2010: Year of the Short Sale?

Short Sales: Hurdles and Consequences

Short sales continue to be a huge factor in the Twin Cities housing market.

How do I know?

I've been showing a new client who's a first-time Buyer properties within 5 miles of South St. Paul the last few weeks, literally from Maplewood to Cottage Grove. Out of perhaps 100 homes I've screened online that met the client's criteria (price, square feet, number of bedrooms and baths, etc.), I'd estimate that more than two-thirds were "potential short sales."

In fact, the percentage is likely even higher, because invariably when the MLS field asking for short sale status is left blank . . . the home is a potential short sale.

Even taking into account the lower bracket price range (under $200k), those numbers are staggering.

New MNAR Form

Another sign that short sales loom large is a new form that the MN Association of Realtors has rushed out to help Realtors and their clients deal with potential short sales.

The forms lists the following seven "risks and ramifications":

1. Failure to obtain approval from all lender(s)/creditor(s) with a mortgage/lien against the property may prevent the sale from closing.
2. Short sale approvals from all lender(s)/creditor(s) are time consuming, may delay closing, and may not be accomplished within expected timelines.
3. Creditors will likely require disclosure of personal assets and financial records, including copies of tax returns, to determine approval of a short sale.
4. A short sale may require seller to pay off some or all of the amounts owed after closing.
5. Seller's credit will be impacted as a result of a short sale transaction.
6. Seller may incur tax consequences as a result of a short sale.
7. The approval of a short sale is never guaranteed.

Got all that?

Neither do most Sellers.

In fact, the form goes on to recommend that the prospective short seller consult with appropriate "tax, financial, and legal advisors" to determine if a short sale is appropriate.

My guess is that someone too financially strapped to pay their mortgage either doesn't have an attorney or accountant -- or doesn't have the money to pay them.

No wonder something like 75% of all short sales progress to foreclosure.

Showing "Short Sales"

Phew! And That's Just to Take a Look . . .

With a "traditional sale" (no bank involved), here's how Realtors set up a showing:

You call the listing agent's front desk, request the showing, and wait for a confirmation with showing instructions, i.e., lockbox code, alarm location (if any), etc. (Realtors can now submit showing requests online, as well).

In a "short sale," the bank is owed more than the home is worth, so has to give its approval before a sale can be consummated.

Given the long time lag involved, it's not unusual to have multiple prospective Buyers submit offers that may or may not have already been accepted, subject to the bank's approval.

Most Realtors don't want to waste their or their clients' time showing such a home.

To find out the "short sale" home's status prior to requesting a showing, here's the recommended protocol (courtesy of the MN Assn. of Realtors):

When offers have been received and submitted to the seller for consideration, but the seller has not accepted any of the offers, that is not a mandated disclosure. However,when setting up a showing appointment, if the buyer agent or the facilitator working with a buyer is concerned whether there are outstanding offers on the property, the agent should inquire of such from the listing agent. Or, when presenting an offer to the listing agent, the buyer agent or facilitator should inquire if there are any outstanding offers on the property. When asked, REALTORS®, with the authorization from the seller, shall disclose the existence of offers on the property. Where disclosure is authorized, REALTORS® shall also disclose, if asked, whether such offers were obtained by the listing agent, another licensee in the listing firm, or by a cooperating agent. The listing agent cannot lie, and if the seller has instructed the agent not to disclose the existence of multiple offers, the agent should respond by saying the seller has not authorized him/her to disclose that information. It is important to remember that a multiple offer situation is not a mandatory disclosure; rather it is up to the buyer agent or the facilitator to make such an inquiry.

Got all that?

Phew! (or as the natives say, "Uff-dah!")

You can navigate all that . . . or you could show another home (I hear that there are plenty for sale these days).

"How to File an Ethics Complaint"

By Popular Demand?

The first item in today's online newsletter from the Minnesota Association of Realtors is a YouTube video titled, "Filing an Ethics Complaint."

Quick Summary: it's easier than you think.

Two educated guesses: 1) there are a lot of seething Realtors (and non-Realtors) out there at the moment; 2) the vast majority are upset by how foreclosure sales are being handled (search "foreclosure" on this blog and you'll get an earful).

My take? An ounce of prevention is a lot smarter and more efficient than exacting a pound of flesh.

If you're not sure a foreclosure is for you . . it isn't.

If it makes you feel better, the feeding frenzies attending many of these properties lately is frequently reducing, if not eliminating, any market discount.

Banks Still Calling the Shots

Worst-Kept Secret: Foreclosure Banks
Flaunting MN Disclosure Laws

A problem has arisen in Minnesota regarding lenders who have acquired property through foreclosure and then listed those properties for sale to Minnesota consumers. The problem is that lenders are refusing to comply with Minnesota disclosure laws.

--Donald D. Smith and Brad J. Boyd, "Seller Disclosure Obligations Under Minnesota Law for REO Properties"

The above paragraph, from a memo drafted by the legal counsel to the MN Association of Realtors, is hardly news to anyone representing would-be Buyers trying to buy foreclosures lately (or to readers of this blog).

However, what's interesting is the Board of Realtors' response, undoubtedly borne of futility: instead of getting the appropriate legal authorities (MN Attorney General? U.S. Attorney General? Hennepin County Attorney? The Congress?) to get the banks to stop defying the law, it is shifting responsibility back to the Realtors.

Namely, it advises Realtors, when working with banks that refuse to comply with MN disclosure laws, to obtain from the bank the "legal support for that position." (Good luck with that one!)

Assuming, quite safely, that no "legal support" is forthcoming, then what?

Smith and Boyd again:

Without such evidence, supported by accurate and substantiated legal authority, Realtors in the state of Minnesota are being encouraged to avoid unwarranted personal legal liability and risk to themselves and their brokerage, by resigning from any and all listings with sellers who refuse to comply with these legal obligations.

That's right: put the burden on Realtors to ostracize law-breaking banks.

After everything that's happened to housing (not to mention the broader economy) the last couple years, is it really possible that banks are still running the show?? (and yes, that's rhetorical)