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Highlands Today

An Alternative To Foreclosure

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By Gary Pinnell | Highlands Today

Published: October 27, 2007

SEBRING — An old approach to avoiding foreclosure is finding new life in Florida's depressed real estate market.

When a homeowner can't repay the loan, banks will sometimes accept a "short sale." That is, the mortgage holder will allow a real estate agent to sell the property for less than the balance of the note, and the remainder is forgiven by the bank.

"This is becoming more and more popular due to the rate of foreclosure," said Jenifer McMullian, a real estate sales agent with C.S. Edwards Realty Inc.

Grace Bloodwell, who writes for HowToDoThings.com, suggested asking a real estate agent to confirm the value of the property with a comparative market analysis. Then total the cost of selling the property, which may include mortgage payments, legal fees and closing costs. Subtract that against the expected sale price. If it doesn't equal the total of all loans against the property, consider a short sale.

Finally, Bloodwell suggests, talk to a lawyer and an accountant. There are tax implications in the short sale, just as in any real estate transaction.

The key, said McMullian, is to contact a real estate agent before foreclosure begins.

"We work with their lender," McMullian said. "Sometimes it works, sometimes it doesn't."

There are advantages to the borrower, McMullian said. "There are no fees, if the seller lists their home with us." That's the 5-7 percent fee real estate companies normally charge.

But here's a caveat to the seller: Real estate agents work for the buyer, the seller, the bank – whomever pays their fee. If the bank is paying the real estate fee, that means the bank is the customer.

A second advantage: the bank agrees to accept the sale price. An example: if the homeowner owes $230,000 on his house, and a buyer offers $200,000. The bank will not sue the seller – who may have other assets like jewelry or land – for the balance of the loan.

The third advantage: "If you have a foreclosure, the hit to your credit score is tremendous," McMullian said.

Increasing Numbers

McMullian said C.S. Edwards is short-selling more real estate these days, but declined to provide numbers.

W.D. "Chic" Acosta is the executive vice president and the residential lending manager for Seacoast National Bank, headquartered in Stuart, and has had the opposite experience.

"I'm not in the position to say that we have many opportunities to do this lately," Acosta said. "But in past lives, I have done it many times."

How much will the borrower's credit rating suffer? Acosta didn't have the expertise to talk about exact credit scores. Instead, he put it in banker's terms.

"To me, it's going to say he had a problem, but he worked it out with the lender," Acosta said. "If he had a foreclosure, I probably wouldn't be real interested in him as a future customer. When they shut off communication, that's when the bank starts putting things in high gear and starts moving along."

Foreclosure cases are up 26 percent in Highlands County, said Bob Germaine, senior director of court services for the Clerk of Courts. As of Oct. 26, 584 had been filed, but only 125 resulted in the sale of the property by the bank.

"We look at those big numbers and think, 'Oh my gosh, all those families are losing their homes,'" Germaine said.

But some are investors who decided the rent they could collect on a house wasn't meeting the monthly mortgage note. Others are from Sun N' Lake, which this year is repossessing vacant lots more than usual because owners – which include speculators – aren't paying the taxes.

In a short sale, Acosta said, all the involved parties must agree, which includes the mortgage insurance company. One reason why the seller agrees is because he wants to maintain as good of a relationship with the bank as he can.

No bank likes to lose money, and no bank likes foreclosure, Acosta said. So why would a bank agree to take $200,000 for a $230,000 property?

"To save time, court fees, and so on," Acosta said. A typical foreclosure takes six months to file legal papers and get the homeowner out of the house. The empty house might remain on the market for another six months, while the bank pays money to keep on the electricity and maintain the property.

"Not to mention the attorney's fees and the court costs," Acosta said.

"Everybody gives something up here," Acosta said. "The seller gives up the right to fight the foreclosure."

Higher And Higher

The number of foreclosures filed through Oct. 25, 2007 have already exceeded 2006.

YEAR CASES

2007 584*
2006 555
2005 397
2004 501
2003 460
2002 364
2001 306
2000 280
1999 333
1998 313
1997 318
Source: Highlands County Clerk of Courts

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