Short Sale Questions

Early morning south Cocoa Beach. Not many condos this far south.

A reader asked the following questions in response to the last post about short sales. He thought the discussion might be interesting to others. Thanks, Bob.

Larry, Thanks for the very enlightening short sale story. Some additional information on this mysterious subject would be appreciated by many readers..

In your stories I saw 3 points which appeared to me to be either not logical, not ethical or not legal.

I find it surprising condo fees are limited to 6 months. That is certainly punishing the other residents to the benefit of the banks. In other states I believe the fees can be recorded as a lien, which stays with the property until satisfied. At what point does the local real estate tax authority begin to act on unpaid taxes?

If a bank rep blesses the price of a listing, how can a full price offer be subject to negotiation? I've always believed that the most basic foundation of the system was the offering of a property at a price the seller is prepared to accept. I can see there is an initial need for the seller to demonstrate to the lender what the market value of the property is.

Since it appears the listing prices may not include other fees and taxes, how can a buyer approach a short sale with some handle on what the final cost will be? In addition to what exists now, it is impossible to factor in what could accrue over the 8 to 22 months it can take the bank to make up it's mind.

Bob

In answer to the first question about the limitation of 6 months of condo fees. The law allows for up to 1% of the original mortgage amount or 6 months worth of assessments to an association if a lender acquires title to the unit via foreclosure or deed in lieu of foreclosure. One exception is if a third party buys the foreclosure at auction. In that case, all past due assessments are due. In a short sale, all past due assessments are due but can sometimes be negotiated. A very detailed discussion can be found here. No it's not fair to the other homeowners but it is something that associations who attempt to play hardball during a short sale should consider.

I recently assumed negotiations with an association in a short sale at the request of the listing agent. They were holding out for around $4500 of past due fees and were refusing to accept less. After pointing out that they would only be getting $2040 in the event of foreclosure should the short sale fail, they quickly accepted my offer of $2850, the buyer and lender saved $1650, the association got $810 more than they would have and we closed the sale. Win, win win. Note: because of the still-accruing fees before the eventual foreclosure, the association's savings probably exceeded $3000.

The tax collector has a much simpler process for getting taxes paid than forecloure. They sell the tax certificate at auction to investors who pay the taxes in exchange for a high interest rate on the amount from the entity who eventually clears the lien on the property. That entity will either be the lender at foreclosure or the owner who catches up on the taxes plus interest. In some cases the investor forecloses on the property if the lien is not satisfied.

Question number two is a doozy. In my example, which was highly unusual, a faceless bank rep "approved" the reduction in asking price for the short sale but the actual approval still had to come from the loss mitigation department who came back with a much higher price. The only time that a bank issues an approved price in a short sale is after a contract has been submitted and gone through the process and the bank comes back with their number. This is the point at which many buyers walk away. Many become married to their original offer price during the long frustrating approval process and often withdraw their offer rather than come up to the bank's approved number. This is when the listing agent will put the property back on the market with "bank-approved price" in the listing commentary. The approval letters are typically good for only 30 days so another buyer who can perform quickly can step in and buy the short sale in a quick deal.

Short sale listings in the MLS have the notation "third party approval required". The listing agent typically does a comparative market analysis to determine fair market value and then lists the property somewhere below that number in order to generate an offer. The banks will not accept that CMA as evidence of value. They will, after receiving the short sale package with an offer, order a broker price opinion or appraisal. That is what they use to establish value. In a recent deal a Fannie Mae desk jockey used Zillow of all things to override an appraisal to the upside.

Question number 3; A buyer shouldn't try to factor in accrued or expected expenses. Just as what a seller paid for a property is irrelevant to a buyer, so is the amount of loss to the lender in a short sale. A buyer should only be concerned with how far below current value she can purchase the property.

Don't expect the lenders to act logically in short sales. Their methods and processes are often illogical and counterproductive. And for buyers considering short sales, don't make the mistake of assuming that all short sales are good deals. Some are overpriced. It is also worth considering that the psychic damage of the often long and draining process may add a bitter taste to an eventual success. Good luck if you decide to engage.

Comments and questions are encouraged.

Of all the times that I've been burned,
By now, you'd think I'd have learned.
________Jackson Browne

One step forward, two steps back

The brutally cold surf temp has climbed in the last couple of weeks but is still lingering in the mid to upper 50s. Pray for warming. Sea surface temp chart courtesy of Rutgers University Coastal Ocean Observation Lab.

The short sale process appears to be devolving. For one set of very patient buyers, seven months after writing the initial contract we finally made it to the closing table last week. And, this was with an experienced and skilled negotiator on the listing side. Even paragons of patience have their limits and another buyer withdrew a short sale offer this week after almost two years into the short sale quagmire. It's an interesting story.

