WALNUT CREEK, Calif. — When it comes to short sales, the real estate transaction involving a mortgage that is worth more than the home it is tied to has long belied its name as a quick deal.
That is starting to slowly change, thanks to increased bank staffing, a Department of Treasury program that aims to speed up the transactions and more of a general acceptance of the deal.
Just ask first-time homeowners Michael and May Manlapeg, who were renting a house in Walnut Creek a few months ago. After signing a pending sales contract for a home in Pleasant Hill in late January, they thought it would take as much as six months for the deal to go through. Escrow ended up closing in slightly less than three months. Regular home sales typically take 30 to 60 days to close escrow after a pending sales contract is signed.
“I knew it could it could be a long, difficult process. It went faster than we expected,” said Michael Manlapeg, 34, of the four-bedroom, three-bathroom property in Pleasant Hill they bought in a short sale for $550,000.
The family moved to the Bay Area five years ago after Michael Manlapeg accepted a job as an information technology manager at an employee-benefits administration company in San Francisco.
The Manlapegs were looking for a home in the Walnut Creek/Pleasant Hill area that could accommodate their four young children, but they found places that fit the bill were out of their price range. So, they turned to a short sale, which allows for a home to be sold for less than what is owed on the mortgage – provided the transaction is approved by the lender.
Unlike foreclosures, which can sell at substantial discounts, short sales tend to be priced closer to fair-market value. Still, some short-sale bargains can be struck by negotiating down the price based on work that needs to be done on a property.
The $550,000 price the Manlapegs paid reflected a $50,000 negotiated discount to offset needed roof work and minor repairs.
The couple financed the property with a 30-year, fixed-rate Federal Housing Administration loan with a 4.75 percent interest rate and a 3.5 percent down payment. Their new home features a pool and creekside deck area; it was once listed as a regular sale for $1.1 million in 2008. “We got a great price,” Michael Manlapeg said.
Short sales are taking less time to do now than a year ago, said Kevin Kieffer, a real estate agent with the Danville, Calif., office of Keller Williams Realty, who represented the Manlapegs in their purchase. “Banks have staffed up and put systems in place,” he said.
Still, Kieffer said time challenges can pose a problem for short sales. “I generally tell (buyers) to be prepared to wait up the 120 days to close, and it could go longer. Those who are renting can be the ideal candidate.”
Banks participating in the Home Affordable Foreclosure Alternatives program, or HAFA, are making progress in speeding up short sales. HAFA provides financial incentives to lenders and $3,000 in relocation assistance to sellers to encourage short sales. It is geared to homeowners who qualified for a trial loan modification through the Home Affordable Modification Program but were unable to obtain a permanent modification. Homeowners struggling to pay their mortgages can request to be evaluated for the HAFA program.
When HAFA was launched in April 2010, there was no time requirement for participating lenders to provide a yes-or-no answer to homeowners seeking approval for a short sale. That changed Feb. 1, when a new requirement required an answer in 30 calender days, which has since been increased to 45 days starting June 1. The 45-day deadline also applies to homeowners not in the program who already received an offer and want it to proceed as a HAFA short sale.
The program applies to loans that are not backed by mortgage giants Fannie Mae or Freddie Mac. However, Fannie Mae and Freddie Mac rolled out their own short-sale programs in August. While some differences exist, a $3,000 incentive paid to sellers who close a short sale applies to all three programs.
Short sales can be complicated when there are two or more loans on the property.
Normally, when a loan amount is forgiven by the lender as a result of a foreclosure, loan modification, or short sale, of the amount is typically treated as taxable income. But a temporary change to the tax code revised that through tax year 2012, which means forgiven debt can be excluded from taxable income at the state and federal level if the loan was used to acquire, build or substantially improve the taxpayer’s primary home. Consult a tax professional for more details. The seller’s credit score also may be affected, although not as much as it would be in a foreclosure.
CONSIDERING A SHORT SALE?
• A short sale doesn’t necessarily mean a great deal.
• A buyer who needs to be in a home by a date certain should not attempt a short sale purchase.
• Sometimes at the 11th hour, a buyer may be asked to participate financially to provide fees for short sale negotiators or money to the second lien holder.
• Sometimes foreclosure proceedings are also taking place. Because of the length of time required for bank(s) approval, it may be foreclosed upon before the short sale can be successfully completed.
Source: Contra Costa Times/J. Rockcliff Realtors
ARE YOU ELIGIBLE?
• Homeowners may be eligible to apply for a HAFA short sale if they meet all of the following (the program expires Dec. 31, 2012:
• Live in the home or have lived there in the past 12 months.
• Have a documented financial hardship.
• Have not purchased a new house within the past 12 months.
• First mortgage is less than $729,750.
• Obtained a mortgage on or before January 1, 2009.
• Must not have been convicted within the past 10 years of felony larceny, theft, fraud or forgery, money-laundering or tax evasion, in connection with a mortgage or real estate transaction.
• Eligibility criteria are for guidance only and also applies to Fannie Mae and Freddie Mac short-sale programs. Contact your mortgage agent to see whether you qualify.
Source: www.makinghomeaffordable.gov
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