Banks might be coming around to the idea that helping people behind on their mortgages sell their properties might make more sense than foreclosing.
At least one has officially put money behind that idea by offering people cash incentives, sometimes as much as $30,000, for going through a short sale.
Bank of America made the program official last week, calling it “relocation assistance” for people with deliquent mortgages who have a qualifying short sale. Richard Eastern, a Washington state real estate broker who specializes in short sales, said Monday that he’s had clients recently receive incentives from JPMorgan Chase, too.
Pierce and Thurson counties had relatively few short sales in 2011, according to data from foreclosure listing firm RealtyTrac. They made up just 16 percent of all home sales in Pierce County last year compared with the 26 percent that were sold out of foreclosure. In Thurston, it was 3.4 percent short sale and 7 percent sold out of foreclosure.
More short sales could help the housing market get moving again by clearing out inventory and releasing pent-up demand in the midrange of home prices, where many people have pulled their homes off the market because they can’t sell the home for less than they owe.
Short-sold homes also don’t depress neighborhood prices as much as foreclosures, because they don’t sell for as deep a discount. RealtyTrac data show the average price of a foreclosed home in Pierce County last year was about $162,000. A short-sold home sold for an average about $186,000, just a smidge less – $194,000 – than the median sale price of existing homes last year in Pierce, according to the Northwest Multiple Listing Service.
People who go through short sales can help their credit recover faster than if they had gone through foreclosure.
But if a bank sells your home for less while, at the same time, paying you to move out, why would they not just refinance the loan at the lower amount?
“I get that question every day – ‘The bank will approve a short sale for $200,000. Well, I’ll buy it for that!’” Eastern said. The reasons are as varied as the customer, but it boils down to the relationship having soured after months of late, or no, payments.
“The bank says, you’re very high risk at this point. I’m not interested in having your high-risk loan on my books,” he said. “Is that in the spirit of keeping everyone in their home? No. But it’s a business decision.”
Eastern said it’s a calculation. If a homeowner is behind, the bank isn’t being paid anyway. So it could foreclose – which is a time-consuming, costly process involving legal fees, property maintenance and then reselling the home. During that time the property is earning nothing and might even be losing value.
Or, the bank could pony up as much as $30,000 so the homeowner will complete a short sale, which, despite its name, is often neither quick nor easy. It refers to the sale of a property for a price that’s less than what is owed on it – it’s sold short. The process is complicated and full of potential pitfalls, not the least of which is the extra amount of time such sales take to close. People have reported short sales taking more than a year.
Eastern said banks now own enough properties. Plus, “they’ve noticed a number of sellers dropping out of the process because it took too long and the bank kept demanding updated documents. Finally the sellers have said, ‘I’m not interested.’ They need a little incentive to stay in the game.”
Even at tens of thousands of dollars, those incentives are still less than the bank might ultimately spend if it foreclosed.
In a statement, Bank of America spokesman Rick Simon said Monday that its first goal was to keep people in their homes.
“When home retention solutions have been exhausted, we look to transition programs, such as short sales and deeds-in-lieu, that provide better solutions than foreclosure for everyone concerned,” Simon wrote.
Bank of America tried incentives in Florida last year. This month, it took the program national. For now, it applies only to loans it both owns and services.
Eastern, CEO of Washington Property Solutions, said it’s not clear how the banks calculate the incentive. Bank of America said in a news release last week that the amount “will be determined on a case-by-case basis using a calculation that includes the value of the home, amount owed and other considerations.”
To qualify for Bank of America’s program, the seller must get a preapproved sales price from the bank – before a purchase offer is submitted. The short sale must be started by the end of this year and close by September 26, 2013, to be eligible for the incentive payment.
Qualifying short sales that have already been started but have not closed may also be eligible, the bank says. Call the bank at 877-459-2852 to learn firstname.lastname@example.org