I presented an offer for these prospective buyers on a short sale oceanfront condo in April of 2008. The listing agent worked with the lender, Countrywide, for eight months with no success and withdrew the listing. (We continued to look for other properties during this time.) Countrywide filed foreclosure notice on the condo in October 2008. The listing reappeared with another broker in February 2009 and I presented an offer from the same buyers in March. This time a law firm was handling the negotiations with the lender, so, we were hopeful for a better result. It was not to be and the buyers withdrew their offer this week, twenty two months after the initial offer. Meanwhile the past due assessments (over $20,000) and tax bill are mounting while the Countrywide short sale negotiators are, figuratively, rearranging the deck chairs on the Titanic.

Another short sale fell apart this week when the bank returned a "must-have" net higher than their year-ago number. This particular property was first listed in the MLS as a short sale in January 2009 for $119,000. After no showings for two months the price was dropped to $99,000 and an offer of $99,000 was received and submitted to the bank. Two and a half months later the bank returned with a price of $124,000. That buyer went away and the MLS price was raised to the approved price, $124,000. Five months later a bank representative called the listing office to ask what needed to be done to move the property. The listing broker suggested a price drop to put it back in line with the comps. Price was dropped to $99,000 but it received no action and, with the bank rep's blessing, the price was dropped again to $89,000. A full asking price offer was received and submitted with expectations of fast approval. Response was faster this time with the geniuses at Wachovia responding four weeks later with a must-have net of $117,000 which would mean a selling price of over $130,000 to pay off the back taxes and condo assessments.

Both of these cases will eventually be foreclosures. The accumulated past due condo fees in foreclosures will be limited to six months, hurting the associations and the neighbors and the banks will wind up accepting less than they were offered earlier for properties likely needing expensive repairs after sitting neglected for years. These three short sale experiences are not atypical and do reflect what a buyer or a seller in a short sale may encounter. All three of these sales had experienced negotiators on the sellers' side. Many short sales do close but a larger number (based on anecdotal evidence on the ground) never make it to the closing table, often for sheer incompetence on the lenders' part. I'm not encouraged that the short sale process will improve considering that the lenders have already had three years of heavy short sale volume to get their acts together and to figure out a process for mitigating their losses. Fail.

As I've encouraged in the past, if you choose to offer on a short sale, continue your search in the meantime. If the listing agent for a short sale doesn't have experience in the process, don't waste your time. Even with experienced negotiators, be prepared for a wait and frustration. Inefficiency reigns.

No you can't find nothing at all,
If there was nothing there all along.
___________Death Cab for Cutie

Mid February update

Today is February 23rd and 16 MLS-listed condos have closed in Cocoa Beach and Cape Canaveral in the month according to the Cocoa Beach MLS. Five single family homes have closed, at prices from $100,000 for a small Cape Canaveral cottage to $360,000 for a remodeled canal home with pool in Cocoa Beach. Highest condo sale so far was $900,000 for a new, 3 bedroom, 3.5 bath, 3000 sq. ft. 5th floor corner in south Cocoa Beach. No other condo sales recorded for more than $345,000 in the month. Sales of note included the following:

Short sale Magnolia Bay 3/3 for $300,000. Sold new in 2007 for $589,900.

Never lived-in Garden Bay 3/3 closed for $285,000. Was offered in 2007 for $550,000.

Short Sale Beach Club condo conversion in Cape Canaveral, a tiny 1/1 that sold newly remodeled in 2005 for $94,000. Closed this time as a short sale for $22,500.

Remodeled 2nd floor SE corner 3/2 Coral Sands in south Cocoa Beach sold for $345,000.

6th floor direct ocean Waters Edge 2/2 in south Cocoa Beach closed for $270,000.

Prices notched up slightly at Portside Villas with a 2/2 short sale closing for $88,000. This unit sold new in 2006 for $234,900.

And for some unknown reason, Rock Pointe on the river in Cocoa Beach was on fire with 4 closed sales so far in February at prices from $175,000 for a lakefront 2/2 to $300,000 for a big, direct Banana River 3/2 end unit.

The MLS is showing 113 condos as under contract with contingencies this morning with 71 of those short sales. New listings have been slower than is normal for this time of year, so, our inventory is still shrinking as sales continue to exceed new listings.

The recent prolonged cold snap appears to be over with temps back into the 70s and the snowbirds here in force and exerting their influence. Tee times are mandatory if one hopes to play a round at the Cocoa Beach Country Club and getting to the free coffee at the Publix grocery store is an even more difficult task, one I would not recommend for the weak or faint-hearted. Reports of scattered cobia south of here are starting to filter in, so, if you'd like to catch one of these very tasty fish, be ready for some of the most enjoyable fishing of the year as the water temps push up towards 70 degrees. Keep your eyes peeled for right whales which were also being spotted off our beaches last week.

