BRENDA: Pamela, the short sale market is still going strong with sellers and buyers. I just listed another home that was a short sale, and I got two offers in three days. The short sale process is now fairly organized with the banks, as most of them have their procedures in place now. What are your buyers saying about short sales lately?
PAMELA: For a while, the buyers were really reluctant to buy a short sale, but I see that this is starting to change quite a bit now. The response time from the banks has shortened to about three to four months before we get an approval from the bank. This is a considerable change from the six months to a year or more we have been seeing in the past four years.
BRENDA: And with the inventory of homes for sale at record lows in East Orlando, buyers are now looking to buy short sales much more. The absorption rate for Avalon Park is 1.47 months, Stoneybrook 6.92, Eastwood 3.46 and Waterford Lakes at 2.86 as of Aug. 12. A balanced market for buyers and sellers is six months. Anything more than six months is a buyer’s market. Anything less than six months is a seller’s market. The absorption rates mean it would take Avalon Park 1.47 months to sell all the inventory of homes on the market, Eastwood 3.46 months to sell, and so on. We have Karen R. Spell, P.A., here to answer some important questions on short sales. Karen owns her own title company and is a real estate attorney. Karen, what updates do you have on the short sale market?
KAREN: You are both right in saying that short sales are now taking approximately three to four months for bank approval, which is a good change. The banks are much more organized and have finally realized they lose less in a short sale than in a foreclosure. The idea of a short sale is to stop a foreclosure for the sellers.
PAMELA: What percent of sellers receive a deficiency judgment from their banks in a short sale?
KAREN: About 50 percent of all short sale sellers are not released from deficiency (amount sellers owe to their banks). All HAFA (Home Affordable Foreclosure Alternatives Program) sellers are released, and there are guidelines to becoming a HAFA seller. The reason banks do not release more sellers is if they do not, the deficiency becomes an asset on their books that counter balances the loss on the short sale. Banks only have five years after closing to go after the seller. In reality, the seller has just proved to their banks that they are financially unable to pay the mortgage so the bank is most likely not going to pay an attorney to go after the seller for a deficiency. If the seller does get a deficiency, then the bank will often settle for 10 cents on the dollar. Each short sale case is different and should be examined on its merits.
BRENDA: Short sales are far less damaging to the seller’s credit than a foreclosure. What updates do you have on this?
KAREN: Short sales are less damaging on a credit report than a foreclosure and also on security clearances with most employers. Tax forgiveness on the amount forgiven on a short sale of a “primary residence” is still in effect through December 2012. The amount forgiven (the difference between what the bank nets and what it is owed) on a purchase money mortgage in a short sale of a primary residence (as defined by the IRS) is not taxable as income if you close before Dec. 31, 2012.
PAMELA: Karen this is good information for people looking to sell their homes as a short sale. And it is also very good for the buyers to know that the banks are finally shortening their approval times. You can find out the answers to all of your questions by coming to our free short sale seminars we hold monthly. Our next one is Saturday, Sept. 10 from 10-11 a.m. at the Safety Center, 13013 Founders Square in Avalon Park. Myself, Brenda and Karen will be there to answer all of your questions, and all are welcome.
Brenda Kolbrich, Licensed Realtor, CRS with Keller Williams, 407-963-6876, Brenda@TopOrlandoHomes.com
Pamela Rehbein, Licensed Realtor, GRI with Keller Williams, 407-488-4078
Pamela@HomeforyourHeart.com