Short sales spike across South Florida in 2010

MIAMI – Jan. 17, 2011 – The number of homeowners completing short sales rose sharply across South Florida in 2010, following the release of government guidelines designed to simplify the process.

But real estate agents and housing analysts say other factors besides the new rules have largely driven these transactions over the past year.

Many potential buyers have steered away from foreclosed homes since foreclosure freezes began last fall, concerned that the deals would be delayed or canceled while lenders investigated possible wrongdoing by so-called robo-signers. As a result, banks have been more willing to approve short sales.

Even without the effect of moratoriums, lenders have warmed up to short sales, realizing they can dispose of properties more quickly and make $30,000 to $50,000 more per sale than they could by foreclosing on a home, said Peter Zalewski, principal at CondoVultures.com, a Bal Harbour-based consulting firm.

“My experience was very positive,” said Fernando Incarnacao, 54, who recently arranged a short sale on his three-bedroom Parkland home. “I’m very happy with the outcome. Now I can kick back.”

He owed about $321,000 and hoped to avoid foreclosure, so he listed the home with real estate agents Michael Citron and Rosy Baron. They worked with lender U.S. Bank to complete a $230,000 deal that closed Jan. 5 after less than four months.

There were 16,767 short sales in Palm Beach, Broward and Miami-Dade counties last year, up 49 percent from 2009 and 437 percent from 2008, according to CondoVultures.

In a short sale, the homeowner gets approval to sell the property for less than what’s owed on the mortgage, and the lender typically forgives the difference.

The transactions are seen as a key to reducing the massive inventory of available properties, which will go a long way to solving the nation’s housing woes, now heading into a sixth year.

The most recent figures from Zillow.com show that roughly four in 10 single-family mortgages in South Florida are worth more than the homes, making short sales one of the only viable options for “underwater” homeowners who need to move.

In the past few years, though, sellers and buyers complained that lenders took several months or longer just to consider short sale offers. Frustrated buyers walked away during the delays, and properties lingered on the market, prolonging the housing slump and the recession.

To address those concerns, the U.S. Treasury last spring introduced a voluntary program called Home Affordable Foreclosure Alternative, which included a series of guidelines governing short sales.

The rules call for lenders to approve or deny offers within 10 business days. Also, sellers, loan servicers and investors who own the mortgages receive financial incentives for completing the deals.

Sellers don’t have to repay any of the remaining debt and also get $3,000 in moving expenses. Servicers get $1,500, while investors owning the first mortgage receive a maximum of $2,000 for allowing up to $6,000 of sale proceeds to be distributed to less senior mortgage holders.

The guidelines were supposed to take effect by April 2010, but some lenders didn’t start following them until the summer, Treasury spokeswoman Andrea Risotto said.

“It’s still pretty early in the program’s life,” she said.

Some real estate agents remain skeptical.

Terry Story, a real estate agent for Coldwell Banker in Broward and Palm Beach counties, said the Treasury program hasn’t meant anything to her clients.

“I haven’t heard of any success stories with it,” she said.

Douglas Rill, an agent for Century 21 America’s Choice in West Palm Beach, said lenders seem to be approving more short sales because they realize it makes good business sense. Also, he said, a new automated computer system that banks use is expediting the process.

Joe Kohn, a Fort Lauderdale lawyer, agrees that some banks are getting better at executing short sales. Still, no lender that he has worked with on a transaction has stuck to a 10-day deadline.

“There’s no 10 days,” Kohn said. “That’s not how it happens.”

Two of the nation’s largest lenders insist they follow the government guidelines.

A spokeswoman for Chase said in an e-mail the lender does respond to bona fide offers within 10 days “under normal circumstances.” Bank of America responds “well within 10 days” for short sales approved under the program, spokeswoman Jumana Bauwens wrote in an e-mail.

But not all homeowners who want to complete short sales qualify for the government program. If a property isn’t eligible, lenders aren’t subject to the 10-day deadline and don’t receive the incentives. In those cases, deals still tend to drag.

First-time buyer Martin Austin said he offered $84,900 for a two-bedroom villa last fall in Boynton Beach.

Austin said the lender, Bank of America, didn’t respond for more than 80 days. When it did, the bank said it wanted more money for the house – $104,000 – and the deal collapsed, Austin said.

Bauwens said the property wasn’t eligible for the short sale program, but she denied it took so long for the lender to respond.

“I was in shock,” said Austin, a 49-year-old waiter, standing outside another short sale nearby that he expects to close on this month. “If I would have known, I would have told my Realtor, ‘No short sales.’“

Copyright © 2011 Sun Sentinel, Fort Lauderdale, Fla., Paul Owers. Distributed by McClatchy-Tribune Information Services.