The developing science of short sales in SF

With just under 50 percent of South Florida mortgages underwater, it’s no surprise that a substantial portion of homes, especially in the sub-$350,000 range, are hitting the market in the form of short sales.

Short sales, where lenders agree to take less than the value of the loan to sell a property, are continuing to dominate the market, with their own new challenges.

“It’s short sales, no question,” Condo Vultures founder Peter Zalewski said of the biggest trend he’s seeing right now in the residential market. “Short sales are really where the market’s heading. If you look at sales and what percentage of the overall market short sales represent, it’s about 27 percent of the available inventory.”

A recent report by Bal Harbour-based Condo Vultures shows that short sales jumped by 16 percent last month compared to the same month in 2010, with more lenders selling off units despite prices far short of what banks owe.

Zalewski said short sales are going to be a major driver going forward.

The short sale process

The short sale process is not the easy bargain it might appear, however. Short sales tend to have a unique technique in each sale, said Lloyd Feinberg, a Coldwell Banker realtor in Hollywood who works extensively with bank sales.

“It’s hit or miss,” he said. “I have one short sale I’m closing that is nine months in the making.”

According to Feinberg, these transactions involve a host of variables — from having more than one loan, to private mortgage interest being involved, meaning some deals don’t reach the closing stage.

“The buyer sometimes is very eager at the beginning, because they’re attracted by the price, but they’re worn down by the process, and there’s no guarantee you’re going to close,” Feinberg said.

One way he said he and other brokers are adapting to the duration of short sales is to assign the negotiation of the short sale to title companies, whether external or in-house.

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In these cases, the title company receives the homeowner’s financial information from the title company, authorizes the title company to negotiate and, eventually, handles the closing.

“As a realtor, I’ve [negotiated a short sale] once, and it’s a frustrating process — you’re on the telephone all day with these banks and losing out on the time to close sales that you can close.”

Given the peculiar practice of negotiating these deals, however, a Federal Trade Commission directive released at the end of January requires a new series of disclosures when realtors are involved in short sales.

While the so-called Mortgage Assistance Relief Services, or MARS, directive largely involves loan modification practitioners, it also instructs realtors when they assign short sale negotiation to third parties.

Under the directive’s “consumer services” prong, when brokers unilaterally assign negotiation to third-parties, as has become the custom, they must make a disclosure to the seller that they are doing so.

“It is very specific language that [the FTC] is making it a ruling on a very case-by-case basis,” said Danielle Blake, vice president of government affairs and housing at the Miami Association of Realtors.

If, on the other hand, the realtors give the seller a list of companies that perform the service, they don’t need the disclosure.

“If the realtor goes to the seller and says, ‘I don’t personally handle these situations with the bank, here’s a list of [companies that do], then they wouldn’t be considered as falling under this rule,” Blake said.

That the FTC made a ruling involving short sales means it realizes just how much of an impact short sales will have over the coming months, Zalewski said.

“That’s why steps are being taken right now,” he said.