28 percent of all transactions in Elkridge were short sales or foreclosures.
Many economic forecasters believe that recovery from the Great Recession will be very difficult unless the housing market recovers as well.
“Elkridge has been hit hard because there was a lot of new construction there just before the bottom dropped out of the market,” said Yvonne Deardorff, vice president of Lakeside Title Company in Columbia. “Condos were especially hard hit. Some people have watched prices drop more than $200,000, [representing] over 50 percent of their home’s value.”
Owners in Elkridge hoping to sell newer homes often are competing against builders who are still selling new construction in their developments at drastically reduced prices.
Today’s market bears mixed news for Elkridge. Clearly, there are signs that the market is not well: In 2010, 28 percent of all transactions in Elkridge were short sales or foreclosures, compared with Howard County’s overall 22 percent rate.
On the other hand, while Howard County saw a 27 percent increase in distressed home sales in 2010, Elkridge experienced a 20 percent increase. (Real estate sales are counted as distressed if they occur by means of a short sale or foreclosure.) And although the absolute number of distressed sales remained small here–65 for Elkridge and 562 for the county as a whole–these numbers were significant given that distressed sales were all but unheard of in Howard County as recently as three years ago.
Short sales head off foreclosures
Historically, lending institutions would foreclose on mortgages and take possession of bad debtors’ homes. In strong housing markets, banks saw foreclosures as satisfactory solutions because properties commanded good prices and sold quickly. Foreclosures were generally viewed as an accepted cost of doing business.
In today’s market, however, foreclosures are dragging down banks, threatening to put them out of business. This is especially true in consumer-friendly states like Maryland.
“Maryland’s new foreclosure laws, on the books since July, are not bank friendly,” said Deardorff. “It can take many months to move through the foreclosure process, and when they go to foreclosure, they [typically] lose an extra 25 percent of the home’s value. Just the transfer taxes amount to 2.5 percent.”
In addition, foreclosures take up to a year to complete. “In Howard County, [foreclosures] are taking 60 days to be ratified after the sale on the courthouse steps,” said Deardorff.
Hence the increasing popularity of short sales. “Simply put, a short sale is one in which the bank accepts less for a home than the principal balance of its mortgage. It is a way for the bank to cut its losses,” said Steven James, a broker with James Real Estate Group in Howard County.
Real estate statistics bear this out. In Elkridge, for example, the average price for homes sold via short sales was $38,900 higher than the average price of homes sold through foreclosure.
Nonetheless, until recently, banks resisted short sales. “I just don’t think they were set up to do them. When short sales came along, they had to hire and train a new staff. That took a while,” said Deardorff, who estimates that 65 percent of her time is spent on short sales. She currently has 75 short sales pending through her law firm, Deardorff and Moon, which is closely affiliated with Lakeside Title.
“It’s getting easier to work through the short sale process; they used to take eight or nine months to complete, but now the lenders have expedited processes in place. Communications are better than they used to be,” said Deardorff.
Still, short sale approvals can get complicated “because the bank you may be dealing with often doesn’t own the mortgage, so there is a whole other level of due diligence and approval required by the secondary mortgage institution,” said Deardorff.
Typical scenarios
There is a lot of short sale fraud, according to Deardorff. Banks have to make sure that the seller is not related to the buyer and that there is a legitimate reason for the sale other than a desire on the part of the borrower to escape a poor purchase decision.
“We get a lot of people who want to do strategic short sales. They are struggling…and they know that market allows short sales, so they say ‘let’s try it now,’” explained Deardorff.
When lenders review short sale applications, they look for sustained life changes, meaning changes in borrowers’ lives lasting more than six months that affect their abilities to afford their mortgages. These may include death of a co-borrower, divorce, job loss, income reduction and illness.
Loan modifications
In recent months, some lenders have been willing to modify the terms of loans, including reducing interest rates, and, in some cases, even principal balances.
“Going into 2011, I see positive signs and good indications that our market is on the rebound here,” said James.
Currently, there are 14 active foreclosure listings in zip code 21075, of which 4 are under contract, ranging in price from $74,900 to $534,204.
“There is pain everywhere, including here,” said Nancy Corporon, a real estate agent and FHA 203(k) rehabilitation loan specialist serving the Elkridge area. The 203(k) program helps buyers purchase distressed homes and rehabilitate them by rolling the purchase price and cost of improvements into a first mortgage. “The upside of foreclosures is that they create opportunities for people with good credit and cash to buy and restore these properties to the community.”
Corporon added, “I purchased an uninhabitable townhouse in Elkridge at auction, refurbished it, and now it is a viable part of the housing stock.”
Article by Frank Hazzard in the Elkridge Patch (http://elkridge.patch.com)
The Federal Trade Commission (FTC) recently issued new rules that may impact real estate practitioners representing short sale clients involved in short sale transactions. Depending on certain factors, the Mortgage Assistance Relief Services (MARS) rules could require disclosures to consumers when negotiating a short sale with a lender or advertising short sales experience. The rules were issued to protect homeowners from mortgage relief scams that continue to spring up during the mortgage crisis. The most significant rule under the FTC’s new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect ANY fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies must also remind the consumer of their right to reject the offer without any charge.
