The Las Vegas short sale phenomena that has so drastically affected lenders loan portfolios, is for the most part a direct result of upward pressures on the selling price of homes due to frenetic speculator activities that began to appear around 2003.
When overinflated market values began their inevitable drastic fall only a few years later, more and more homeowners were stripped of their equity, and the situation became even worse when the value of homes continued to drop, leaving what are now countless homeowners with property that is worth less than what is still owed to the lender.
Thus was born the short sale epidemic, and the terms “underwater” and “upside down” are now in common use.
The term “short sale” surely must send shivers down the backs of lenders who know that a short sale is a loan gone bad, and both the lender and the homeowner are the losers.
Since a short sale needs lender approval, the banks were understandably initially reluctant to allow a sale that practically, except in some isolated cases, guaranteed a financial loss, and the final ok from the lender usually took months.
Finally, the lenders have now come to the realization that short sales are going to be a fact of life for awhile, are less costly than a foreclosure proceeding and selling the property at auction, and is a quicker way to at least recoup some of the loan balance.
If the homeowner can show the lender proof of the properties “underwater” condition through an appraisal, and is unable to make any further mortgage payments due to unemployment, loss of income, divorce or is essentially insolvent, then he/she is a likely candidate for short sale approval.
So, if the lender and the homeowner are the short sale losers, then who is the winner? The person purchasing the short sale is the winner.
We won’t go into all the details of a short sale relating to how the homeowner must submit a buyer’s offer to the lender for approval, etc. Suffice to say, that even if the lender approves a current fair market or close to fair market value price for the property, the lender has still taken a loss, since the full value of the loan has not been regained.
The buyer is a winner because he/she has purchased what is basically an undervalued property for a very competitive price.
Actually, to some degree, there are no REAL losers, because the bank has taken a non-performing asset off the books without the expenses involved in foreclosure, and the former homeowner has been spared a nightmarish foreclosure experience and is relieved of a major financial burden. However, prior to closing the short sale transaction, a homeowner should consult with an Attorney and/or CPA so he/she understands the legal ramifications resulting from the terms listed in the short sale approval.
A simplified version of events, to be sure, but a scenario that is going to be repeated over and over for some time to come!
Paul Rowe is the managing agent for the short sale division with Team Sena at North American Realty of Nevada and can be reached at 702.376.0088.