Short sales are a waiting game

Forrest and Samantha Thomas have been waiting since May to learn whether their family can move into a four-bedroom home in southwest Santa Rosa.

His parents want to buy the home for the couple, offering $315,000 — a deal the current owner wants to accept, even though it is far less than the $550,000 she paid for the two-story house on Langeburg Street off Sebastopol Road.

The prospective arrangement is known as a short sale, an instance where the owner agrees to sell the home for less than the amount owed on the mortgage. The sale can't go through unless all the involved lenders agree to absorb a loss that often amounts to tens of thousands of dollars.

Six months have passed since the homeowner asked the lender to approve the deal, “and we still don't have an answer,” said Thomas, 25, an associate pastor at Sebastopol Christian Church.

The family has hung on this long partly because the property is “exactly what we want in a house,” Thomas said. But Samantha Thomas, 28, will give birth to their second child in January, so the couple has started to consider other homes.

The Thomas family is hardly alone in the waiting game.

In September, 669 Sonoma County houses and condos were in short-sale limbo, meaning the buyer and seller had agreed on a price but some contingency was holding up the sale. That contingency usually was a lender who had yet to decide whether to approve the deal.

Currently, it takes an average of 172 days — almost six months — from the time a short sale is listed on the market to when it actually changes hands, said Michael Kelly, an agent with Keller Williams Realty in Santa Rosa. That was nearly double the time compared to those residential properties not in short sales or back on the market following foreclosure, said Kelly, who examined sales data from the county's Multiple Listing Service.

Short sales are a small but significant part of the housing market. They made up 14 percent of all single-family homes sold between January 2008 and this September, said Rick Laws of Coldwell Banker in Santa Rosa. In comparison, 41 percent of sales were previously foreclosed homes later sold by banks, known as “real estate owned” or REO. The remaining 45 percent were sales from the regular, or “non-distressed,” single-family market.

Short sales were virtually unheard of five years ago, a time when home prices climbed to unprecedented highs and sent the median to a record $619,000 in August 2005. In those days, Laws said, financially strapped homeowners didn't need to make short sales because they could sell the property for more than they owed on it.

But in the past two years the county's median price has dropped steeply. It seemingly hit bottom at $305,000 in February and since has risen in fits and starts, settling in September at $350,000.

For those homeowners unable to make their monthly payments, a short sale can provide escape from the home without as bad a stain on credit as foreclosure, agents suggested. However, lenders in some cases still seek owners to repay some of the balance owed.

For lenders, the short sale may offer a smaller loss than going through foreclosure, said Dustin Hobbs, a spokesman for the California Mortgage Bankers Association. For example, foreclosure can mean greater legal and sales expenses and significant costs for the upkeep of abandoned homes.

Even so, the short sales process can be anything but easy.

Only 45 percent of the short-sale deals struck between a willing seller and buyer result in a completed sale, according to Laws, who analyzed transactions during the 21-month period ending in September. That compares with 94 percent of the bank-sold REO homes under contract and 72 percent of the non-distressed properties.

Short sales work for some buyers, Laws said, but “for some people I would suggest to you it's going to be disillusionment.”

On the bright side, lenders now appear to be taking less time responding to potential short sales than a year ago, according to several observers.

Getting an answer from a bank often remains difficult because there are multiple lenders involved, said Hobbs at the banking association. In recent years, home loans often have been “securitized,” essentially chopped up, packaged with other loans and sold to investors.

Thus, the asset manager working on a proposed short sale may need to contact investors as diverse as a pension fund in Norway or a Wall Street investment firm, Hobbs said.

“And you have to get them all to agree to the same conditions,” he said.

As a result, he said, many managers now are seeking lenders' authorization beforehand for terms that could shorten the time needed to approve potential short sales.

The prospect of lender action can turn a property from cold to hot.

On Tuesday, Platinum Realty manager Glen Hurley stood at a breakfast meeting of the North Bay Association of Realtors chapter in Santa Rosa. He announced that an asset manager had assured him of a prompt answer for short sale offers on a house on Woodhaven Drive in southwest Santa Rosa.

Hurley had been working since October 2008 with the homeowner, who had paid $530,000 for the four-bedroom property. Over the months, he said, the owner accepted five different offers from potential buyers, all of whom have “gone away in frustration” due to the lender's inaction.

But within two days of the breakfast announcement, Hurley said, he had received nine offers for the home, including some for $50,000 over the $229,000 listing price.

Nonetheless, the asset manager not only must approve the short sale, but also must win agreement from another lender who provided a second mortgage on the property. Lacking such agreements, the home likely will wind up in foreclosure.

In that case, “I would work on it for 13 months and get no money,” said Hurley.

Belinda Andrews, a broker associate with Century 21 in Santa Rosa, specializes in short sales and on average sells a home “three or four times before we finally close escrow.”

Even so, she said, short sales “work for a lot of people. They're just a lot of work.”

She pointed to the experience of Deborah Holden, director of Girl Scouts in Santa Rosa, who recently bought a townhouse from one of Andrews' clients.

In July, the homeowner accepted Holden's $162,000 offer for the property in the Woodgate Glen complex off West Third Street. It took until late October for the lender to agree, but the home recently closed escrow.

“I'm actually going to move into it next week,” said a relieved Holden. “I feel like the chosen few.”

You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com.