2012 has been a fascinating year so far; maybe the driest winter (and lowest snowfall) on record, community drama of Pulitzer/Oscar quality, the Town’s bankruptcy Kabuki Dance, and of course a topsy-turvy real estate market. In the past few months the Mammoth market has moved from foreclosure madness to short sale nirvana, and the smart sellers and buyers are all moving with the game. And a BIG window of opportunity has opened for underwater homeowners (you really can’t make this stuff up).
In a recent newsletter I spoke of how short sales have become almost fashionable. This is a recent phenomenon, and a growing one; a really growing one that more and more underwater owners are, and should be, paying attention to. Who knew we’d ever get to this? Many people, myself included, see this trend as the type of thing that will ultimately lead to the demise of this country. People are now being motivated and rewarded for welching on their big responsibilities. This is where we have arrived. And moral and affluent property owners are jumping on the bandwagon because it has simply become the right thing to do. And don’t blame me, I’m just delivering the pizza. And soon enough someone will be at a cocktail party bragging about how they did a short sale on their vacation home.
In the past, the fundamental foundation of a short sale is that the property owner has suffered a true “hardship.” Short sales were for people who had traumatic life events (like serious accidents, deaths, major illnesses, victims of crimes, etc.) that caused them to qualify for some forgiveness from the lender of their primary residence. They were few and far between. And over the years many people truly suffered from these events and never applied for or were granted short sales. They just took their lumps. Fast forward to the summer of 2012 in Mammoth Lakes and we have second homeowners and investors who are basically incentivized to attempt a short sale. And the potential gain of debt relief to the tune of 100’s of thousands of dollars is a godsend versus the three years or so of compromised credit.
(**Now I’m not going to give you legal or accounting advice, but if you own property and you are underwater (owe more than the property is worth), and especially if you are underwater by 100’s of thousands of dollars, you need to be giving a short sale of some serious consideration. Even if you are employed, have money in the bank, etc. Forget that this mentality is the ruination of modern responsible society or you see something immoral about it. This is your golden opportunity to get rid of that albatross. Make a plan for a few years of slightly compromised credit. You really have very little to lose. Everybody is doing it!! The politicians, bankers, legal field etal, are all batting for you.**)
And for all of these underwater owners, the current environment has evolved (or devolved?) to work in their favor. We are in completely uncharted territory now. The lenders are motivated and have increasing mandates to expedite the short sale process. Many short selling owners are using one-two punches to assist them; they are talking to their lender(s) directly for insight and information AND they are hiring attorney/negotiators to facilitate the short sale negotiations with the bank. And the buyers are right in the game too. They are seeing fewer and fewer REO listings coming to the market so their options are dwindling. In a market like Mammoth, more and more buyers are willing to be patient and stick with a protracted and uncertain short sale transaction. It has become so fashionable. And in many of these transactions the buyers are paying for the seller’s attorney/negotiator’s fees to make the short sales happen (more bonus to the seller). And obviously, these underwater owners need, as part of the team, a good local broker to market the property and work their way through the transaction. As usual, experience helps.
Many clients (including my own) who are in this process today are almost giddy about the prospect of significant debt relief for the cost a relatively small credit ding. These are people who “never really thought they would be in this position” or that “this was even feasible.” But here is where they are and the economic environment supports it. It is no longer about “hardship,” it is just common sense, and survival. The window of opportunity is open for just about everybody to give a short sale a try. And the timing and urgency may become critical too. The Debt Forgiveness Act is scheduled to sunset at the end of the year. The Act prohibits lenders from sending 1099s for short sale loan forgiveness for those who qualify. The Act is a big part of why this makes sense too––nobody wants an extra six-figure 1099 as a result of a short sale. In the current political environment nobody knows if that will be extended (and let’s face it the pols are going to be looking for more tax collection sooner or later). So completing a short sale (or foreclosure, or deed-in-lieu-of-foreclosure for that matter) by Dec. 31, 2012 may become critical.
The buyers have been part of the evolution too. Not only is it a matter of low inventory but this is now where the best deals are. During the early phase of this whacky short sale cycle, not all of the short sales were good deals. The appraisals were high, the banks not so lenient, etc. But all that has changed. And with more and more attorneys/negotiators involved the success ratio has gone up. Yes, there is still patience required and some degree of uncertainty, but in a second home market like Mammoth there is less urgency to close the transaction. And more and more buyers are realizing that there is an “option” factor to these transactions. The buyers put nothing at risk (except a little time and some signatures) to tie-up the property. Only once the lender has formally approved the short sale and an escrow is opened is there even a deposit placed into escrow. And then the transaction has the normal contingencies like physical inspection, title, etc.
Again, as I said in a recent newsletter, the REO transactions of the past few years have been very restrictive on the buyers, but these short sale transactions are very un-restrictive on buyers. I call it “throwing sh!t at the wall and seeing what sticks.” Active buyers may have a property tied-up in a “contingent short sale” (or under contract but awaiting lender approval) but will still be watching the market for other opportunities. This is very much like a free option. Now the mention of this may make some potential short sellers uncomfortable but in this market one of the best things a broker can have is “an approved short sale,” or one that has gone through the process but the buyer has backed out or moved on. With an “approved short sale” a new buy can move right into position and likely close in 30 days or less. Slick. Welcome to Mammoth real estate 2012. We’ll just have to see how long this continues.
Meanwhile, summer is just starting and after a miserable winter the merchants have got to love seeing some visitors in town. It looks like several shoes will drop this summer, so stay tuned! Now I’ve got to get back to work…