The Mechanics of a Short-Sale

A short-sale occurs when a seller owes more to the mortgage lien holder (s) (a.k.a. lender in my post) than the property will sell for and the seller cannot pay the difference including the closing costs.

Short-sale transactions are becoming a greater share of Kitsap County's sales. In fact, I completed a search of the MLS yesterday using "short-sale" and "bank-owned" in the agent remarks block for active properties and had 128 "hits."

The last time our markets saw this number of short-sales was during our last market cycle of 1994-1996. We eventually moved through that cycle as we will through this one. Unfortunately, don't expect that move until later next year or early 2010.

The remainder of this post will deal with the process of a short-sale. I won't address the nuances of a short-sale contract because the terms of the contract will vary with each purchase offer. Let's just say that sellers and buyers need someone who really knows what they're doing when they decide which REALTOR to use as their representative.

In a short-sale, the seller must receive permission from the lender to whom the seller makes mortgage payments before the sale "closes." This means the seller should alert the lender as soon as you realize there may be problems making future mortgage payments. If you must sell your house and you're using a REALTOR, you must send a hand-written letter to the lender giving your REALTOR access to the mortgage payment records. You will need to give your REALTOR the mortgage account number as a minimum so your REALTOR can deal with the lender directly.

If the lender agrees to a short-sale, then a listing price is established with lender approval (which may not reflect actual market conditions) and then you wait for a purchase offer. If an offer is received, you will sign the contract but the lender reserves the right to accept the terms. If this occurs, the property can be sold. However, the buyer may still have an opportunity to rescind their offer at any time during this prolonged process based on contract terms.

I would encourage both seller and buyer to consult with a real estate attorney and accountant to ensure the parties understand the pros and cons of their purchase and sale. The reasons: does the lender have the authority to transfer title; what category of title; whether the seller is obligated to repay the "short" amount to the lender in the future; and what tax consequences, if any, exist for the seller.

One final piece of advice: be prepared to wait several months, possibly more, for a short-sale to be completed.

Buyer Update...Lender Mortgage Programs

This is an update of mortgage lending programs currently available for buyers. Cherie Kesti splits her workdays in the Windermere Real Estate/West Sound, Inc. offices located in Bremerton (600 Park Ave), Poulsbo (18570 Hwy 305) and Silverdale (9939 Mickelberry Rd).

Kitsap County Market Statistics for October 27, 2008

The number of contracts written the past week increased to 42 from 30 the previous week and 25 the week before that.

The absorption rate for Silverdale was 122 weeks of inventory for sale which has been relatively stable except for last week when the number was 61 weeks.

The absorption rate for Kitsap County was 159.2 weeks of inventory and the range for the past eight weeks has been a low of 78.4 weeks to a high of 199.8 weeks.

There are currently 2,547 active listing on the market in Kitsap County. That number has decreased about eight percent over the past eight weeks. But as I've said previously, it's because sellers realize they can't get the price they want so they don't list, not because the market is improving.

Yes, There Really Is Money For Mortgage Loans

Click here to read a factual piece from the Seattle Times.

The Latest on our Financial Bailout

OK...so, $250B of the $700B that Congress approved will be going to nine of the country's largest banks (i.e., Citibank, Morgan Stanley, Lehman Bros, Wells Fargo et.al).

Here's the $64 question: will Barney Frank insist that some of the remaining $700B be provided to Fannie Mae and Freddie Mac?

The follow-on question is: should anyone in Congress have any business trying to straight-arm Treasury (Neel Kashkari and Henry Paulson) or the Fed (Ben Bernanke)?

Like it or not, Congress is as culpable as Wall Street in this mess because of politics, some bi-partisan...some not.

We need to rely on advice from experts who have no personal or financial interest on the decisions to be made over the next year or so. Mark my words, if politicians try to exert political pressure to get "sweet-heart deals" for their lobbyists and constituents, we're all in BIG trouble; especially if they get away with it.

Buyers Be Careful

If you participate in the $7,500.00 tax credit program recently enacted which ends in July next year, remember that you're obligated to repay the total amount borrowed once you sell your home up to any gain in the price.

The formula is based on a 15 year payback so if you "borrowed" the full amount, you should "put aside" $500 each year in a separate account then you'll have some money for the payment due when you file your tax return in the year in which your house was sold (balance paid from proceeds at sale).

This may prevent you from running afoul of the IRS.