Every for-sale sign tells a story. These days, most tell about trouble making the house payment.
Yet in Sacramento, more such stories are ending with short sales and fewer with foreclosures. The numbers show it. In mid-May, 58 percent of homes for sale in Sacramento County were short sales and only 13 percent were bank repossessions, said Tom Beede, president and chief executive officer of Metrolist Services Inc.
"Short sales are more profitable for the banks and they're doing a better job of processing them," he said.
In short sales, lenders accept offers from new buyers that are below what current owners still owe.
But as short sales become the next big thing and promise to remain strong for five years or more, they're fertile ground for misbehavior, say real estate professionals and regulators. In today's Wild West of distressed real estate, short sales can appear as a game of everyone for themselves: scammers vs. home sellers, sellers vs. their lenders and even lenders vs. lenders.
Nearly 4,500 borrowers in Sacramento County are trying to do short sales right now. Here are just a few of the things to watch out for, and what players say they're seeing:
- Unlicensed short sale "negotiators" are approaching homeowners, asking for thousands of dollars up front to negotiate with lenders, said Tom Pool, spokesman for the California Department of Real Estate. Only attorneys and licensed brokers can ask for money up front – and only after the DRE approves the agreement with an individual seller. The DRE recently published a consumer alert about this and other scams.
- Real estate agents or these negotiators are lowballing offers to overwhelmed banks, a practice called "flopping." After the bank approves a short sale at a low price, the agent or negotiator quickly flips the house to a new buyer for much more. Elizabeth Weintraub, a Sacramento short sale agent with Lyon Real Estate, said would-be floppers often want to use their own title companies. That's a red flag.
- Real estate agents say banks are illegally seeking extra money in hidden side deals before approving short sales.
Here's how it works: A bank that holds the "second" loan, such as a home equity loan or down payment, asks a seller for more money without telling the lender that holds the primary loan. It's an unrecorded deal outside the escrow process.
"I'll say, 'I can't make side deals. It's illegal,' " said Edda Nix, a Lincoln short-sale specialist with Century 21. "They say, 'That's too bad. You can't get our approval.' "
"That's really a huge problem," added Gloria Borges-Valdez, a Lyon Real Estate agent in Sacramento.
- Some homeowners, especially savvy, well-off owners who owe far more than their houses are worth, are hiding savings and income to persuade lenders to agree to short sales. Many can afford their mortgages, said Coldwell Banker short-sale specialist Mike Toste of Roseville. But they also know it will take years to recoup their 2006 values.
Short sales do less damage to credit scores. They also make it possible to buy another house sooner.
Said Toste, "We turn away more people than we take on, because of their financial ability to pay (the mortgage). People just want out."
--Call The Sacramento Bee's Jim Wasserman, (916) 321-1102 or email him at [email protected]. Read his blog on real estate, Home Front, at www.sacbee.com/blogs.