In a short sale, the home owner tells the lender that the house will sell below market and the lender accepts the proceeds from the sale as payment in full for the loan, even though the mortgage balance may be much higher. Short sales can be beneficial for both homeowner and lender because the owner can reduce damage to his credit report and the lender saves money and reduces the business negatives associated with foreclosure.
As mortgage foreclosures continue to be the major drag on a weakening national economy many consumer advocates and real estate experts are advising home owners to consider the, short sale. The short sale is recommended because the home owner has fallen behind on house payments due to some kind of hardship like death of a spouse, job loss, divorce or a major illness and the house is worth less than what is owed. The short sale is often recommended with only an AVM (Automated Valuation Module) or comparative market analysis also known as a BPO (Broker Price Opinion) valuation report. The AVM does not deal with the specifics of the home owners property. Market adjustments for condition, location to comparable sales and amenities of the property are generally unknown and not made. The property is assumed equal to similar properties, which have recently sold, in the local market. In a BPO estimate of comparative value, the broker who wrote the BPO may have inspected the home owners property but few brokers have the professional training or expertise to extrapolate market based adjustments for differences in condition, location or amenities. Additionally, the AVM and BPO analysis seldom adjusts for or distinguishes between R.E.O (Real Estate Owned by banks), investor sales and arms length sales. In the case of F.N.M.A (Federal National Mortgage Association) properties, F.N.M.A has traditionally instructed appraisers to appraise for collateral value and to adjust final opinions of value to reflect a 120 day marketing time. In a declining market this virtually assures that appraised value, on the sellers home, will be less than similar properties which sold arms length.
It is normally important for any valuation or appraisal report to distinguish arms length sales transactions from short sales, R.E.O and investor driven sales because the R.E.O, investor and short sale represent the minimum collateral value of the property and not the value that would be paid by a buyer intending to occupy with the expectation of quiet enjoyment and the growth in wealth home ownership represents. The American desire for home ownership has been a building block of our society and despite the cyclical nature of our economy, real estate will experience strong growth in the future because of supply and demand. As a millionaire friend was fond of saying about the inevitability of wealth maximization through real estate, "God only made so much." This is why sales prices of property sold arms length (to buyers that intend to occupy or put the property to a personal use) are higher than short sales, those purchased by investors, whose intent is to resell for profit as quickly as possible or R.E.O (Real Estate Owned) sales by lenders attempting to cut their losses.
Most lenders believe they are aware of the value of a home because they usually insist on a comparative market analysis (B.P.O), or AVM report. However, because the B.P.O and AVM do not take into account property condition, amenities and whether the reported comparable sales used in the analysis were equally located and arms length, the B.P.O and/or AVM estimate of value can be considerably less than the homes arms length or true market value. In the past, if a lender believed a better price could be obtained by taking the property back in foreclosure over a short-sale offer, it would hold out for a price felt closer to market value. However, with foreclosures increasing exponentially and the inventory of existing homes greater than 11 calendar months, in some parts of the country, lenders are accepting short sales when they clearly believe the home is worth more than the short-sale price.
Morally, from the standpoint of ethical code, I have no problem with short sales. The lender ultimately gets out in better shape than it would in a foreclosure and the borrower/homeowner can come out of a short sale with credit virtually intact. One interesting point in the short sale process is that the buyer has less control than in an arms length purchase and can be mislead, by well meaning real estate agents, into believing the significantly reduced purchase price does not represent the homes true, current, value when in most cases, from the collateral value standpoint of lenders, it probably does. The agents reason this is true because of much higher past sales prices for similar homes in the community. The truth is that, excluding arms length sale prices, the short sale is probably market if compared to the sale prices of similar foreclosed homes. It is also probable that in a declining market sale prices of similar homes will continue to fall. Another example of agents misleading buyers on value is the situation where sellers paid more than the home was worth when they bought it. Let's say the home sold for $300,000 a few years ago and is now on the market for $200,000. This does not necessarily mean the buyer gains $100,000 in equity, but that the seller paid too much in an expanding market and now the market has fallen. The market reality of this situation is that the seller has no equity and the purchaser gained no value over the purchase price.
Another market reality for buyers on short sales is that lenders often require purchasers to accept the home in its present, as is, condition. Lenders typically will refuse to pay for suggested repairs disclosed on a home inspection, pest inspections or work necessary to issue a clear pest report, roof certifications or roof repairs, home protection plans for the buyer, deferred maintenance or length of time to close. Lenders may also change conditions of the sale, discount commissions, increase buyer closing cost by refusing to pay for standard seller closing costs such as transfer taxes and length of time to close the sale. Additionally, the short sale home closing process can take extended amounts of time. The sellers lender controls the closing process, not the buyer or the buyers lender. Buyers who are trying to coordinate the close of escrow with the sale of their old home will find this difficult to do in the short sale process. Also, if the sellers discover that the short sale effect on their credit score is identical to that of a foreclosure they may not be motivated to move out before the foreclosure is concluded.
The market reality for sellers is that when facing foreclosure it is time to be less concerned with true market value and more concerned with the economic well being of his or her family. Sellers can successfully sell their home in almost any market because there are always buyers at the right price. An example of this would be if sellers house is worth $200,000 would someone buy it for $50,000? Of course they would, even in the worst market. The short end of the short sale is that most people don't know that a lender can still come in and foreclose on a home even if it is a homestead and the seller has declared bankruptcy. The I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.
However, with most short sales, the only penalization on the credit report is for the missed payments. Consumer advocates and real estate experts are right about the distinct advantages of a short sale versus being foreclosed upon or declaring bankruptcy. Despite its potential for leaving the homeowner responsible for a deficiency or an I.R.S claim of the forgiven debt as income, most homeowners are better off with a short sale, rather than a foreclosure, if the weight of our declining economy should fall upon them.
Calvin Johnson, pen name Calvin Johnson-Rowe, in addition to his professional activities as a Certified General real estate appraiser, is author of The Lightning Bug Science Fiction series, a hobbyist wine maker and lover of the arts. He has been an avid fiction and Science Fiction fan most of his life and counts Walter Mosley, Gloria Naylor, Octavia E. Butler, and Jack L. Chalker among his favorite authors. Calvin is currently a Commercial Real Estate appraiser and broker in Michigan. In the early 1990's he created the model and application parameters for, The Virtual Appraiser, an Internet based home valuation application. Preview his new novel at: http://www.google.com/search?q=calvin+johnson-rowe%3A+the+lightning+bug&btnG=Search+Books&tbm=bks&tbo=1 Watch the video preview at: http://www.youtube.com/watch?v=5WoOJJcmiI4
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Subscribe to RSS Ubergizmo ReviewsMobileGamingAndroidAppleComputersGadgetsConceptsPhoto/VideoEvents | Jobs Home > CellPhones > Android Market and Gmail app blocked in China, again Android Market and Gmail app blocked in China, again Tyler Lee 10/10/2011 09:46 PDT 
We know that China isn’t exactly the most Google-friendly country, with Android users in China now and then facing difficulties when attempting to access to the Android Market. This has been an issue that has dated back to 2009 which resulted in alternative app stores from China, which while isn’t exactly what Google had in mind, is better than nothing.
