In my post on the economy in 2012, I questioned whether the fourth or fifth prediction of a “bottom” in housing was accurate. As if to slap me in the face with statistics, a report today showed pending home sales at their highest point in a year and a half. But that only takes us to the middle of 2010, not exactly boom times for the housing market. In addition, there’s a growing trend of pending sales getting called off at the last minute, which means a lot of these sales will not come to fruition.
What I do think is a genuine trend, and one that’s slightly better than a crush of foreclosures, is theincrease in short sales as an alternative to evictions and repossessions.
It’s a tarnished silver lining for people at risk of losing their houses and homeowners in neighborhoods blighted by bank-owned properties, but the robosigning scandal that slowed the foreclosure process to a crawl appears to have increased lender interest in short sales.
“Foreclosure sales are pretty devastating,” said Faith Schwartz, executive director of Hope Now, a resource for homeowners facing foreclosure. “We’d much prefer a modification, but if [homeowners] don’t quality, then the next best alternative is deed-in-lieu or short sales.”
Short sales, in which the lender agrees to let the owner sell the home for less than the amount owed on the mortgage, and foreclosures both climbed in 2010, but while short sales rose by 26,000 this year, the number of foreclosures fell by 255,000, according to Hope Now. Short sales, along with deed-in-lieu of foreclosure deals in which the lender takes the deed essentially as payment for the mortgage, still upend families, torch credit ratings and hurt neighboring property values, but they’re far less toxic than foreclosures.
Short sales are definitely preferable to foreclosures, as they leave the borrower less indebted and in a better position to rebuild their credit score. Some states allow for deficiency judgments to go after borrowers on foreclosure sales that don’t recoup the amount due on a mortgage; the whole point of the short sale process is to negotiate a sale price that avoids such a deficiency judgment.
There’s actually a government-run short-sale facilitator known as HAFA. And some lawmakers, including Jeff Merkley, have called for more efforts in this area. It’s a win-win from the perspective of the banks, too, as short sales fetch higher prices than foreclosure sales, and there are far fewer legal hassles associated with the sale. A higher price means less of a degradation in property values for neighbors, too, and the vacancy rate on a short sale is usually lower.
But all of these options are subordinate to keeping the borrower in the home. And because banks have so mashed up the securitization process and in many cases broken the chain of title associated with the home, individuals have far more leverage than they realize to make that happen.