Mortgage Crisis by ps94506


									Mortgage Crisis
Short sales an option to foreclosure
May 07,2008

         s more South Florida homeowners fall behind on their mortgage payments, many lenders are slow to
         embrace a less costly alternative to foreclosure: short sales.

          In a short sale, lenders allow owners facing foreclosure to sell their homes for less than the mortgage
balance. The lender absorbs the shortfall, but limits its legal fees and the carrying costs of owning a home -
especially in markets with sharply declining home values.

But despite the apparent financial advantages, lenders have been deterred by several factors, including the
significant amount of documentation required and the related processing costs. They are also holding out for
more lucrative - yet elusive - deals.

In a short sale, lenders lose an average of about 19 percent of the loan amount, compared with an average of
40 percent through a foreclosure, said Kevin Kanouff, president of Clayton Fixed Home Incomes in

"Short sales are cheaper in the current environment, compared with foreclosures,"      said Kanouff, whose
company monitors nearly $500 billion of mortgage-backed securities.                                                     Seve Fernandez

Short sales also allow lenders to avoid holding unwanted properties. "The longer it takes [a lender] to sell a            RELATED STORIES ....   Ej
home, the property value goes down, increasing the [lenders'] losses."
                                                                                                                          ~ Mortgage crisis
A lender's cost to own a foreclosed house often is about 1 percent of the property value, excluding
depreciation. Home prices in South Florida dropped 3 percent from January to February and 21.7 percent year-over-year           since February
2007, according to the S&P/Case Shiller index of home prices.

Homeowners also benefit from short sales since they can shed a costly mortgage and move on. Just as importantly, short sales don't hurt
their credit ratings as much as a foreclosure.

Potential buyers also get something out of it: a bargain.

Despite the benefits, short sales can be frustrating, time-consuming    and uncertain endeavors for all involved.

Lenders require labor intensive paperwork to document that a short sale is the owner's only alternative to foreclosure.

After a seller submits a short-sale offer, lenders may take weeks and months before an offer is accepted or rejected, real estate agents said.
Often, potential buyers get tired of waiting for a lender's response and walk away.

"Banks are frozen like a deer in the headlights," said Richard Green, a real estate lawyer and broker with Weichert Realtors-Green &
Associates in Fort Lauderdale. "They are inundated with cases and take weeks and months to make a decision. Often, buyers get disgusted
and withdraw their offers."

Green, who noted that lenders vary in how they deal with short sales, said he has not had good experiences with the process.

In December, he made a short-sale offer to BankAtiantic for a two-bedroom condo he holds title to as a trustee in Palm Beach County. The bank
responded by initiating foreclosure proceedings in March. The condo owner had defaulted on a $320,000 mortgage loan.

Early this year, a buyer offered $200,000 for the unit. But the bank estimated the unit was worth about $260,000. Green tried to contact
BankAtiantic to negotiate but couldn't find anyone with the authority to conduct negotiations, he said.

Eventually, he got in touch with the employee assigned the foreclosure case, but her answering machine was full every time he called. In three
months, he talked to her twice, Green said.

"That's an example of how frustrating it is," he said. "The most difficult part is that there isn't anyone you can negotiate with."

BankAtlantic did not respond to requests for comment.

Green expects the condo will soon be sold in a foreclosure auction. Still, he contracted with another real estate firm to market the unit for
$249,000, he said.

Green, who declined to reveal the address of the condo to protect the identity of the cash-strapped      trust, said he won't give up until the condo is
taken over by the bank.

"A short sale could prevent the foreclosure," he said. "But banks don't seem to realize that."

One example

Michal Pospieszalski unsuccessfully tried to use a short sale to avoid foreclosure of a Coral Gables house he owned as an investment. He
bought the property in October 2006 for $1.1 million with mortgages for $880,000 and $220,000 - 100 percent financing, according to Miami-
Dade County court records.

By February 2007, he had stopped making payments to GMAC Mortgage for the $880,000 loan. The lender began foreclosing in May but
agreed to a short sale for $875,000 in November, according to public records.
But the deal collapsed when the bank objected to Pospieszalski's proposed $20,000 seller's contribution, said Seve Fernandez, a principal with  He found the potential buyer for Pospieszalski's home.

Pospieszalski had planned to come up with $150,000 to cover the second mortgage if the short sale was approved. But the sale did not happen,
and he could not pay the second mortgage either, Fernandez said.

Two subsequent offers for $750,000 last year and $650,000 four months ago were rejected because the lender wanted close to $700,000 for
the property, Fernandez said. GMAC took the property back in March with Pospieszalski owing $989,608 in principal, interest and other fees.

Today, GMAC is marketing the three-bedroom           home on Cellini Street for $609,900 -   more than $250,000 less than the original short sale offer.

"What is wrong with these people?" Fernandez asked. "Are they waiting for the federal government to bail them out? Why aren't they doing
short sales?"

While some short sales don't work, others do, said Walter Molony, a spokesman for the National Association of Realtors. A recent survey of 283
NAR members showed 18 percent of their closed deals were short sales. The trade group has no comparison figures because this is the first
survey of short sales it has conducted, he said.

Lenders say they need to closely scrutinize each short sale, and the process can be lengthy. They also report the number of short sales is
growing and creating backlogs.

"There are many pieces to the process, and it takes time to do the right thing," said Christine Holevas, a spokeswoman         for Chase Home
Finance. "Also, the volume of short sales has increased significantly."

Wells Fargo tries to respond to a short sale offer in less than 37 business days, said Patrick Carey, executive vice president of Wells Fargo
Home Mortgage.

"If Wells Fargo is notified of the pre-foreclosure   sale when the property is listed, we will order the valuation in advance, which will shorten the
process by 10 to 17 days," he said.

Complicating   matters further is the fact that Wells Fargo and many other companies act as loan servicers on behalf of investors.

"The investor who owns the loan has predetermined         guidelines for short selling, along with the minimum amount they will take in the loan sale,"
he said.

"There are various rules regarding negotiations related to a short sale such as the property's 'as is' appraised value when compared to the
outstanding indebtedness, marketing time frames, net sale proceeds, sales commissions, property repairs, lawyer fees and junior liens. We are
also required to verify to the best of our ability that the sale is an 'arms length' transaction."

Wells Fargo typically approves short sales when the borrower can verify income has been lost or there has been a life-changing hardship such
as the death of a principal borrower, Carey said. Homeowners, already under stress, then have to scramble to assemble all the supporting
documents for the lender.

Often, lenders have a package of short-sale procedures available for borrowers considering this route, said Izzy Buholzer, a Miami real estate
agent that specializes in short sales. Lenders typically will only consider a short sale when a borrower is at least three months behind in the
mortgage payments, he said.

For homeowners,     short sales have a big advantage over foreclosures: Their credit scores won't take as substantial a hit.

Buholzer said a borrowers' credit score can drop by 250 points after a foreclosure, compared with a 120-point decline following a short sale.

"With a short sale, you can start repairing your credit right away," Buholzer said.

Yet, despite the advantages, some real estate agents are staying away from short sales. They still don't think the financial return outweighs the
uncertainty and hassle of dealing with banks, Miami Condo Investments real estate agent Lucas Lechuga said.

"I know a few buyers who tried to buy condos through the short-sale process but failed," he said. "It was frustrating for me and equally frustrating
for them. It made me quickiy realize that short sales aren't that great. If a buyer wants a great deal and wants to close fast, then foreclosures are
where it's at."

Paola luspa-Abbott can be reached at           or at (305) 347-6657.

Seve Fernandez photo by Richard M. Brooks

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