“We’re seeing a rush already,” said Daren Blomquist of Realtytrac, a firm that monitors real estate foreclosures and distressed sales. “There was a big increase in the first quarter and we’re expecting that to continue.”
2012 may be the year the short sale market peaks, because of a number of factors. Bankers, pressed by the Obama administration and their own bottom lines, realize they are better off accepting partial payment on a mortgage than taking a home in foreclosure, said Blomquist. Some have created expedited short sales procedures in which they will pre-approve a home for a distress sale and even pay the seller as much as $45,000 to get the deal done. Sellers with one eye on the clock realize that they could lose a valuable tax break if they fail to complete their short sale by year end. And some sellers — who have been hanging on “by tooth and nail” to homes worth less than their mortgages for years, according to Elizabeth Weintraub, a Sacramento, California, real estate agent who specializes in short sales — have decided now is the time.
“It seems to be doubling every year, but 2012 is particularly busy,” she said.
So it seems like this is the time to make a move. Here is some advice for sellers and bargain hunters.
— Sellers should start with their banks. Several lenders including JPMorgan Chase & Co and Bank of America Corp now have expedited short sales programs in which they pre-qualify sellers and their homes for short sales at agreed-upon prices.
— Sellers should start soon to get that tax break. Forgiven debt that is normally subject to income tax. It will not be, under a special provision that expires at the end of this year.
“If you can, you close this year,” Weintraub said she is telling her clients. That means would-be sellers should start soon, if they have not already — it can easily take three or four months to close a short sale once you have a buyer.
— Sellers should realize that “hardship” is a relative term. In order for a lender to approve a short sale, the seller is supposed to make the case that financial hardship will keep him or her from paying off the loan. But in their rush to get these deals done, banks are considering a wider array of situations to be hardships. An impending retirement or job change can be a “hardship” if the rest of the deal is right. “It’s a great opportunity,” says Blomquist.
— Buyers should look for deals but not expect anything amazing. Bankers and real estate investors have caught on to the fact that these distressed houses are a good deal, so there is competition.
— Buyers should go for long locks on their mortgage rates. It is a long trip from finding an appealing property on a site like Realtytrac to actually buying the property.