THE CREDIT CORNER

FINANCING SHORT SALES
By
Chris Seymour, President
Country Mortgage, Sedona

Traditionally, selling short implied selling a stock now you don’t own, then buying it back later at a lower price. Sell high, buy low.  Voila, a profit !  And this term is becoming common place in real estate circles these days. To bad you can’t handle real estate transactions in the same manner. A real estate short sale amounts to an accommodation by a lender in hopes of mitigating an impending loss. The reverse of our stock example is true when an owner sells a property for a price less than what is owed on that property. No profit there. The accommodation is when the lender agrees to it. Why would a lender do that ? Simply, to avoid a worse outcome after the costs and time of a foreclosure. Any second mortgage, such as home equity lines of credit, risks the being wiped out by the interests of the first mortgage holder in the event of a trustee sale of the foreclosed property. To protect the second mortgage position, the lender will have to pay the interest on the first mortgage to keep it current, taxes, insurance, up keep, legal fees, commissions and other closing costs. Since these costs add up in a hurry, a seller and lender share the same motivation to sell the property quickly by pricing it aggressively and netting less than the full payoff of the second mortgage. Sort off a bird in the hand scenario, especially when there doesn’t appear to be two in a bush!

As a buyer of a short sale, financing is no different than a regular full sale. The relevant issues are the condition of the property, the owner of record and processing the short sale.

As banks are becoming overwhelmed with work out scenarios, the market is becoming log jammed. Real estate agents determine market pricing, find buyers, write contracts and facilitate contingencies. Partnering with our title companies, mortgage brokers can assist, adding value and expertise in processing, because our efforts focus on the relationship between leverage and values. Since our industry is in contraction, mortgage brokers naturally are looking for productive niches. So as this market continues to shake out, we can help.

Please feel free to email me questions about anything associated with real estate finance. I’ll reply to you personally and answer the most common questions every other month in future columns. My email is chriscountrymtg@aol.com