Selling short

Boulder Valley real-estate experts don’t expect that new guidelines designed to streamline short sales — in which a home sells for less than a borrower owes — will have much effect here, unless there’s an abrupt change in direction from major lenders.

“They talk a good talk, at least in the media, but we just are not seeing any good results,” said Karen Bernardi about the reluctance of major banks to participate in short sales. The broker at the Bernardi Group at Coldwell Banker said most of the major home lenders take far too long to respond to offers made in good faith, and don’t seem to be responding to the existing rules designed to streamline the short-sale process.

In August, the Federal Housing Finance Agency took further steps designed to streamline the process, allowing homeowners with a Fannie Mae or Freddie Mac mortgage to pursue a short sale even if they haven’t fallen behind on payments. The new rules kick in on Nov. 1, but local-real estate agents are not holding their breaths, given the length of time it is taking these banks to act.

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Mary Arnold, the closing manager at the Bernardi Group, said one submitted offer for a short sale made last December has yet to be approved or rejected. And while the Bernardi Group also has begun submitting the new pre-approval paperwork for banks, which was also designed to streamline the short-sale process, she said that is also taking months to complete.

“We submitted one on the first of July and we still don’t have any idea what will constitute a good offer,” Arnold said. “We don’t know anything more than we would on any (previous) short-sale submission.”

Banks are under no obligation to accept any short sale, since it usually results in the borrower being forgiven for a good chunk of the loan. However, in many more distressed markets, the megabanks have shown a greater liking for short sales, which can be far quicker than a foreclosure and result in more money being returned on the loan, as well.

In some cases, major banks even have been willing to pay homeowners many thousands of dollars to go through a short-sale process, although that practice appears to be infrequent and arbitrary. In the Boulder Valley, the response from major banks has been slow and arbitrary, Bernardi said.

“It’s different if it’s a local lender, and you can go in and actually talk to someone,” she said. “If it’s Chase, Wells-Fargo or Bank of America, you just never know. It’s quite arbitrary how they respond.”

Lisa Wade, a realtor at RE/MAX of Boulder, said counteroffers from the lender are a matter of course with almost any offer and the waiting time doesn’t appear to be at all tied to whether or not a short sale is warranted.

“Personally, I think there are more and more people wanting to do a strategic default and more and more people with reasons they can’t make a payment,” Wade said.

The upturn in the market has made the wait for any response on a short-sale proposal even worse, as both appraisers and lenders are dealing with a hot sales market, as well as the continued refinance market spurred by low available interest rates, she said. “We were doing 30-day closing,” Wade said. “Now, they are taking 44 to 60 days.”

Carrie Nash, sales manager at SWBC Mortgage in Boulder, said the volume of short sales has been less in the Boulder Valley than in Adams and Weld counties, but they may have had a significant impact on home values in some neighborhoods. She said most of the short sale proposals take from two to nine months after an offer is made.

“What I see on my side is they will wait and wait, and then when it gets to my world it’s a mad rush,” Nash said. “The banks come back after all this waiting, and then say they want to close in two weeks. It makes it extremely stressful on everybody.”

Although appraisers are not supposed to look at distressed-home sales, Wade said, often that’s the only recent data they have in some neighborhoods, meaning short sales will have a negative effect on home prices.

Bernardi also said she thought short sales have affected Boulder Valley neighborhood markets, although the effect probably has been limited to specific areas of Longmont and Erie.

For homeowners wanting to complete a short sale, Bernardi said, it is very important to look and work through the options. For instance, going bankrupt before knowing how much is owed on a short sale can be a huge mistake, because the unpaid part of the mortgage would be a new debt.

“The reality is that people going through a short sale have to be very careful,” Bernardi said. But the news isn’t always that bad, she added.

“We actually have been able to sell houses to people who have just gone through short sales.”