The market rebounds: new short sale trends abound
Everywhere you turn, you hear reports that the real estate market is improving. And, unless you have no connection to any media whatsoever, then you’ve probably already heard about the housing market rebound. Just last week, homes.com published their rebound report, which is a useful tool for observing real estate national market growth and especially for housing and short sale trends.
While this is not noted in the rebound report, there are some definite correlations between the rising market values and the short sale market. While property values in many parts of the United States have not come back to anywhere near where they were in 2005, there has still been a significant increase since values bottomed out a few years ago. Right now, there are still many people who are unemployed, underemployed, or who need to sell there home right now and who owe more on their mortgage than the home is worth. However, due to the recovery, there is a new short sale trend that is becoming more and more frequent: the short sale of only the junior lien(s).
Short Sales and Junior Liens
As property values rise, it appears that many of the short sale transactions occurring these days include a full payoff to the first lien holder with the a short sale to the second or junior lien holders only.
How do you recognize this trend in your own short sale listing?
First off, when you take a short sale listing, request a copy of all of the mortgage statements from the property owner. In this way, you can check loan balances for all mortgages. (Note that the totals on the mortgage statements generally need to be verified by ordering an official payoff from the mortgage holder.)
Using the mortgage statements, you can ascertain whether the first lien will be paid in full or whether you will need to work with the first lien holder on a short sale. If the amount owed on the first mortgage is less than the property value, then the first is probably going to be paid in full. If the first lien holder is paid in full, then you do not need to submit a short sale package. The first lien holder will receive the entire loan balance as payment at closing.
Three Tips on Preparing Settlement Statements
In order to figure out how much to pay to each lien holder, it’s a good idea to solicit the assistance of a title officer, attorney, or escrow officer. These professionals can help you to generate an estimated settlement statement for your transaction.
Here are three points to consider when generating an estimated settlement statement for a transaction where the first lien holder is being paid in full:
- Agent Commission. Remember that what the seller owes on the mortgage and what the first mortgage holder will net is not the exact same number. There are certain fees associated with the closing: one of the big ones is agent commission. So make sure to account for commission on your settlement statement.
- Foreclosure Filing Fees. Even if the first lien holder is being paid in full, when the property is in active foreclosure status, then there may be legal fees or other foreclosure fees owed to the first lien holder (above and beyond the loan balance). Allocate money for these unknown fees when making your calculations.
- Be mindful of time. If the seller provides you with a mortgage statement from the current month, remember that the short sale may take some time to complete. So, if the seller is not making payments on the first mortgage, make the appropriate fee estimations in order to assure that you have enough money to pay the first lien holder in full when the deal closes in 4-6 months.
Short sale settlement statements can be tricky to prepare—especially since there are a lot of unknowns or issues that may arise much closer to the closing date of the transaction. So, if you come across a short sale where the first will be paid in full, don’t be shy about touching base with a colleague or settlement professional in order to assure that you’ve got the numbers just right. One call or consultation can save your from a world of hurt down the road.