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Short sales can disentangle homeowners from foreclosure mess

October 22nd, 2007 6:14 AM by Ron Mastrodonato

Short sales can disentangle homeowners from foreclosure mess

LAKELAND, Fla. – Oct. 18, 2007 – When Larry and Daisy Lizardi bought their Lakeland home four years ago, payments on a $280,000 home with a balloon mortgage were manageable.

But medical problems and a mortgage snafu led to foreclosure, and the Lizardis had to quickly off-load their house while taking a $100,000 loss.

The Lizardis are among a growing number of homeowners who resort to short selling in times of desperation. And while foreclosure rates climb across the country, the niche market of short selling is also keeping pace.

“Something has to give,” said Barbara Hulstedler, a Realtor at ReMax Paramount Properties in Lakeland who also closed the deal for the Lizardis. “We can’t have this happening to all these people.”

After several months of notices from lenders, who wouldn’t return their calls or answer their questions, the Lizardis’ mortgage company filed for foreclosure.

But the couple still wasn’t sure of what they could do.

“We had never been through this before,” said Daisy Lizardi. “I’m thinking the sheriff is going to come banging on our doors to get us out.”

That didn’t happen.

Lizardi learned of the short-sale option through Hulstedler, who eventually saved the couple a substantial sum in fees and payments and eventually set them up in a new rental home.

Short selling a home is a process where the homeowner sells for less than what is owed on the mortgage.

Sound new? Well, it’s not. Buyers and sellers are just reluctant to talk about it.

More than a dozen other buyers and sellers using the short-sale process declined to speak to The Ledger for this article.

“A lot of the time, people are embarrassed,” said Richard Eijo, a Realtor at Exit Realty in Lakeland. “This can be a very sensitive subject.”

Eijo is one of many Polk Realtors taking advantage of specialized training on short sales.

It’s not a process everyone can do. In fact, it’s a last resort sellers can use to avoid foreclosure.

“There is a lot of paperwork involved,” he said. “You really have to know what you are doing.”

For many Realtors dealing in the pre-foreclosure market, the story is often the same.

Here’s how a typical scenario plays out: In Polk’s boom years, when prices were skyrocketing, a family would buy a home using a subprime or other exotic loan, designed with relaxed credit requirements.

The rise in prices helped fuel a craze among buyers hoping to get into a new home, investors wanting to make quick cash and lenders looking to make money off new mortgages.

That rush helped fuel the current foreclosure situation around the country.

Problem is, subprime loans usually have a rate that is slightly higher than the prime rate, which is a rate given to individuals with good credit. Other exotic loans came with adjustable interest rates with little to no down payment needed to close on the home.

As the interest rate of the mortgage adjusted upward, homeowners fell behind in payments.

Now, neck-deep in building debt, foreclosure is imminent. But short selling is a possible sidestep to wrecking your credit for the next seven years.

“People need to understand – you don’t have to go into foreclosure,” Eijo said.

Many real estate companies are offering agents specialized training on dredging through the short-sale process.

Eijo saw the direction the market was headed and opted to take specialty training provided by Exit Realty.

Other companies have taken notice of the demand, too.

Barbara Hulstedler, a Realtor at ReMax Paramount Properties in Lakeland has continued to take courses on short sales for the past year.

“There is a real trick to it,” she said. “We have been at school for a year on this. I would say that by choosing to do a short sale, you have about an 80 percent chance of getting it out of foreclosure.”

Training for Keller Williams Realty’s agents is getting more attention than what was expected, said Chris McLaughlin, broker and franchise owner of Keller Williams Realty Inc. in Lakeland and Winter Haven.

“We are holding classes in all of our market centers, and it’s standing room only,” he said. “There is a great deal of interest out there.”

While short sales only account for about 7 percent of the company’s listings, McLaughlin predicts that number will jump to 15 percent in the coming year.

The two main reasons: Volume and the potential to sell pre-foreclosure homes faster than a full-priced home.

And with the way Polk’s home sales market is going, making any sale is a good incentive.

Home sales activity in Polk has dropped off significantly in recent months.

Existing home sales dropped nearly 32 percent from 499 in August 2006 to 340 two months ago, the latest figures available. It was the 15th consecutive month sales totals had declined from the year before.

The longest previous sales decline was for seven consecutive months from January to July 1999.

“It is a lot easier to sell a home under market value rather than at market value,” Eijo said.

So, you’ve found yourself behind in mortgage payments and facing foreclosure. Now what?

For starters, talk to your bank, Eijo said.

To make a short sale on a home, you must have the permission of the bank. It is at the bank’s discretion to allow the process.

However, with recent government pressures on lenders, getting the approval usually isn’t an issue. But getting the final approval on the sale price can be very tricky.

Hiring a real estate agent trained in dealing with the process is also a good idea, Eijo said. The commission for the sale of the home is most often paid for by the bank.

However, for Realtors not used to dealing with short sales, Eijo said not to expect more than a 5 percent fee. And getting that much is a struggle.

“They are trying to fight for all the money they can,” he said. “And I understand. But you have to fight for it. If you do, you will get it.”

After agreements are signed, Realtors go to work, negotiating with the bank on what price to market the home at. Some banks are willing to accept a 30 percent loss on the loan of the home, Realtors said.

While the cost depends, it beats the bank paying $50,000 to $75,000 in foreclosure costs.

“They would rather lose some of the money,” Eijo said. “What they don’t get back, they can write off.”

Hours are spent on the phones with lenders, who are buried in foreclosures from across the country.

Once negotiations are complete and a buyer is found, it’s back to a waiting game for closing day.

The wait depends upon the bank’s approval. That can take much longer than a traditional sale.

“Right now, I’m saying that it’s going to take about 30 to 90 days before a close,” Eijo said. “But you can’t be in a rush. There are a lot of deals to be had out there right now.”

Copyright © 2007 The Ledger, Lakeland, Fla., Jeremy McCready. Distributed by McClatchy-Tribune Information Services.
Posted in:General
Posted by Ron Mastrodonato on October 22nd, 2007 6:14 AM

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