By Alejandro Lazo, Los Angeles Times
January 8, 2013, 7:18 p.m.
When housing prices first went off the cliff, most mortgage lenders refused to cut deals with homeowners, choosing instead to repossess homes on a grand scale.
Five years and billions of dollars in losses later, many banks can’t cut those deals fast enough, writing off large chunks of mortgage debt and even paying homeowners to move out.
In recent months, short sales — in which banks allow homeowners to sell for less than they owe — have surpassed sales of foreclosed homes in California for the first time since the start of the housing crash in 2007, according to real estate research firm DataQuick. The transactions now represent about a quarter of the market, a surge driven by rising home prices, government crackdowns on foreclosures and banks’ increasing capacity to process the deals.
Lenders have revamped short sale departments, streamlining paperwork, creating new software systems and enlisting newly formed companies as liaisons with borrowers. Some institutions are even paying homeowners sizable sums to move, similar to “cash for keys” arrangements used as an alternative to eviction in foreclosures. Bank of America pays up to $30,000 in relocation assistance for certain successful short sales. JPMorgan Chase will pay up to $35,000. Wells Fargo offers similar aid, though it declined to specify an amount.
When William Morrison asked Bank of America to approve a short sale on his Seal Beach condo, the lender obliged in October — letting him sell for about $192,000 and forgiving an additional $98,000 he owed on his mortgage, according to public records. The bank threw in enough relocation assistance to cover one month’s rent and the deposit on a new place.
“They gave me $3,000,” Morrison said. “And that is exactly what it cost me to secure a little studio apartment in Seal Beach, pretty close to the old place.”
The surge in short sales stems in part from last year’s national mortgage settlement with the nation’s five largest banks. To avoid going to court over foreclosure improprieties, the banks agreed to certain levels of debt forgiveness for underwater homeowners. Short sales count toward those commitments.
But the trend also marks a triumph of economic common sense. Short sales have long been less costly to banks than foreclosures. Homeowners often remain in a property until a new buyer is found, which helps banks avoid maintenance costs and keeps out squatters and vandals. Moreover, many buyers of foreclosures expect a discount, whereas banks aim to get market value for short sales.
“In general, short sales produce less of a loss than if the property goes through foreclosure,” Wells Fargo spokesman Gary Kishner said. “In addition, the property is usually conveyed in better condition, which ultimately benefits the neighborhood.”
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