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Posts Tagged ‘foreclosures’

The Banks’ Dilemma:

To Foreclose or Accept a Short Sale?

Over the past 4 years, short sales – house sales in which the bank holding a mortgage agrees to accept less than the full amount due – have proliferated. Short sale experts have worked hard to dispel the myth that banks never negotiate and never accept less. But now, a recent New York Times article suggests that there may be some truth to that myth.

In a recent article, the Times reported that banks are resisting short sales and putting more focus on foreclosures. In fact, there are some incentives for banks to foreclose, even when a short sale will reduce risk and financial losses. New accounting rules allow banks to delay the “write down” of their loss until the house later sells. In a short sale, by contrast, the bank must take the loss immediately. In addition, the bank with which realtors and home owners negotiate are only one interested party; they are the servicer. Short sales usually also need to have the approval of investors, underwriters, and/or private mortgage insurance companies. And, while the recent foreclosure freeze highlighted the risks associated with foreclosure, banks face many risks in short sales, including fraud. A bank’s decision to agree to a short sale may involve far more than a simple cost-benefit analysis assumed by Realtors, attorneys, and distressed homeowners.

The Times article states that banks are “historically reluctant to do short sales” and suggests that they may be more likely to foreclose, even in the face of a good offer. This has not been our experience, based on anecdotal evidence. Rather, most banks appear very open to negotiating short sales, especially when there is a bona fide buyer in the wings. A large number of short sales are closing. Homestead Title is analyzing data over the past 3 years to determine the percentage of sheriff’s sales in Dane County in relation to the percentage of foreclosure filings.

Homestead Title offers expertise and guidance throughout the short sale process. Owner and attorney Peter Zarov often teaches seminars on foreclosures, short sales, and distressed properties. We will continue to provide updates, information and resources on these topics.

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Foreclosures getting worse

This story aired on May 28, 2010 on WKOW News.

By Bob Schaper – bio | email | Twitter | Facebook

MADISON (WKOW) – A quarter of all home sales last month involved distressed properties – and the situation could be getting worse.

Peter Zarov, owner of Homestead Title, says the number of distressed sales – such as short sales and auctions – is likely to go up because closings lag months behind foreclosures.

“I’m hoping we’re at bottom,” he said. “But every time I say that it gets worse.”

Nationally, distressed sales were 33 percent of all sales in April, according to the National Association of Realtors. That was down slightly from March, when it was 35 percent.

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