Long on selling short
Sun Law Group PLC, a Grand Rapids law firm that assists homeowners with negotiating and coordinating short sale transactions, and Lighthouse Title Group, a Holland-based title insurance agency with offices throughout Michigan, have formed an alliance to offer a more comprehensive short sale and closing service solution to homeowners who are losing their homes.
In a short sale transaction, the bank agrees to allow the homeowner to sell his or her property for less than is owed on the mortgage. Laws and negotiations come into play over the matter of whether or not the bank will also release the soon-to-be ex-borrower from having to make good on the amount of the deficiency the bank incurred in the short sale.
"We don't get them in every case. It depends on the lender," said Cronkright, but he notes that the costs of not reaching a quick short sale agreement, forcing the bank to foreclose, can add up for the bank. Foreclosures require the bank to pay legal fees, noted Cronkright, and the process can be delayed by up to six months as homeowners have a right-of-redemption period.
Then there is the stigma attached to a foreclosed property.
It is arguable that most people in the market to buy a home today are expecting a foreclosed property to be significantly discounted, with many stories about foreclosed properties acquired at prices that would have been unheard of four or five years ago.
"A property really gets stigmatized once it's foreclosed, and especially once it's vacant," said Cronkright. "You have incidents where people trespass — they break in, and now they're squatters and they have to be formally evicted, under Michigan law."
In other cases, a vacant house may be broken into, the copper plumbing stolen and the interior vandalized. Preventing those scenarios entails the bank having to pay property management fees. Then there are commissions to be paid to the real estate agents involved in selling the home for the bank.
In the case of a short sale where the bank releases the seller from the deficiency, the bank is taking a loss on the property, but "they're going to eat it here — or there, right?" said Cronkright.
With a short sale and a willing buyer lined up, the bank can get much of its investment back more quickly and can simply be done with a bad situation, said Cronkright.
"Industry statistics are still showing that they get about 25 percent more, on average, in a short sale than if they go through foreclosure," said Cronkright.
"The number of short sale transactions has risen significantly in recent years, and we feel this trend will continue for the foreseeable future," said Bob Wuerfel, president of Lighthouse Title Group. "Short sale transactions are complicated and time consuming, and the title and real estate industries have struggled over the past year with providing these services. … The demand for assistance in this area continues to grow, and we are going to stay ahead of it."
In 2009, according to Cronkright, a defaulted mortgage in America was delinquent for an average of 319 days before it was resolved. "In the beginning of this year, it hit 507 days," he added.
He said his firm has received calls from individuals who said they had not made a payment on their mortgage in 18 months and still had not heard from the bank about it. "We say, 'Well, call us when you do,'" said Cronkright.
He said he does not see the situation changing yet, as far as the number of defaults go. But he said there does seem to be more willingness by banks to have a short sale discussion.
"The elephant in the room right now, with regard to residential real estate, is what's called shadow inventory," said Cronkright. "There is a tremendous amount of inventory that has not been reported by lenders or Fannie Mae and Freddie Mac that is going to hit the market in the form of additional foreclosed properties. It's called shadow inventory because nobody really has a sense for how many units there are. It's market dependent."
Standard & Poors March 25 report stated that shadow inventory now stands at $450 billion. "It would take 49 months to clear (that real estate) at the current sales pace, nationally," he said. "It's a wild landscape right now with regard to foreclosed properties."
"As a law firm, we assist homeowners with the short sale process, thereby alleviating the need for realtors and title companies to process the transactions themselves," he said. "You have to know what you're doing or you may open yourself to significant liability down the road. As attorneys and certified continuing education instructors in the area of short sales and foreclosures, we are experts in this unique area of the law and have developed the team and systems to provide complete services on every transaction."
The alliance between Lighthouse Title Group and Sun Law will allow both companies to offer short sale coordination and negotiation services throughout Michigan.
"Our organizations share similar leadership philosophies and common values and we are excited about this alliance," said Wuerfel.
Lighthouse Title Inc. has more than 60 title professionals and 18 offices throughout Michigan.