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Saturday, August 11, 2007

The Return of Short Sales

by Calculated Risk on 8/11/2007 11:03:00 PM

Short sale. In real estate, a property being sold for less than ("short of") what is owed on the mortgage. Sometimes called "preforeclosure" sales in ads. While it is marketed by the homeowner, ultimately the decision on selling is up to the mortgage holder (or holders).definition is from article
From the San Francisco Chronicle: Short sales, long wait for buyers
... short sales are making a comeback as a way out for cash-strapped homeowners who can't keep up on their mortgage payments.
For beleaguered homeowners, a short sale is better for their credit rating than going through a foreclosure. Still, they may end up owing extra taxes on the deal. In many cases, if you owe $600,000 on your mortgage and the lender allows a short sale for $500,000, the IRS expects you to pay taxes as if you "earned" the $100,000 forgiven on the loan. Legislation is pending in Congress that could change that rule.

For buyers, short sales may yield some bargains, albeit minor ones. Banks are not in the business of giving away money, so they want to be assured that short-sale properties are going for their true market value. Still, short-sale properties are priced to move. ...

For banks, short sales represent a way to cut their losses on a soured mortgage more quickly than going through the protracted foreclosure process. ...
Of course the situation is complicated these days because the mortgage is frequently owned by investors, not the bank servicing the loan.
The biggest stumbling block ... is that two-thirds of all mortgages in the United States are owned by Wall Street investors. The banks that "service" loans -- collecting the mortgage payments -- cannot decide about short sales. That adds in a layer of complexity.

Banking giant Chase services $500 billion of home mortgages for other institutions. Chase spokesman Tom Kelly said Chase seeks approval from the investors who own a mortgage when a short sale is requested. It takes 45 to 60 days to get a decision, and each investor has separate rules about how it handles short sales, he said.
If you are interested in how mortgage servicing works, see: Tanta: Mortgage Servicing for UberNerds.

And on foreclosures: Tanta: Foreclosure Sales and REO For UberNerds

Read those two posts, and you will know more than most people in the real estate business (and probably laugh while you learn).