Short Sales & Foreclosures in Reno

Foreclosures, REO's, Bank-owned properties...--everybody´s talking about it, many are afraid, some see opportunity. What do we do? Where do we go? What are we to believe?

Foreclosures have been steadily going up since January 2008 -- two and half years after the Reno real estate market collapsed in July 2005. There are many rumors out there that Reno is "flooded" with foreclosure listings.

While foreclosures have gone up, it's inaccurate to say that it's "flooding" our real estate market. If you look at the above graph, you will see that the number of foreclosures have been steady the past two years, apart from the seasonal increase that summer months bring.

As the news media continue to report a deteriorating foreclosure market, the fact is foreclosures in Reno is being eaten up by a very hungry demand:

Now, Let me be clear, I'm not saying the Reno Real Estate market has already bottomed nor am I saying we won't have more foreclosures in the future. Many are assuming that the banks are just acting like a dam in holding off more foreclosures from entering the market. Who knows, it may well be true.

Though it's wise to heed those warnings, we need to be careful in looking at those assumptions in a narrow lens, especially when supply is very close to a 5 year low:

Months supply of inventory (MSI) is less than 4 months in the $300,000 and below Reno market. That's half of the national average. A good sign that Reno real estate has good demand for houses.

When will foreclosures stop? I don't know. What I know is as early as now opportunities are starting to pop up. There are many deals out there that even if prices of homes continue to go down, you can get a home that has a lower mortgage payment than monthly rental rates.

One thing that I also observed with my buyers, the best foreclosures in terms of price and condition, don't last long in the market.

Buyers, if you find a really good deal, know that chances are you will have competition. Make your offer competitive. Don't be surprised if your low ball offer gets rejected off the bat.

Sellers, It may be a good time for you to sell your home. But know that it's still a buyer's market, you should price your home right and have the best possible showing in order to attract attention.

Every home buyer and seller has different needs and goals. My goal is to help you understand what's going on out there. Before making a decision, spend a few minutes looking at the facts and you'll be pleasantly suprised that often times it tells a different story to what you were told.

(AUGUST 2011 UPDATE: I just finished creating a Reno Short Sales exclusive page.

I´ve been working on short sales for almost four years now. I got started in 2007 when a group of executives from a local Title company went to the office to warn us of the headaches attached to a short sale.

Until that time, I was primarily a buyer´s agent. I saw that most agents didn´t want the hassle that came with a short sale, they were looking for someone to refer it to; I buckled up and decided to go for a ride.

Last year I closed 15 short sale listings—half of my total business. (My first "successful" short sale was at Sparks. One year and three buyers later, it closed. I tasted blood.)

It´s a mixed feeling for being both a casualty (going through a short sale of my own) and a benefiting from this trend (as an agent). But we really didn´t have a choice after the market tanked--it was just a matter of time when foreclosures and short sales in Sparks-Reno and the rest of Northern NV tumbled into the market.

Short sales is not for everyone. Personally, I wanted to cut my losses short—the mortgage payment was hurting me financially because I bought at the top of the market (lessons learned).

I also wanted to buy another home sooner than later--I didn´t want a foreclosure under my name.

Going through one myself and talking to hundreds of people about their short sale concerns, I've learned to never judge people on their decision to keep their house--no matter how "illogical" the decision might be to others. Our house is a precious thing.

But I only ask my client to put time and clear thinking to their decisions before making any moves.

Shayla: I am becoming a big fan of short sales over modifications because a person can turn around and buy a home with a new FHA loan as soon as one day after closing on the short sale. Of course, this is only an option if you maintainted (on time) payments to your lender, but I have seen several clients successfully do this. Obviously, if you can successfully short sale and then buy another home that is much more affordable, that is an ideal situation."

There are pros and cons in doing a short sale. The biggest advantage is you can buy a home sooner than if a foreclosure was under your name. The disadvantage is they have 6 years to go after you (banks).

A Short Sale occurs when a homeowner owes more on their property than the property is actually worth, but their bank agrees to accept less than what is owed as payment-in-full. In other words, the bank is willing to take a discounted pay-off in order to avoid the foreclosure process.

Because the alternative is foreclosure, and the foreclosure process is usually more expensive compared to Short Sale.

The primary benefit to a homeowner who participates in a short sale is avoiding the devastating effects of a foreclosure on their credit. If the loan is VA guaranteed, the successful completion of the Short Sale protects their VA eligibility for future VA mortgage loans.

A Short Sale is reflected on the homeowner´s credit report as something to the effect of, "Discounted Payoff, Paid-in-full". A Short Sale is less damaging to the homeowner´s credit than a foreclosure or a deed-in-lieu of foreclosure. *But recent reports tell us that the banks have the right to go after the difference in the home.

Q: Is a short sale supposed to be a painless alternative to foreclosure for anyone involved?

No. There are no painless alternatives. But it greatly helps that there is a better option than foreclosing your home. But every seller has different needs. Know that in a short sale banks can still go after you for the balance in your home. There are pros and cons.

IMPORTANT THINGS TO KNOW: (some excerpts are from: Reno News & Review´s "6 dirty little secrets you need to know about home foreclosure):

No. 1: Banks will not even talk to you until after you are late on payments. If a homeowner has not yet defaulted on their loan, the bank has little motivation to approve the short sale.

No. 2: A foreclosure incurs permanent debt. Whereas, your mortgage was secured debt. Personal debt is attached to your Social Security number. One of the biggest mistakes a homeowner in trouble can make is to panic and think they will be evicted tomorrow--then use their credit cards to make their mortgage payments. It is a short term fix that quickly turns into a nightmare. Credit card debt is personal debt.

No. 3: A short sale could be your only way out. Because of the Mortgage Forgiveness Debt Relief Act of December 2007, homeowners can walk away from substantial debt on a primary residence. (update: if you have a second loan they have 6 years to run after you.)

No. 4: Homeowners must prove that they do not have the money to make up the shortfall. This means sending in copies of all bank statements, tax returns, w-2s, and other supporting documents to verify that the homeowners is financially insolvent.

No. 5: Hire an agent who really knows what he/she is doing. Short sales are such a specialized branch of practice that most agents without this specific training and experience fail in their attempts at short sales. If the short-sale package is not submitted with the right information on the right forms and in the right order, it goes into the tall stack of 100-plus files that are never going to get looked at or touched.