SUNDAY, SEPTEMBER 26, 2010
A surge in short sales
short sales from A1
in2007 and2008 combined.Fred- die Mac, its sister company, ap- proved 22,117 in the first half of 2010,upfromamere94inthefirst half of 2007. Distressed homeowners are be-
ing drawn to short sales in large partbecause they canhelpprotect aborrower’scredit ratingandthus the chance of buying another home later on. “Iworkedhardforalongtimeto
keep my credit score close to per- fect, and I know a foreclosure wouldbemuchworseformycredit than a short sale,” saidHarris,who listedherBrewerCreekPlacehome as a short sale about amonth ago. “If there’s a chance we can avoid foreclosure,we’dratherdothat.” In a short sale, homeowners
must get the go-ahead from the mortgage lender. Sometimes that happensbeforethepropertyisput on the market, and other times before thedeal closes. In some areas of the country,
including theWashington region, lenders can later pursue borrow- ers for the difference between the proceeds collected fromthe short sale and the amount owed on the mortgage, also called a deficiency. But lenders say they only do so if they conclude the borrowers skipped out on a loan that they couldafford. For lenders, short sales are less
expensive than foreclosures to handle and help ensure that homestransferingoodshape.And for the wider real estate market, these sales couldhelpshoreupthe floor under housing values be- cause homeowners—unlike with foreclosures—haveavestedinter- est in getting the best price.That’s because the higher the offer, the more likely the lender will ap- prove the sale. But short sales are prone to
maddening delays and often fall through because they require the approval of many, often-compet- ingparties—includingtheprima- ry mortgage lender and in some cases the holders of second and thirdliens. Across the Washington region,
short-salelistingsnowfaroutpace the number of foreclosures avail- able for sale, according to Real- Estate Business Intelligence, a subsidiary of the local multiple listing service.About 14percentof areahomes for saleareshort sales, more than double the figure for foreclosures, with some of the greatestvolumeinPrinceGeorge’s and Prince William Counties, where the drop in housing prices has beenespeciallypronounced. Brewer Creek Place, which
wraps around the back end of the Independence subdivision south of the Prince William Parkway, was first developed five years ago on the eve of the housing market meltdown. Most of the residents bought their townhouses at a time whenmortgagelendingstandards were especially lax, leaving some borrowers saddled with stagger- ing debts when the home-loan market collapsed. Yet along the street, there are
few signs of the turmoil. Kids zip around on scooters. Neighbors primptheir flower beds. But fromher driveway, Brenda
Holliday has watched the crisis spread. Taking a break from hos- ing down her convertible PT Cruiser on a recent Saturday, she pointed to the three homes to her right. Each had sold as a foreclo- sure since 2008. Then she pointed to the door to
her immediate leftwith a lock box hanging onit. “That’s a short sale,” she said.
She nodded to the corner unit further down the block. “I think that’s a short sale, too.” ToHolliday, 60, her townhouse
seemed idealwhenmoved in four years ago shortly after she was widowed. She’s been renting the place fromthe owner with half of each monthly payment credited toward her eventual purchase of the home, which she initially agreedto buy for$365,000. But as she’s grown older, the
stairshavegottenharder, she said, and nowshe feels a bit trapped. If sheleaves, sheloses themoneyshe put toward the purchase. If she stays, she’ll have to pay about $150,000 more than the town- house isworth. Its value has been eroded by the steady stream of foreclosures andshort sales. Holliday squeezed the hose full
throttle. “A moving van pulls up and
another familyisgone—that’sall I know,” she said. “It’splainsad.”
Leanna Harris may have been
the first on the street to buy a home as a short sale. When she did, inearly 2008, suchdealswere sorarethatPrinceWilliamCounty hadn’t startedto track themyet. “Iwantedthishousereallybad,”
Tis month’s active short sales and foreclosures As a percentage of homes for sale in the Washington area
FORECLOSURE Prince George’s County
Manassas Park/Manassas City Prince William County Montgomery County Fairfax County Loudoun County Alexandria
Howard County
Anne Arundel County Washington, D.C. Arlington County Falls Church
AREA TOTAL SOURCE: RealEstate Business Intelligence
said Harris, who went to settle- ment on the home the day after their baby girl was born. “It ismy dreamhouse.” But before long, she and her
husband were looking at a short sale fromthe other side. TheHar- rises fellbehindontheirpayments andnever regained financial foot- ing, she said. The couple received temporary
relief for sixmonths fromBank of America.ButHarris said thebank ultimately rejectedthemfor aper- manent loan modification and threatened foreclosure unless they immediately made up the $10,000 in payments that had been deferred, including interest andfees, or soldthehouse. Harris said she felt tricked. But
she listed her home as a short sale because it seemed to offer a rela- tively painless way out. She said she doesn’t expect the bank’s ap- proval to come quickly.
