It actually wasn't all that long ago that the term short sale was unfamiliar to a lot of real estate practitioners and a good portion of the general public. How quickly things have changed. A Google search for real estate short sale yields more than 600,000 entries. Real estate agents are inundated with flyers, ads, and come-ons for seminars and classes on the subject; and probably just about every market area in the country contains at least a half-dozen agents who will claim to be specialists in the field.
In my own Orange County, California, market area a recent examination of MLS data showed that at least 20 percent of the residential listings were identified as being short sales. Significantly, though, the number of short sales that actually closed escrow was a decidedly lower proportion. Somewhere between 6 to 8 percent of all closed escrows were short sales. At the current rate we have a sixty month (5 years!) supply of short sale listings. Regrettably, many of those will go to foreclosure before they are ever sold.
One reason that short sales comprise such a small proportion of actual closings is that short sales are frequently difficult, frustrating, and time-consuming, with little prospect of a successful closing. There is no hard and comprehensive evidence for this; but there is plenty of the anecdotal kind. Stories abound about the short sales that ultimately went to foreclosure even though there had been legitimate offers made on them. More than once those offers were higher than the ultimate price received for the property after it had become an REO. The common thread through all these stories? Apparent lender indifference, convoluted processes, and interminable failures to make decisions.
As a result, many competent and experienced agents just don't want to become involved with the process of making an offer on a short sale.
Recently, our colleague David Silver-Westrick, one of the sharper tools in the Realtor® shed, formulated a proposal that major lenders and loan-servicing institutions sign on to a "Short Sale Bill of Rights." David listed 4 points:
- A commitment by all lenders and their servicers to make it easy for sellers and agents to immediately locate online the correct department and the individual who will be responsible for processing the short sale applications.
- A single industrywide short sale application and list of supporting documents that all lenders and servicers would agree to accept. The Uniform Loan Application is an industry standard. It should not be hard to agree on a Uniform Short Sale Application.
- A commitment by all lenders and their servicers to responsively update the listing agent and seller on the status of the short sale application throughout the process.
- A commitment by all lenders and their servicers to deliver a clear answer, in writing, yes or no, within a reasonable time frame. I suggest 30 days from receipt of the complete application is reasonable.
Of course, one might want to add to or modify some of these points; but the basic idea is a sound one. If implemented, it would no doubt bring more agents and their clients into the short sale arena; and it would certainly result in an increase in short sale closings.
It would be nice to think that organized real estate -- primarily, the National Association of Realtors® -- along with the appropriate governmental agencies and congressional committees might get together with the major lending institutions to agree on a uniform and sensible short sale process such as that outlined in Mr. Silver-Westrick's proposal. As he points out, "Short sales, done properly, act as a safety valve in a declining market, minimizing harm to lenders and sellers alike. The status quo is harming everybody and is a drag on the economy. Lenders are losing more money than they need to. Sellers feel like they have no control. Buyers are frustrated and tempted to wait to buy. Agents are spinning their wheels. We can certainly do better than this … ."
He is right.
