Foreclosures, short sales — are they a better buy?

Posted: Tuesday, May 20, 2008 - 10:00:01 am PDT
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By LINDA BALL
Special sections editor 

KOOTENAI COUNTY — There have been 138 notices of trustees sales since April 14.

That statistic comes from Anne Anderson, one of the owners of Lakeshore Realty and the Coeur d’Alene 2007 Realtor of the Year. Anderson and her staff have been tracking them, although she said many may never get to the market as foreclosed properties because some will be resolved before then. Those that are not resolved will be on the market in June, July or August.

Anderson said there was only one HUD foreclosure in 2007 and only one so far this year, primarily because most of the loans that were made during the 2005 peak were not government insured loans.

Gabriel Hern, branch manager of Golf Savings Bank, said the foreclosed properties are all across the board.

“Countrywide’s a big one, Bank of America, Fannie Mae — there’s a lot of them in Coeur d’Alene,” Hern said.

Another trend is the short sale, where the original mortgage holder doesn’t get a full return on the investment. Katie Marcus, a loan officer with Mountain West Bank, said they’re doing more new loans on properties involved in short sales than foreclosed properties.

“We don’t know for sure (how many foreclosures there have been) — in the paper we see them file the foreclosure notices, but it takes 90 to 120 days before they become available,” Marcus said.

She said short sales are tougher because the investors can’t determine where the bottom is, so sometimes they wait too long to accept an offer and lose the buyer. Or, many of the investors were involved in an 80/20 loan where the holder of the 20 percent second mortgage has a hand out, too.

Jaydee Miller, an escrow officer with Kootenai Title Company, has closed several short sale transactions. She said in the case of a first and second mortgage with the same lender they may negotiate each, but if it’s two different lenders, sometimes the first loan will be paid, but the second mortgage may take a negotiated payoff.

Miller said it’s better for the lender to negotiate a short sale rather than have the property go into foreclosure, because there are additional costs associated with foreclosure. She said some lenders look at the seller’s financial situation before agreeing to a short sale, because they need to understand why they should accept one.

“There is not a concrete formula,” Miller said.

Hern said typically when the seller realizes they’re going into foreclosure, they put the home on the market and the mortgage holder may take a short sale. But he agreed, they take a long time to process. Miller said some take up to 45 days to negotiate the sale.

“The departments that handle the short sales are understaffed,” Hern said. “It could take a month or two longer to have them sign off on the short sale. Sometimes they (new buyer) get great deals, sometimes not.”

It all gets down to whether or not the lending institution is willing to take the loss and write it off, Hern said. He added that there are often multiple offers on short sales in which case the lender can pick and choose or negotiate as they see fit.

Marcus said several of her loan originators at Mountain West have transactions in process that involve short sales. New buyers are either getting conventional financing or government loans such as FHA, VA or USDA, which are rural loans good in Rathdrum, Post Falls, Athol, Spirit Lake and other outlying areas. Many are combining these loans with Idaho Housing to get an interest rate of 5.39 percent.

“You no longer have to be a first-time home buyer in Kootenai County to get IHFA,” Marcus said.

Hern said many of the home buyers who bought at the top using an adjustable rate mortgage just can’t hold on when the rate adjusts, increasing the monthly payment. They also may owe more than the house is worth, so they just walk away.