Hawaii Short Sales – Their Time Has Finally Arrived

The recently released U.S. Foreclosure Sales Report from Realtytrac, generally considered the de facto expert on tracking our nation’s foreclosure market, statistically confirms a trend that is evolving here in the islands and on the mainland as well.

The report dissects and analyzes the sales of distressed properties in the 2nd quarter of 2011. Remember that distressed properties are compromised of two components:

  1. REO properties that have been foreclosed on and are now owned by the banks
  2. Short sales—properties that are being sold for less than the amount owed to the bank after all closing costs are paid.

Many short sales are properties in the foreclosure process where the homeowner has not been paying their mortgage. (If a homeowner is current on his mortgage, but a hardship is pending, a short sale may still be a viable option.)

Some of the key findings from the Realtytrac national report:

  • A total of 102,407 pre-foreclosure homes (short sales) sold in the second quarter, an increase of 19 percent from the previous quarter.
  • A total of 162,680 REO homes (foreclosures) sold in the second quarter, virtually unchanged from the first quarter.
  • Short sales on average sold for a discount of 21 percent below the average sales price of non-foreclosure homes.
  • REOs on average sold at a discount of nearly 40 percent below the average sales price of non-foreclosure homes.

“Maybe less evident, however, is the good news in this report for distressed homeowners looking to sell, and even lenders saddled with large portfolios of delinquent loans. The jump in pre-foreclosure sales volume coupled with bigger discounts on pre-foreclosures and a shorter average time to sell pre-foreclosures all point to a housing market that is starting to focus on more efficiently clearing distressed inventory through more streamlined short sales—at least in some areas,” James Saccacio, CEO of Realtytrac, noted. “This gives distressed homeowners who do not qualify for loan modification or refinancing—or who are not interested in those options and want to sell—a better chance of completing a short sale to avoid foreclosure.

Streamlined short sales also give lenders the opportunity to more pre-emptively purge non-performing loans from their portfolios and avoid the long, costly, and increasingly messy process of foreclosure and the subsequent sale of an REO—which may end up selling for a lower price than it would have as a pre-foreclosure short sale, and in the meantime, further stresses already overloaded REO departments.”

Stats show evidence that short sales get more $$$ for the lender in a short sale vs. in an REO

In our state and on Kauai, non-judicial foreclosures have been in a moratorium since May 5th when Act 48 was enacted. This moratorium will ultimately result in a dramatic reduction of our REO inventory as the foreclosures are put on hold and restarted in our court system as judicial foreclosures. Of the 62 recorded real estate transactions on Kauai for August 2011, a whopping 48% of the transactions were distressed properties.

While the lion’s share of the 29 distressed properties sold on Kauai in August were REO properties, that number is going to greatly diminish as the REO inventory diminishes. According to a Moody’s report, compared to foreclosures, short sales are now a much “shorter wait” that helps loan servicers to mitigate the high loss severity associated with liquidating delinquent loans. Moody’s reports the incidence of liquidations through short sales “has increased dramatically” over the past two years from around 8% of all liquidations in August 2009 to 25% by midyear 2011.

If you are pursuing a short sale, whether as a buyer or seller, be sure to choose an agent who is well educated and experienced, so you will be satisfied with the results. For the buyer, the potential to get an excellent value is good, as long as you are patient. For the short seller, the potential relief from the financial burden, emotional stress, and forgiveness for the deficiency amount are some of the reasons that a short sale may be the best solution.

Certainly, the banks are becoming more familiar with this tune. My team currently services Oahu, Maui, and Kauai, and can provide you with a comprehensive list of opportunities to purchase in these markets. We are also here to assist sellers in successfully completing a short sale if you and we determine that is the most advantageous option for you. Give us a call, we are here to assist!

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2 Responses to “Hawaii Short Sales – Their Time Has Finally Arrived”

  1. Annie Mendoza, RS
    September 2, 2011 at 4:05 pm #

    Aloha Ron! So “the trend” is that there are going to be more short sales and less REO’s? Partly due to moratorium on non-judicial foreclosures? Mahalo!

  2. Heidi White
    September 14, 2011 at 2:49 pm #

    Great information Ron! When do you think the first judicial foreclosures will be processed and released to the market? It seems like the slow process and release of these new foreclosures might actually stabilize prices? Unless of course, these bank’s continue to price at the previous 40% below the non-foreclosure pricing. This ridiculously low pricing from the banks seems only to hurt Americans in general, and seems to drive the market lower.

    What is your take on the process and release of upcoming new phase of judicial foreclosures? It seems like a huge-new experience for Hawaii home owners of distressed properties. If anyone knows what to expect, it would be you!

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