modification and/or short sale. You are not alone.

Jeff Scislow, CDPE, CRS
Certified Distressed Property Expert
www.MinnesotaDistressedProperty.com