Have you ever had one of those mornings where you woke up in a good mood and couldn’t necessarily explain why? As I’m sitting here with my bowl of oatmeal and my cup of coffee I feel inexplicably happy. I’m not even going to analyze it or think it through – breathe in, exhale, breathe in, exhale. Wash, rinse, repeat (I love shampoo instructions, I really do).
So, seeing that I have an optimistic outlook this morning, I’m going to focus on something that I think is going to get better here in the not so distant future: short sales. At this point you’re truly thinking that I’ve lost my mind – was I one of those “alternative lifestyle” sorts that celebrated 4-20-2011 yesterday with reckless abandon? Nope. To me, it’s just another day on the calendar (although it does make for some good jokes here and there). In this case, I genuinely think that short sales are going to become easier and more expedient.
For those of you that aren’t actively involved in the mortgage or real estate industry, you may not be familiar with the term “short sale.” At it’s most basic level, a short sale is a transaction in which a seller accepts an offer from a buyer for less than what the property is currently worth. The Banks and investors that have an interest in the property must agree to take less than what they are owed and thus the amount they receive is “short” of the amount due. Because of the numerous players, regulations, red tape etc, the process typically drags on for months. Patience is not a virtue when it comes to short sales – it is a basic necessity to stave off insanity. Everyone that is involved with a short sale ends up feeling like they have been trapped in a sauna for days without water, food or a towel. In other words, they make you miserable and take away your dignity too. That’s probably a bit more dramatic than necessary but I think you get the picture.
One of the reasons that short sales can take so long is that Banks must decide if pursuing a foreclosure is a better option than allowing a seller to do a short sale. Will the Bank recover more money with a foreclosure? Will they be able to slap a judgment on the seller if they do a short sale? Each sale is unique and each has a myriad of options to consider. And here is why short sales are going to become more attractive to Banks in the near future – foreclosures are going to start being a bigger risk to them. The reason is a combination of legal action and sloppy record keeping.
When a Bank can’t show that a series of legally recorded transfers of ownership have taken place it makes it difficult for them to pursue a foreclosure. And, that’s exactly what has happened. The mortgage industry has relied heavily on a technology called Mortgage Electronic Registration System or MERS for short. Every time a transaction is recorded, every time a loan is sold, MERS keeps track of these events and records them and the history of a property is updated with the information. But, what happens if MERS doesn’t update transfers of ownership? A mess as it turns out.
In the next few months we’ll see more Banks streamlining their short sale process and taking steps to make the process easier and faster. Their motivation is purely practical: Banks may not be able to prove they have the right to foreclose depending on whether MERS kept an accurate record of ownership. But no matter what the motivation, getting these houses through the system more quickly will be better for everyone.
Now let’s hope the Banks wake up in a good mood when processing their list of short sales – now that would be something. Wash, rinse, repeat.