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‘Short sales’ rising in real estate
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(NECN: Peter Howe, Boston) - Four years after the real-estate meltdown, new data show banks are agreeing to far more “short sales” as an alternative to messy, protracted foreclosures, with the growth in transactions far above the national average in many parts of New England.
In a "short sale," banks agree to let someone who owes more on their mortgage than their home is worth to sell it to a new buyer, with the bank typically writing off tens of thousands of dollars in the process. But what the bank gains is avoiding the cost, protracted process and uncertainty around taking the home or condo by foreclosure and then trying to resell it as a bank-owned property.
New data from RealtyTrac this week showed that across the U.S., short sales were up by 33-percent in January from January 2011, to some 35,000 across the country. That was the most in any quarter since the first quarter of 2009. And the increases were even bigger in New England states and metropolitan areas than the national average: 51.9-percent in Massachusetts; 65-percent in Connecticut; 94.6-percent in New Hampshire and 101.9-percent in Rhode Island. Among larger metropolitan areas, RealtyTrac said, short sales were up 46.2-percent in metro Boston, 62.1-percent in metro Hartford, and 89-percent in Providence-Fall River-New Bedford.
Boston real-estate lawyer Michael Rubin, a partner with Posternak, Blankstein & Lund LLP, said he expects the numbers reflect a growing realization by banks that they simply can’t foreclose their way out of the epic realty mess and have to consider other options.
"Just the physical inability and lack of staff that these banks have to get the properties foreclosed on - no one could ever staff up, no bank no institution could ever staff up for the amount of properties that find themselves in this situation," Rubin said.
In many cases, banks that have gone through the experience of spending 18 to 24 months or more to foreclose on a home, only to wind up with a dilapidated, un-cared-for mess that’s lost huge amounts of value, are wagering that a speedy short sale for an aggressively lowered price may still wind up being, net, less expensive than foreclosing and taking a huge loss when the home goes back up for sale.
"By the time the bank gets to take the property back on a foreclosure, the value is so diminished," Rubin said.
To be sure, short sales are unlikely to become any silver bullet.
RealtyTrac estimates that if the January numbers it found hold up, there would be about 105,000 "pre-foreclosure" sales of homes, most of them short sales, during the first quarter of this year, and at that rate something like 400,000 for the year. But the problem is, according to the Mortgage Bankers Association, there are nearly 3.5 million homeowners delinquent on their mortgages by at least one month, including 1.5 million who are 90 days or more behind on paying their mortgage. And there are 12.5 million homeowners still who are "underwater," owing more on their mortgage than their home is worth. That suggests that at the current rates, barring some spectacular economic recovery, it would take years, even decades, for short sales alone to clean up the mortgage mess that remains.
That’s why Rubin, among other experts, thinks banks may become more and more eager to step up short-sale deals as a foreclosure alternative.
"Speed becomes a friend and an ally, opposed to delay," Rubin said, "which becomes an enemy of value" for banks trying to minimize losses on the real-estate collapse.
With videographer Bob Ricci.
