Short Sales May Be the Answer for More Florida Homeowners Facing Threat of Mortgage Foreclosure: Short Sales Becoming Popular With Lenders

Posted By on August 23, 2011

According to Moody’s Investors Service, short sales of homes that are at risk of foreclosure (called “distressed properties’) grew to 25% of all liquidations of distressed properties by mid-2011, which is a big jump from two years ago when they were at 8%.   As the time it takes for lenders to foreclose on a home grew from 14 months to 2 years (24 months), in that same time period, it’s clear:  short sales seem to be the new answer for lenders and borrowers alike.

The National Mortgage Professional Magazine reported the Moody’s results about short sales to be a “win win” for mortgage lenders and mortgagors (borrowers);  the New York Times is reporting that banks across the country are finding the short sale as a good alternative for their traditional practice of instituting foreclosure actions.

Why is a Short Sale a Good Thing for Banks (and Borrowers)?

First of all, traditional foreclosure practices don’t exist today.  Lenders are not only involved in dealing with the Foreclosure Fraud crisis – including the ongoing investigations into robosigning, fake documents, and the like, but new federal regulations have been passed that have changed the foreclosure process of old.

It’s just not as economical in time or money for lenders to foreclose on a Florida home as it was in years past.

Secondly, the banks already have so many properties on their books – assets that they now own and manage as part of their inventory — because of past foreclosures, that adding more real estate to their responsibilities does not seem efficient.  They’ve got enough time and money invested in these REO “shadow” inventories.

For many lenders, it is just good business these days to allow the distressed property to be sold to a third party buyer at a short sale price than to deal with the combined expenses of foreclosing, managing the property on their books, and then eventually reselling the home on the market.

Short sales, simply put, are now being seen as being faster and cheaper on the lender than foreclosing on the property.  Which is good news for buyers and for borrowers.

Think Your Home Might Be Good for a Short Sale?

For Florida homeowners in underwater mortgages or with past due mortgages, the idea that lenders are more favorable towards work out a short sale solution is a great thing.  If you own a home and might otherwise be falling into a foreclosure situation, then it is a good idea to investigate the short sale option.  Educate yourself on your local real estate market, on the implications of a short sale, and get legal advice from an experienced short sale attorney before you make a deal: you need to be concerned about deficiency issues with a short sale. Your attorney can explain the issues about deficiencies and the steps you need to take to minimize your risks, including those related to realtor commissions and sales contract terms.

Additionally, there are real estate scam artists involved in the Florida marketplace right now and it is wise to be knowledgeable and protected to keep yourself from being another victim of a con artist. According to the recently released FBI Mortgage Fraud Report, Florida is the highest ranking state in mortgage fraud, and short sale scams include:

Industry sources report that in the process of committing short sale fraud, fraudsters are manipulating the Broker Price Opinions (BPOs) and MLS; engaging in non-arms-length transactions; failing to record short sale deeds of trust; using back-to-back and multiple real estate agent closings; selling the property to a party the fraudsters control and deeding the property back to themselves; engaging in escrow thefts, and dozens of other mechanisms.

Consider the following as you investigate the opportunity to short sale your home:

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