Complicated, lengthy bank process a larger part of housing scene

September 16, 2010 


Chelsea Irvine, 27, working on her first house, a real fixer-upper in Sacramento, California, on August 27, 2010. She spent six months mired in a complicated short sale transaction and finally closed escrow in July. (Manny Crisostomo/Sacramento Bee/MCT)


SACRAMENTO -- Bill Joyce starts every short-sale journey with "the speech." In a what's ahead warning to home buyers, the Roseville real estate broker promises something resembling burning deserts, howling winds and crops destroyed by hail. Buyers will be tested and tortured, he tells them. They will endure privations beyond all expectations.

And then they might fail.

"All the things you normally expect are suspended," Joyce said of changes sweeping the distressed housing market. "There's a new set of rules that apply here."

That's because short sales are back and bigger than during the troubled 1990s.

In short sales, lenders accept a sales price below what they're owed. For a bank, that's often cheaper than foreclosing and reselling the house in an unstable market. Typically, sellers in short-sale situations are behind on payments and owe more than the house is worth. Selling short is a way to move on with their lives, minus the serious credit damage of foreclosure.

In his speech Joyce warns buyers to drop any ideas about themselves as center of the universe. In short sales they're just bit players in a larger drama.

"The buyer is really sort of along for the ride in somebody else's transaction, this loss mitigation situation between the seller and the lender," he said. It's all about "a borrower negotiating a solution with the lender. The buyer is not the primary party," he said.

Short sales are a phenomenon that reappear like clockwork when real estate sours. Alongside repossession listings, short sales are defining a new reality in which banks sell most area real estate, not your mom and dad moving to San Diego.

Even this far into the housing crisis, many real estate agents barely understand short sales. Buyers often endure waits of six months or more to close a deal. Neighbors dislike their vicious hits on property values. Banks, too, find short sales difficult, a minefield of competing parties and interests. Yet they are necessary to unload problem houses.

It all means that any buyer serious about getting a house in 2010 is likely to reckon with them during the search.

Thousands of buyers have scored fabulous deals with short sales. Thousands of others have learned the ropes the hard way.

"That was the worst nightmare," said Pauline Huerta, describing an offer she made last year on a house in Natomas. She and her husband, Felipe, waited nearly a year for a decision. But the $175,000 home that captured her heart went into foreclosure instead.

"It caused us to wait and lose out on other homes. It was a big waste of time," Huerta said.

The Huertas then bought a house the old-fashioned way. Their offer was accepted in 10 minutes, and they moved in recently.

As a new century gets on its feet, the inexplicable dimensions, frustrations and utter surprises of short sales have done more than frustrate everyone connected with them. They've become part of local culture. Adventures in short sales are making their way into family stories to be told for years.

Maybe the homeowner filed for bankruptcy at the last minute.

Or the buyer had the truck loaded and saw no sign an angry seller was packing to leave. Or at the last moment, a secondary lender asked for an illegal payment outside of escrow and scuttled the deal. Such short-sale lore is a favorite blog topic.

Consider a recent post titled "Torture!" Chelsea Irvine, 27, of Sacramento wrote about being five months into a short sale, and waiting for action on her $160,000 offer in midtown.

"Every day I drive by the place and see it sitting there, getting older and more lonely by the day," she wrote on her blog in June.

"Sometimes I try to block it from my mind by blaring a little Jamiroquai or Stevie Ray. But no matter what I try," she said, "my eyes always wander to my little shack by the road."

Irvine's journey ended well. She closed escrow in July. Now in the throes of home improvement, the legislative assistant for a lobbying firm said, "I love the house. It's one of the reasons I stuck with it. But oh, what a miserable experience."

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