NAPLES — In the past, there has been nothing “short” about the time it takes to close a short sale, if it happens at all.
But federal legislation that took effect Monday could change that – at least for sellers who qualify. Locally and nationally, the new program has the potential to revolutionize the short sale process, if it’s implemented the right way by lenders.
“I think that everybody has been looking forward to this, knowing this was coming. It really gives homeowners an encouragement _ if nothing else, the feeling that the government is doing something,” said Susan Hubly, a Realtor with Prudential Florida Realty in Naples.
She specializes in distressed property sales, including short sales. In a short sale, the lender agrees to accept an offer from a buyer that is less than the amount that the seller owes on the mortgage.
The biggest frustrations for homeowners trying to do short sales have been the amount of paperwork involved and the length of time it takes lenders to make a decision on them, Hubly said.
“The banks are being encouraged to find ways to speed up that process,” she said. “I think anything is a good step in the right direction. Time will tell. I don’t know how it’s really going to affect our market.”
For sellers who qualify, loan servicers would have to accept or deny a short sale offer within 10 business days. Typically that could take three months or four months. In some cases, getting an answer can take more than a year.
Under the new program, lenders will give sellers the minimum price they’ll accept for the property before it’s even listed. If the offer meets or exceeds that price, the contract would be approved, as long as the seller complies with all the regulations.
Often, short sales are hung up because of a disagreement over the selling price.
The seller wouldn’t have to pay off the difference between the mortgage and the sales price under the program. Any second mortgages or liens would be forgiven.
The program is known as Home Affordable Foreclosure Alternatives, or HAFA for short.
To qualify, borrowers first must try to get a loan modification under the federal Home Affordable Modification Program (HAMP).
For many in Southwest Florida, a loan modification is just not possible. Thousands of residents have lost their jobs and are still out of work. In February, the unemployment rate in Lee County was nearly 14 percent. It stood at 12.6 percent in Collier.
“You can’t get a loan modification if you don’t have a job. You still can’t pay for it,” said Kathy Zorn, broker/owner of Florida Home Realty of Collier County.
She said 90 percent of her company’s transactions these days are short sales or foreclosures.
Realtor Lori Young, who works for Florida Home Realty, only does short sales. She’s been involved in more than 160 that lenders have approved.
Many of her short sales have involved loans owned or guaranteed by Fannie Mae or Freddie Mac. The new short sale legislation doesn’t apply to those, which is unfortunate, Young said.
“The new legislation has some real tight rules,” she said. “You have to prove it’s your primary residence. If it’s owner occupied you need to stay there. If you moved in the last 90 days, you have to prove that you relocated 100 miles away or more for a job.”
“You can’t just say I’m picking up and moving to Alabama. It has to be that a job drove you out of your home,” Young said.
Other eligibility rules for homeowners include:
•You must have a first lien mortgage originated before 2009.
•Your mortgage must be delinquent, or a default must be reasonably foreseeable.
•Your unpaid principal balance must be no more than $729,750.
•Your total monthly payment must exceed 31 percent of your gross income.
The program gives sellers a minimum of 45 days to close and make arrangements to move. Often, they only get 15 days to close, so it’s more favorable than what most lenders have typically offered, Young said.
Young has been working with one homeowner for more than a year on a short sale. She’s hoping to be able to finally close a deal with the help of the new federal program.
The appraisal for the home came in at about $200,000. Young said she had a buyer who made an offer in that range, but it was rejected. So the buyer walked away.
“The bank wanted to net $225,000,” Young said. “I said that was ridiculous.”
She thinks if the seller, who lost her job, can qualify to participate in the new program it might force the lender to accept any offer that comes in at the appraised value.
“We really try to work with these homeowners until the very last breath – until we are all worn out – and usually we are getting them closed,” Young said.
Without the new program, more local residents would surely end up in foreclosure, she said.
“I think it’s a good start, but it needs to be expanded to Fannie Mae and Freddie Mac,” Young said.
Some lenders who signed up for the new program don’t seem ready to implement it, even though they were given months to gear up for it.
“It seems like some people drag their feet and they get away with it,” Young said. “Unfortunately, some people are losing their homes.”
Lenders can benefit from participating in the program. It provides financial incentives to encourage short sales.
Qualifying sellers can get $3,000 for relocation assistance and loan servicers can get $1,500 to cover administrative and processing costs. Up to $6,000 can be distributed to other lien holders.
Naples broker Tina Carvalho, with Naples Golfing Rentals, welcomes any changes designed to improve the short sale process. If more short sales go through, it has the potential to get the local economy going again more quickly.
“The problem is that the banks don’t know what they are doing,” she said. “They take too long.”
Fewer foreclosures could help stabilize prices. If short sales are closed more quickly, it will eat away at the available housing inventory, which also should help prices, Carvalho said.
One of her short sale horror stories goes this way: The buyer and seller agreed on a price of $296,000. The bank verbally accepted after about three months. Two weeks later, the bank changed its mind and said it wanted more money. The deal fell apart and the seller went into foreclosure.
After foreclosure, the home sold for $50,000 less than the offer the bank rejected.
“Why are the banks willing to lose $50,000 just like that? Something is wrong. Something doesn’t look right,” Carvalho said.
She said there are plenty of cash buyers eager to buy homes in the market, but many shy away from short sales because they are such a headache.
Brett Brown, immediate past president of the Naples Area Board of Realtors, said the program should put the “fire under the financial institutions’ feet” to respond to offers, rather than dragging their feet for months.
“This will truly help those people who are in the process of trying to buy a home,” Brown said. “At least they are going to get a response. They are not going to be sitting on a fence, waiting for answers.”
He said there is still a lot of confusion out there about short sales, though many Realtors are getting better at figuring them out.
“I think people get frustrated,” Brown said. “I don’t know anyone on either side of a short sale transaction that hasn’t become frustrated at some point. Some walk away.”
Fort Myers-based real estate broker Denny Grimes, with Denny Grimes & Co. Inc., said on paper the program looks great. It’s designed to bring the lender to the table in the beginning when it comes to agreement on a selling price, which is the way it should be, he said.
“This move may bring sanity back into the short sale process because it has been totally irrational,” Grimes said. “If some of the short sale transactions I’ve seen were a horror movie, they would be rated ‘R’ for ridiculous.”
Last year, 70 percent of the sales in Lee County were short sales or foreclosures. There were more foreclosures than short sales, Grimes noted.
“This could be one of the best things that has happened since the bubble burst, as far as being able to deal with toxic properties,” Grimes said. “This will be worth watching and I’m actually pretty excited about it.”