Thursday, February 21st, 2008 at 2:30 PM
How To Short Sale
With the new tax relief enacted in December, the sellers of over-encumbered homes don’t have much to lose, if anything – now sellers aren’t taxed on the amount of the bank’s loss like they used to be.
Mortgage Forgiveness Debt Relief Act of 2007 – Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge, prior to January 1, 2010, of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness.
Yet, in my estimation, about one out of three foreclosed homeowners never bother to try and sell their house, though they do enjoy the free rent for 6-12 months, in exchange for a foreclosure on their credit report.
The alternative is to hire a realtor and short-sell the house. The only things you have to worry about is getting the mortgage holder(s) to agree to the sale amount, and approving the sellers’ financial statement. That’s right, if the borrowers are solvent and able to make the payments, the bank may deny the short sale.
Unfortunately there are mountains of listings all around the county who are in need of a short sale transaction – many of whom aren’t aware of it. They have their home listed at a price that’ll get them to break-even (’steak-dinner sale’) yet they aren’t selling. Those sellers will be faced with some tough decisions in the next few months if they can’t find a buyer.
For those who have admitted to themselves that they need to get on with their life, and are now willing to short sell, all you have to do is start lowering the price until you get an offer or two. You aren’t going to get any (more) money out of this house either way, you might as well get ‘er done.
I’d recommend 5% drops every 2-3 weeks, because that way you can at least show the bank that you had tried to sell higher, but had no takers.
Others are catching on – here are some other strategies:
4798 Calle Los Santos
3 br/2 ba, 902 sf
$300-$339,000 Tues.
$220-$250,000 today
Officially this is a probate, not a short sale, but same effect – a radical price drop to ignite some action. Good idea.
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917 Raintree, Vista
4 br/2 ba, 1,542 sf
$346,000 Tuesday
$220,000 today
Owner paid $12,500 in December, 1987, and now has a $310,000 loan with Downey Savings (that’s probably even higher if the neg-am was tacked on).
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638 Michael, O-side
4 br/2 ba, 1,600 sf
$391,900 Tuesday
$349,900 today
An 11% drop is a good idea too, but they may have to keep going. There are four others for sale on the same street, starting with an 1,192 sf REO at $234,900.
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3968 Cadena, O-side
3 br/2 ba, 1,501 sf
$540,000 Tuesday
$350,000 today
Paid $490,000 in November, 2006, and loans equal $490,000. This is the classic "steak dinner-to-short sale" price reduction.
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1731 Olivenhain
4 br/3 ba, 3,090 sf
$849,000 Tuesday
$749,000 today
Nice 12% price drop in the heart of Encinitas, but they hedged later, putting it on the range $749,000 to $799,000. So much for momentum.
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1017 Manteca, O-side
3 br/2 ba, 1,844 sf
$299,000 last week
$395-$450,000 today
now shows pending
This is the one they were auctioning off over the weekend, with an opening bid of $299,000. This sold for $530,000 in August, 2005, and financed 100% by the owner/agent. Not sure what it sold for, but probably smart to cover their tracks by raising the price – when the bank send out their appraiser, it’ll look like it was on the market for 39 days on this range, so they can say they tried.
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Whether you lower early and often, or opt for reducing in big chunks, or attempt to auction it off by starting low and going up – do what you have to do, to generate offers.
Posted on Thursday, February 21st, 2008 at 2:30 PM in Thinking of Selling? | 10 Comments » | 
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This summer and fall is going to get interesting.
shadash | February 21st, 2008 at 7:02 pmAnybody still messing with range pricing still doesn’t get it in my opinion.
Is it my imagination or are the huckster types of used house salespersons running out of tricks and their old tricks aren’t working anymore? Did you see the Nightline Wed on DOM manipulation?
Rob Dawg | February 21st, 2008 at 7:45 pmI thought that the Mortgage Debt Relief Act did not apply to non-purchase money mortgages – and (for example) would not help on the Downey loan prperty? Am I getting my government pandering bills confused? I think they will send me an $800 voucher if I spend it on a condo, or in a casino, or something like that. I lose track.
