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_DS News_ recently caught up with ""RealtyTrac"":http://www.realtytrac.com/home/ VP Daren Blomquist to him about short sales. Although data shows the alternative to foreclosure is becoming more widely used, anecdotal evidence points to frustration and difficulty when pursuing a short sale. So, we decided to have a conversation with Daren about the obstacles that get in the way of short sales, what can be done, and what the upcoming trends might be.
[IMAGE]*Q.* What do you think are the biggest issues investors face when trying to buy a home through a short sale?
*A.* Length of time it takes to close a short sale has for a long time been a stumbling block, and we're still showing that it's taking a long time to close on a short sale. RealtyTrac looks at the time a property starts the foreclosure process to when it sells and as of the second quarter of 2012, that's an average of 319 days nationwide, which is the highest we've seen it since RealtyTrac tracked the metric in the first quarter of 2007. So, the time it takes to close the transaction turns a lot of investors off. Investors also favor either buying at the foreclosure sale or buying once the property becomes an REO. I think another reason why investors are turned off is the competition from other buyers from short sales. There's more competition because short sale are a little more accessible to regular buyers than buying at a foreclosure auction. With a foreclosure auction, you're actually going to the court house steps and bidding on the property, and you usually have to pay cash. So, a lot of buyers aren't prepared to do that. With a short sale, they're listed with a real estate agent and on the surface they look like a normal resale property. I would add also that we're showing the average price of a short sale is higher than an REO, so investors can get a better deal when the property goes to REO than a short sale - part of that is a function of competition from other buyers.
*Q.* What are the biggest issues servicers face when trying to complete a short sale?
*A.* One of the big obstacles is when there are multiple lien holders involved or multiple outstanding loans on the property. Then, the servicer is having to deal with getting approval from the first lien holder and then getting approval from that second lien holder. This can be very difficult because the second lien holder wants to get something out of the short sale as well. I think another stumbling block is, and I think this is changing, is short sales were not one of the commonly used weapons in a servicer's repertoire, so they were not accustomed to using them. The default strategy in response to a delinquent loan was not a short sale in the past, so that has required a paradigm shift. I'm hearing more and more that servicers are committed to devoting resources to short sales and even reaching out to homeowners and giving cash incentives to homeowners to do short sales, so I think that's a positive sign.
*Q.* What is your future forecast for short sales?
*A.* We saw a sharp increase in short sales in the first quarter, 25 percent year-over-year, and I think we're going to see a record level of short sales in 2012. We had over 109,000 in the first quarter, and if we continue at that pace of about 110,000 every quarter, than we will end the year with more than we've ever seen in previous years in terms of those pre-foreclosure short sales. And I think we're likely to see elevated short sales into the end of 2013 because there's still a lot of distress that the servicers need to deal with, and short sales seem to be a more favorable option to them. One thing that could spur short sales this year is the expiration of the Mortgage Forgiveness Debt Relief Act of 2007, which allows homeowners who do a short sale and get their debt forgiven not have that forgiven debt be taxed by the federal government. That's an incentive for distressed homeowners to sell this year, assuming that law does not get extended.
*Q.* Do you have any suggestions for servicers on how they could make the short sale process more efficient?
*A.* I can't speak to all of their inner workings and how to make the process more efficient in that sense, but our numbers strongly indicate that a short sale is a better outcome for the servicers in many cases, so I encourage them to go down the path they seem to be going down, to keep pushing short sales, giving homeowners incentives to agree to short sales, and doing whatever they can to shorten the turnaround time. The average price of a short sale is about $25,000 more than the average price of an REO. Of course there are some variables in there, but just on face value, they're getting $25,000 more back on a short sale than an REO. And, they're going to avoid the messiness and additional costs involved with foreclosing on a property and with maintaining and managing that property. So, I would encourage them to continue to push for short sales. I think that would help the market over all to recover faster.
