GENESEE COUNTY, Michigan -- There's a common type of listing in today's local real estate market -- something other than a foreclosure.
Short sales, in which a lender agrees to accept less than what's owed on a mortgage, total about 15 percent of listings (nearly 800 properties) in the Flint Area Association of Realtors multiple listing service. That's near the level of foreclosure listings.
Short sale pros and cons
• Pros if you're a seller: Your lender agrees to accept less than what's owed on your mortgage, meaning you can usually lower the price of the house to be more competitive. You can usually walk away from the house without paying any fees (banks typically pay them). And thanks to the Mortgage Forgiveness Debt Relief Act, the deficiency (difference between what the house sells for and what you owed the mortgage company) shouldn't affect you at income tax time.
• Cons if you're a seller: Doing a short sale can hurt your credit score, but just how much will vary on your individual credit and how the lender reports your short sale to credit bureaus.
• Pros if you're a buyer: You can find a house at a great price.
• Cons if you're a buyer: You have to wait several months (three months or more is common) from the time you make your offer to sign your closing papers. And sometimes a bank may not accept an offer after you waited so long.
Source: Flint Journal research
As homeowners increasingly have trouble making mortgage payments, lose their jobs, move out of the area for work or significantly owe more on houses than what they are worth, they're looking at short sales, area Realtors say.
"Last year they really started to become popular," said Shane Adams, president of the Shane Adams Group at RE/MAX Select in Mundy Township.
Adams said the sales vehicle was rare in 2003, when he did his first short sale. But now such sales represent about 30 percent of his group's listings. That's up from about 10 percent last year, he said.
Short sales allow homeowners to avoid foreclosures, and often they can walk away from the sales without paying a penny because banks pay fees, such as real estate commissions.
The short sale process can save the seller tens of thousands of dollars, but there are drawbacks for both sellers and buyers.
A seller has to prove financial hardship to his or her lender and provide bank statements and income tax returns and should expect to see a hit on his or her credit report.
But for some, a short sale has become the only way to sell a house in a foreclosure-driven market. Adams said many short sales are priced similarly to foreclosures.
Nicole and Stan Droomer sold their Flint Township house in August 2007 through a short sale.
"We got in the same situation everybody else did, where you owe more than the house is worth," Nicole Droomer said. "We had an adjustable rate, and (the lender) wouldn't refinance it."
Mortgage payments that had been fixed at 7 percent shot up to 13 percent. Nicole Droomer said the short sale was the couple's only option, other than walking away from the house.
"But we didn't want to do that," she said.
Nicole Droomer recommends the short sale process for people who are considering giving the keys back to the bank but said you need a Realtor who "knows the ins and outs of short sales."
The Droomers listed their home as a short sale with Vanessa MacDonald of Tremaine GMAC Real Estate in Grand Blanc, and it sold in three months.
"Vanessa was awesome and knew everything we needed to do," Nicole Droomer said.
MacDonald said she's handled about 20 short sales in the past year and a half.
She said some people are turning to short sales because of "divorce, job loss, ARMs coming due and job relocations now because people have to leave the state because their spouse has lost their job."
Lenders are onboard for short sales in many cases because they might receive more money from a short sale than if the home went into foreclosure and they can get it off their hands faster, Adams said.
"If foreclosure is imminent, they're definitely willing to work with you," said Adams, whose group has more than 20 short sales under contract and is awaiting decisions from lenders.
Completed short sales have grown from 127 in August 2008 to 249 in April 2009, according to data from Realcomp II Ltd. of Farmington Hills, which tracks sales and listings throughout Michigan.
Short sales usually take three to six months to close from the time an offer is submitted, Adams said.
Buyers can save tens of thousands of dollars on some homes because of the competitive pricing, MacDonald said.
"The time to close is longer, but because the buyer's getting a good value on the home, they're willing to wait," Adams said.
Sellers in a short sale should expect to see their credit scores damaged.
A short sale is handled as a "serious delinquency" on your credit report and will hurt your credit score, said Craig Watts, a spokesman for FICO, the company whose scores are commonly used in consumer credit decisions.
But just how much your score will be affected depends on your current credit score, other marks on your credit report and how the lender reports the short sale to credit bureaus, Watts said.
The Mortgage Forgiveness Debt Relief Act of 2007 is giving relief to short sellers, who in previous years had to report that difference as income on their taxes. The act applies to debt forgiven on a principal residence from 2007 through 2012. But there are exceptions, and Adams suggests seeking an accountant's advice.
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