Smithers | February 21st, 2008 at 9:20 pmConsider sending the following note to your
Congressional representative:
Bailouts help banks, not people. If a borrower used an exotic loan, then in all probability they have little or no money invested in "their" home. The home belongs to the bank. Let them keep it. In a majority of cases, even the payments are not building equity, since the loans involve teaser rates, negative amortization, or payment option loans. "Saving homeowners" is really setting them up for debt servitude.
1.) Government sponsored initiatives should include counseling about whether to stay in the property. Banks want to keep borrowers paying even when it is not in the borrower’s interest. Telling borrowers to "just say no" ensures that those least equipped to weather this storm will be least harmed.
2.) Don’t forgive debt. Leave it with the banks. "Forgiving" debt means the government (i.e. the same tax payers who are getting "helped") will end up paying, again. Instead, reform credit and bankruptcy laws to allow people to abandon properties bought with exotic loans without significant black marks on their credit. This is consistent with the tax forgiveness policy reforms.
3.) Close off the Fed’s TAF for banks that are implicated in violations of Federal law. Suspect or criminal banks should not have the right to subsidies from citizens.
Rational expectations | February 21st, 2008 at 9:21 pmI like that, Rational, but it presupposes that congress is here to help the people they’re appointed to serve. They know damn well the bailouts help the banks, and are doing all they can to socialize the banks risk without it being blatantly obvious to the general public. Luckily for congress, the same general public is uneducated and completely unaware of the political happenings that matter to them. If it were possible to throw a house into the Boston harbor I would do so, out of spite if nothing else.
Range pricing never made any sense to me, but I’m sure there must be some logical reason for it, other than a stupid marketing ploy.
I can’t wait for when what ran over Oceanside mows down Culver City and all the BS run-up markets up here in Los Angeles. I want to see it crash before I move down to SD.
Genius | February 21st, 2008 at 10:52 pmIIRC the state still hasn’t passed a similar debt relief measure. SB 1055 is still bouncing around various committees.
AK | February 21st, 2008 at 11:40 pmSmithers,
I’m with you – with the government issuing multiple bailouts in what seems to be every other week, to be honest I can’t remember myself. The article I read today didn’t mention purchase money vs. non, but I’ll double check.
I know the purchase money firsts were non-recourse, at least in California. That’s another topic that hasn’t surfaced yet, what’s going to happen when the banks dig out all the non-performing recourse loans, and sell them to a collection agency for pennies on the dollar?
Those borrowers who thought they got off scot-free may be surprised.
Jim the Realtor | February 22nd, 2008 at 1:54 amYou know, I just read this front page story in the NY Times (which has recently done some pretty good reporting on the house price crisis), which discussed how people are under water and how that hurts consumer confidence and the consumer economy in addition to putting people in trouble if they have to move. The article seems to ignore the short sale – that a seller can take less than they owe if they negotiate with the lender. The article tells stories where sellers have to come up with the difference on their own – I’m not too sure, but I don’t think this is how it works.
In fact, now that the tax charge has been lifted, aren’t the only losers in a short sale the lenders?
PU | February 22nd, 2008 at 4:20 pm"That’s right, if the borrowers are solvent and able to make the payments, the bank may deny the short sale."
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Which would be just another terrible decision in a series of bad decisions made by the lender. Why would a lender trade a short sale for what’s behind curtain number 2 – an intentionally defaulting borrower, no income for months, carrying costs, legal fees, etc. and then sell the REO a year later for $50K less than the short sale price. Genius.
RSS | February 23rd, 2008 at 12:56 amJim,
The one on 1731 OLIVENHAIN lowered to $719K and probably the lowest per sqft in Encinitas. How come this house has not been sold? Is the location pretty bad that is right next to the main street? It’s odd that this house is still on the market for such a price with no HOA & MR. Just curious to see if there are other issues with this house….
duma | March 2nd, 2008 at 3:52 am