March 19, 2010 By Stephanie Wynalek for Greater Wilmington Business Journal
While statewide foreclosure activity has dropped 11 percent from December 2009, a significant amount of homeowners in the greater Wilmington area still find themselves faced with the crisis and are pursuing possible alternatives, especially the process known as a short sale.
North Carolina ranked 23rd in the country in total foreclosures for the month of January, according to the RealtyTrac U.S. Foreclosure Market Report. With the economic downturn continuously taking a toll on homeowners, short sales are becoming more and more sought-after to avoid foreclosure.
“The amount of requests for short sales is enormous,” said Alan Efting, a mortgage consultant at Bradford Mortgage of NewBridge Bank.
“This is a national trend and a byproduct of the housing bubble burst, the economy and unemployment.”
In a short sale, the lender sells the property in question to another buyer for a discounted cost of the mortgage, which is accepted as payment for the loan allowing the borrower to avoid foreclosure.
“The short sale is for the client who has no way out, they cannot afford the home any longer, and they don’t have the wherewithal or the finances to pay the difference,” Efting said. “The bank then is faced with either foreclosing on this customer in six months, or we’re going to have to step in here to make it better for everyone.”
Efting described the process as more beneficial for all parties involved than a foreclosure, which is a drawn-out, expensive process.
“The borrower loses because their credit is harmed, the banks lose because more time has gone by on a nonperforming loan and the property is usually in worse condition, and they get less for the property after foreclosure,” he said.
The lender also saves a significant amount of money which would otherwise be spent on legal fees associated with the foreclosure process.
The short sale process, however, is anything but short, said David Fann of Century 21 Sweyer & Associates.
“It is crucial to find an agent who can navigate a sometimes cumbersome and bureaucratic process and make it understandable,” Fann said.
“But folks need to know that there are millions of Americans like them, and here in our market it certainly is not uncommon at all.”
Efting explained that the borrower pursuing a short sale must first write a hardship letter and submit financial figures and income and asset information as evidence of their inability to afford the loan.
“It’s almost like applying for a mortgage in reverse,” Fann said.
“It’s telling the bank ‘I no longer qualify for this loan, and here are the reasons why.’”
Because banks are being inundated with requests for short sales, Efting said the lender must carefully consider each situation before deciding which to accept.
“It really is for hardship cases, and like anything, people sometimes try to take advantage of the opportunity,” he said, “The banks have to protect their portfolio of loans and their investors, because if everyone did this, then the banks are going to be in a worse situation financially as well.”
Still, successful short sales are on the rise.
“I’ll be honest, banks are really stepping out and doing a lot more of these than I would ever have guessed,” Efting said.
Fann said awareness of the short sale process could be crucial for homeowners in crisis.
“There is such a need for homeowners to know that there are options available when they have some kind of hardship, and that there is relief available,” Fann said. “It’s also important for the community, so that we do not end up with a lot of homes that are foreclosed on and boarded up.”
