More homeowners facing foreclosure are turning to short sales as a way of getting out of a troubling financial situation and with the shaky real estate market, more banks are accepting short sales from troubled borrowers.
At the beginning of November, there were about 1,600 homes on the market in the Tri-Cities and about 30 of those are seeking bank approval for short sale. With the average cost of foreclosure around $38,000, the short sale is one way banks can cut their losses, and it’s a growing trend that was relatively rare a few years ago.
A short sale occurs when a homeowner sells a home for less than its current mortgage. The bank or mortgage company agrees to discount the loan balance due to economic or financial hardship of the mortgage holder. The homeowner sells the mortgaged property for less than the outstanding balance of the loan and turns over the proceeds of the sale to the lender. In some cases, but not always, the lender writes off the remaining portion of the debt.
Although Benton and Franklin counties didn’t see big spikes in the real estate prices before the nationwide bubble burst, the area is seeing a slowdown. While sales are slow, notice of trustee sales, the first step in the foreclosures prices are up 5.5 percent for the year.
Unfortunately, many homeowners facing foreclosure aren’t aware of the options available to them and if they file bankruptcy, reasonable options they did have disappear. To make matters worse, more homeowners than ever will likely face foreclosure in 2009.
Existing home sales prices plunged 18.5 percent in the West region in September, according to the National Association of Realtors, driven by rising foreclosures and distressed sales, like short sales, which represent 35 percent to 40 percent of total sales nationwide, and as many as half the homes are in California, Nevada and other former bubble regions.
Whatever the reasons for pursuing foreclosure, homeowners needs to be careful and make sure they know and understand all of their options. In June, a new state law went into effect that was intended to protect homeowners facing foreclosure from equity skimming and foreclosure rescue scams. The law, proposed by Attorney General Rob McKenna, requires those buying ‘distressed’ homes to provide homeowners with a written contract completely describing the terms of the sale – and giving the homeowner the right to cancel the transaction for up to five days following the sale.
Because licensed real estate professionals are not exempted from the law, as they are in similar statutes in other states, the Realtors may have to limit their involvement in distressed sales, or face unanticipated liabilities. Homeowners can receive up to $100,000 in damages for violations of the law. Normally, real estate buyers and sellers have different goals, so under the law, foreclosure or short sale buyers could be sued if they later resell the property at a profit. That fear is keeping real estate investors who delve in the foreclosure market at bay. But the law likely will help homeowners facing foreclosure receive better advice. Realtors, by law, are not allowed to negotiate short sales.