Feel free to email me if you have questions or comments about Cocoa Beach or real estate.

"In the long run the pessimist may be proved right, but the optimist has a better time on the trip."_____Daniel Reardon

45 in a 35

That would be 45 degrees in a 35 MPH zone which describes my drive to the office this morning. Enough with this cold weather already.

I have written dozens of posts over the years about unrealistic sellers clinging to expectations of prices completely at odds with the state of the market at the time. While there are still plenty of LaLa Land dwellers offering properties at 2007 prices, there is an equal contingent of hopeful buyers with equally unrealistic expectations. No buyer should overpay for a property in these uncertain times but fantasy-based expectations may preclude a purchase from happening. A goal of besting the deal of the year could be an open-ended quest. Shooting for the best possible unit at the best possible price with goals based on recent comps and current market direction is a formula for success.

There are multiple buyers looking to purchase a condo in Cocoa Beach at any given moment, regardless of price direction, obviously more when prices are moving up. We began the current downtrend from the peak in prices in 2006 with well over 1000 condos available on the MLS in Cocoa Beach and Cape Canaveral. Buyers continued to buy as prices eroded but rather than buying anything available as was the case in previous years, they became more picky, preferring the best units and at better prices. Along the way, some sellers found themselves in trouble, underwater on their mortgages or both, and either pursued a short sale or just walked away. Those distressed properties were subsequently bought at great discounts to the earlier prices. Flash forward to 2010 and our inventory has been cut in half with a large portion of the distressed properties having been sold. Buyers still looking understandably want the same deal as the last guy but for some buildings or property types there are no distressed sellers left. With the supply dwindling many of the remaining sellers have taken an educated gamble by standing firm and waiting for a buyer willing to pay the going rate of non-distressed sales. Many of the buyers have taken a similar stance and are refusing good units at good prices, gambling on another distress sale in their target unit type. We have a standoff that could go either way but, with declining inventory, is increasingly tilting away from the deal-of-the-century buyer. I suspect that the fear of paying slightly more than someone else will keep many hopeful vacation homeowners from ever purchasing.

This post was prompted by two encounters with condo shoppers last week. One who announced at an open house that he was going to be buying oceanfront units for $60,000 and flipping them next year when the market rebounded. Never mind that there have been no sales at that price nor any listings close to that number. Good luck, Sir. The other couldn't understand why sellers weren't responding to his offers far below recent comps. Meanwhile 21 other condos buyers have reached acceptance on their offers since February 1 in Cocoa Beach and Cape Canaveral.

"EMOTION trumps intellect and logic more often than the other way around." comment on a discussion at Mish's Global Economics

The trend is your friend

The strong sales trend of the last four months is intact as we enter the busiest time of year for real estate sales in Cocoa Beach. As of this morning, Realtors have recorded 31 condos and townhouses closed in Cocoa Beach and Cape Canaveral in the month of January. With that number, January 2010 was the best first month for sales since 2005. Looks good for February as you can see from the chart above. Seven of the 31 were short sales and nine were bank-owned. The short sales were in all price ranges including the two highest sales. The nine foreclosures were all in the lower price ranges with only one over $200,000.

Five single family homes closed in the month. Of note were two waterfront Cocoa Beach sales. One was a small 2/2 canalfront on Cocoa Isles Blvd. in mostly original condition that sold for $220,000. The other was an open water Danube River 3/2 with some upgrades that closed for a jaw-dropping $250,000.

Don't forget the last nighttime launch of a Space Shuttle this Sunday.

"Deals are meant to be renegotiated."
___Carlos (husband of Desperate Housewife Gabrielle)

Great Expectations 2010

Let's compare January 25, 2010 to January 25, 2009. This year 57 contracts have been accepted since New Year's Day with 19 of them short sales. Last year saw only 39 contracts in the same period with 16 being short sales. Our condo inventory in Cocoa Beach and Cape Canaveral shrunk by 162 units since last January while single family home supply increased by 20. Closed sales so far this month have exceeded last January's total. That and the increase in accepted contracts so far is encouraging except for the low inventory. Unless the spring flood of new listings happens soon, the increase in sales will likely fizzle. Picking off the good ones at the moment is requiring even more aggression on the part of buyers.

MLS inventory Jan 25, 2009 Cocoa Beach & Cape Canaveral

Condos, all prices_____720
over $500,000_________94
Single family homes___108
over $500,000_________33

MLS inventory Jan 25, 2010 Cocoa Beach & Cape Canaveral

Condos, all prices_____558
over $500,000_________76
Single family homes___128
over $500,000_________48

OK, now for a couple of stories from the trenches for those of you who like that sort of thing.

