Short sales on the rise

The mix of home sales in Las Vegas has changed.

There has been a sharp increase in short sales, an indication that banks may be more willing to work with homeowners to avoid foreclosure, real estate industry sources said.

Short sales, or homes sold for less than the mortgage balance, comprised 16 percent of October home sales, compared with 8 percent in the first quarter, Robin Camacho of Realty One Group in Las Vegas said.

Camacho said she probably has as many short sales in escrow as real estate-owned, or bank-owned, homes.

"Short sales are no longer merely a niche market -- they are becoming the market," the distressed-property expert said. "Of course, the number of pending short sales is much higher, but many of those won't be approved. Still, that's a substantial shift. That's double the percentage of short sales."

REOs still dominate the market, with 64 percent of sales, but that's down from 81 percent earlier in the year. The median foreclosure price was $125,000. Regular third-party home sales account for 20 percent of sales, with a median price of $186,000, Camacho reported.

While short sales have become an increasingly favorable option to foreclosure, they must be approved by the lender for hardship reasons and usually take longer to complete.

Neil Schwartz, REO specialist with Coldwell Banker Premier Realty in Las Vegas, likened the short-sale process to an hourglass. At the top of the hourglass are 8,647 short sales in escrow; at the bottom are 1,579 short sales that have closed in the past three months.

"What's keeping them from going from the top to the bottom is the banks. They control the narrowness of that hourglass," Schwartz said. "I'm seeing some opening, but a very small percentage are getting through."

Nevada Title Co. reported 428 short-sale closings in October and 1,261 failed closings, about a 25 percent success rate. There are 3,692 short sales on the market and 6,554 in escrow. The percent selling and market speed, or the rate of conversion of listings to closings, is inching up slowly.

The price of short-sale properties in escrow is holding steady at about $150,000, while the closing price is down $8,000 from September's $158,000, Nevada Title reported. The median asking price is down $4,000.

Not everyone qualifies for a short sale, Schwartz said. There has to be a reason for the bank to approve the sale such as loss of job, death of a spouse or debilitating medical condition.

Banks need to streamline the process by hiring additional staff and establishing better guidelines on what they'll accept for a short sale, he said.

Keith McIntyre was approved for a short sale of his home in Las Vegas, but backed out when he received a letter from Bank of America that included a clause for deficiency judgment on the remaining balance of about $120,000. The clause allows the bank to recoup its losses from any assets accrued by McIntyre in the next six years.

"I wasn't big on the idea," McIntyre said from Denver, where he now lives. "I got an approval letter from Bank of America without the deficiency clause before they took over Countrywide. I don't know if the legal department at the bank has gotten more creative or if one bank is just doing things differently from another. It just leaves a real bad taste in your mouth."

People looking to short-sell are "trying to do the right thing," McIntyre said, but they'll let their homes go to foreclosure if banks stand firm on seeking deficiency judgments, especially after taking government bailout money.

J.J. Bell of Las Vegas looked at a 6,000-square-foot home in the gated Palisades Canyon enclave of northwest Las Vegas listed for $975,000, reduced from $1.8 million in February.

"I don't know if I'm going to make an offer," said Bell, who's also looking at high-end golf course properties in Eagle Hills and Tournament Hills. "You can find darned near as good a deal on the regular market. It really doesn't matter."

The difference between the $116,900 median price of an REO sale and the $150,000 median price of a short sale "speaks volumes" on what the banks should be doing, housing analyst Larry Murphy of Las Vegas-based SalesTraq said.

Foreclosure homes aren't properly maintained and lose value when they sit empty, he said. Banks also incur longer holding costs when they complete the foreclosure process.

"The only way we can avoid foreclosures next year is if the banks wise up," Murphy said. "The trend is increasing in short sales. I wouldn't be surprised in 2010 if the percentage of short sales equals or exceeds the REO percentage because it's the smart thing."

David Brownell of Keller Williams Realty said private sellers are having more success negotiating short sales with their mortgage lenders.

One of the statistics that caught his attention in September was the 117 percent increase in short sale closings from a year ago. Second was the declining inventory. His figures show single-family home inventory falling from 21,349 in October 2008 to 10,956 in October of this year -- a drop of 49 percent.

He's seeing such things as "reverse foreclosures" whereby banks are undoing a recent foreclosure, putting the previous loan back in place and working out terms with the homeowners in an effort to seek alternative solutions to foreclosure.

California-based real estate consultant John Burns said he expects to see an increase in short sales with the Treasury department's recently announced $2,500 subsidy -- $1,000 to the servicer and $1,500 to the seller -- to encourage short sales as a way to clear excess inventory.

The fees are designed to help compensate the loan servicer for the extra effort and to give the seller incentive to cooperate and leave the home in good condition.

"Short sales have developed a bad reputation as frustrated buyers have had limited success," Burns said. "We'll see if the Treasury can change this, but we are skeptical."

Banks and real estate agents must figure out how to work together, Burns said. Banks have been slow to approve the sale, particularly when the high bid is below the last appraisal on file. Realtors typically don't want to deal with the extra work involved in a short sale. Buyers don't want to deal with the bank's bureaucracy, which can take four to five months for a short sale.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.