Lenders acknowledge that they
are overwhelmedwiththe volume of short sales coming theirway. “Ithas takenconsiderable effort
to buildupthe capacity todo these [short sale andmodification] pro- cesses and also to connect them together,” said David Sunlin, a se- nior vice president at BankAmeri- ca. “We’readdingstaffandvendors andtechnology.” The Obama administration,
meanwhile, has been seeking to encourage even more short sales as a way of reducing the nation’s inventory of vacant and aban- donedproperties. In April, the administration
launched a programthat rewards lenders and borrowers for suc- cessfullynegotiatinga short sale if the borrower’s loan could not be modified through the federal gov- ernment’s year-and-a-half-old foreclosure prevention effort. Lenders receive $1,500 and bor- rowersanother$3,000formoving expenses. Under the initiative, all eligible borrowers must be noti- fiedof theoptiontoshort sell their homes before their loans are re- ferredto foreclosure. The Treasury-run programalso
sweetensthedeal forborrowersby relievingthemofanyobligationto repay adeficiency. Clearingtheway forashort sale
has often proved cumbersome be- cause there canbe somanyparties to a potential deal. Aside from lenders, transactions may also have to be green lighted by inves- torswho ownthemortgages, local tax authorities, appraisal firms, escrow companies, homeowners associations, mortgage insurance companies and subordinate lien holders. That’s why the administration
cannot simply order a lender to approve a short sale, said Laurie Maggiano, policy director at the Treasury Department’s home- ownershippreservationoffice. “We have to give servicers dis-
cretion to make intelligent busi- ness decisions as towhich proper- ties are likely to be successful short sales, rather than say every- bodyhas to get one,” she said. It can also be difficult to per-
suade lenders to participate, be- cause of the risk. According to Frank McKenna, a vice president at CoreLogic, the industry is on track to incur about $310 million of unnecessary losses on these transactions every year.
MonicaValladares,29,hasbeen
trying to offload her home on Brewer Creek Place formore than a year. She bought it new for $329,000
in 2006. Keeping up with her mortgagepaymentwas easywhen her threeroommates—hergrand- mother and two cousins — were chipping in. But the arrangement fell apart, the family scatteredand Valladares, a singlemom, said she could not afford the home on her salary as a researcher for a tele- communications company. In early 2009, Valladares listed
the townhouse as a short sale for thefirst time.Thehome,overlook- ing a wooded lot and playground, quickly attracted multiple offers. The highest was $220,000, she recalled. Shemoved out, thinking the turnaround would be quick. But her agent could not get the bank to review even the most lu-
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crative contract, she said. When the potential buyers
dropped out about sixmonths lat- er, Valladares applied to Bank of America for a loan modification that would reduce her payments. Afewmonths later,Valladereswas toldshedidnot qualify, she said. Desperate, Valladares tried the
short-sale route again. “I don’t know what else to do,
what else to try,” Valladares said during a recent visit back to the vacant town home. “This house is damagingmy credit big time.” Within days, she received a
$220,000 offer. When she called her primary
lender toget approval for thedeal, however, the bank said shewasn’t eligibleforashortsalebecauseshe had been enrolled in a loanmodi- fication program after all, Valla- dares recalled. Straightening out the confusion took weeks. The lender finally agreed to the sale. But thereweremoreobstacles.For one, the homeowners association said Valladares must pay $4,000 in dues and late fees before it will clear the sale, she said, adding she doesn’thave the cash. Yet another problemis that Val-
ladares had taken a second mort- gage to help finance the original purchase of her townhouse. The lender on that second loan has yet toapprove the short sale, saidRog- erDerflinger,her real estate agent. “The offers come quick,” Valla-
daressaid.“It’sthebankthat’sslow.”
dina@washpost.com
Staff researcher AliceR.Crites contributed to this report.
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