I called a listing agent about a new oceanfront condo listing last week to get in and preview for an out-of-town buyer. She informed me that because there were tenants in the unit who wanted to be disturbed as little as possible that only pre-approved buyers would be allowed to view the unit. No problem, my client is paying cash and has bought multiple similar condos in the last year and is very interested in her listing. I have successfully put together several purchases for him by viewing the properties and sending photos and handling the purchase without his ever setting foot in the units. Not good enough. Only agents accompanied by their pre-approved clients will be allowed into the unit. What the..? This is the kind of idiocy that agents wanting to sell property are faced with daily. And I thought having to drive across town to pick up a key to show a property next door was annoying.

Then there's the group of siblings I met with last week about selling their recently inherited condo to an interested buyer. I provided them with the three latest comps in their building. They informed me that another real estate agent had "appraised" their unit at a number $65,000 above the recent sale of an identical floor plan in much better condition and that they wanted to net $88,000 more than that last seller. I replied that that was very unlikely to happen considering the reality of the comps. After an uncomfortable silence with all of them staring at me like I had just sprouted antlers, one of them stated that he had just read that the market was moving up and that their expectations were realistic. They did call back a couple of days later and said, after thinking it over, they'd accept a mere $38,000 above what the last seller accepted for his nicer unit. We'll probably see this unit listed on the MLS soon by the agent that gave the crazy high "appraisal". His strategy is a well-used one, lead sellers to believe that their property is worth more than it is, get the listing and wait for the market to deliver a dose of reality. Then you can start dropping the price and, hopefully, eventually attract a buyer and cash a commission check.

"Take nothing on its looks; take everything on evidence. There's no better rule."_______Charles Dickens

Trust your sources, or don't

A reader's comment on the last post about using Zillow for info on our market piqued my curiosity. I wondered whether the website that I long ago dismissed had gotten more accurate since it's arrival in 2005. Below are some random stats of recently sold south Cocoa Beach condos that I pulled from the site this morning. Readers can make their own decision on the relevance of the site as pertains to Cocoa Beach property values. The examples below would seem to infer that runaway appreciation is back and/or that some buyers are wildly overpaying. My take is that neither is true.

[The "Zestimate" is Zillow's estimate of a property's value.]

River Bend #403
Sold October 2009 __ $240,000
Zestimate Jan 2010 __$347,500

Windsong #101
Sold December 2009 ___$400,000
Zestimate Dec 2009 ____$273,000

Waters Edge #101
Sold November 2009 ___$245,000
Zestimate January 2010 _$333,500

River Villa #101
Sold August 2009 ____$268,000
Zestimate Aug 2009 __$182,000
______________________________
MLS Inventory January 23, 2010
Cocoa Beach and Cape Canaveral

Condominiums, all prices_____558
Condos over $500,000________75

Single family homes, all prices__127
Homes over $500,000__________48
______________________________

Many of the popular real estate sites on the internet do not have up to date information. If you'd like real time access to our MLS you can search all listed properties at brevardmls.com No need to put up with the lag time of the other secondary sites that can be as much as 30 days behind.

"I'd rather be hated for who I am, than loved for who I am not."
______Kurt Cobain

Warm again, and not a minute too soon

Halfway through the first month of the new year and a total of only eight MLS-listed condos and townhomes and two single-family homes have closed in Cocoa Beach and Cape Canaveral. Two of the ten were short sales. The MLS is showing 98 residential properties as contingent this morning in the two cities with 65 of those listed as short sales. We are still waiting for the rush of new listings from sellers who were waiting for the spring "selling season". There are, however, a couple of new listings of very nice non-direct ocean units in oceanfront buildings in south Cocoa Beach that appeared in the last week aggressively priced at $119,000 and $134,000. I toured a direct ocean, corner luxury unit this week also in south Cocoa Beach that is not listed but can be purchased for a very fair price, far below similar sized new units. And, if there's a quiet, well-behaved couple or small family out there who would like a furnished direct ocean rental in south Cocoa Beach for a few months or longer for an outstanding price, I know of one that will be available shortly. Not a condo. Email me for details on any of these.

In random news, Cocoa Beach has installed it's first red light camera at the light in front of Wendy's just north of the old Publix shopping center. I expect this thing to pay for itself rather quickly. The Cocoa Beach Holiday Inn became the International Palms Resort at some point in the last few weeks. Details are still sketchy. And, after a week and a half of freezing temperatures temps have moved back into the 70s today and the locals are downright giddy. In addition to damage to some tropical plants inland, the prolonged cold killed thousands of fish in the river, primarily snook, trout and tarpon. The redfish appear to have been less susceptible to the cold.

"A lot of people like snow. I find it to be an unnecessary freezing of water."
_________Carl Reiner