The next-door neighbor’s constantly loose pit bull was the last straw for Matt and Anne Sackrison, a dual-income couple who owned an underwater home in Warren and wanted out.
They moved to Warren in 2006 and the neighborhood deteriorated almost overnight as foreclosures engulfed nearby homes.
The new neighbors had late-night parties and loud fights like “Jerry Springer on steroids,” Matt Sackrison said. Their cars were broken into, and it had become unsafe for their toddler to play outside.
“The way things were going, we knew we had to get out,” said Matt Sackrison, 39, an automotive engineer.
The couple were roughly $100,000 underwater and ended up doing a short sale last fall. But, on the advice of their Realtor, they first bought their dream home in Troy and moved.
The safety issues and the second mortgage were the hardships that helped them qualify for a short sale, they said.
More short sales are going through as lenders recognize the benefits of avoiding foreclosure in the wake of the $25-billion settlement with five large banks and 49 state attorneys general over issues related to violations of federal and state foreclosure laws. The settlement makes foreclosures a last resort and ensures borrowers are evaluated for other options such as short sales and loan modifications first.
Short sales are on the rise in Michigan with some lenders giving cash incentives on top of federal incentives to delinquent homeowners with the aim of avoiding foreclosures.
It is called a “short” sale because a home is sold for less than what is owed on the mortgage. While many short sales take months, the process is getting faster.
And short sales are expected to become more common once the $25-billion settlement gets court approval.
Local real estate and finance professionals who work on short sales say it isn’t clear how lenders decide which homeowners to offer cash incentives of up to $35,000 to do a short sale. And lenders won’t share their criteria.
But Ken Mefford, 49, of Warren doubts he will be among them.
The quality inspector at the Dodge Truck plant in Sterling Heights fell behind on his mortgage after a divorce and pay cuts. He’s severely underwater on the three-bedroom bungalow that’s listed as a short sale at $34,500. He owes $105,000 and isn’t eligible for a loan modification.
“Even though the banks say they are trying, I’m sorry, they are not,” he said.
That could be changing. Lenders are taking a more serious look at short sales instead of foreclosures as a way to get those properties off their books, said Daren Blomquist, spokesman for RealtyTrac, an Irvine, Calif.-based foreclosure website.
“Short sales always seemed like one of the best solutions for a bad situation,” he said. “There are still more foreclosure sales in Michigan, but those are heading down while short sales are heading up.”
Short sales rose 8.6% to 7,784 in metro Detroit last year, according to Realcomp, a Farmington Hills-based multiple listing service. They accounted for 15% of all sales last year in the metro area.
Short sales take longer to get from listing to the closing table than a regular sale — 176 days for a short sale last year compared with 116 for total sales, Realcomp said.
But some are going through a lot quicker, depending on the bank, said Sarah McMasters, a short-sale negotiator for 1st Choice Title Services in Troy.
“I had one short sale a couple months ago that was approved in two weeks,” she said.
And McMasters said that in some cases, the lender offers cash back if the homeowner does a short sale. She’s seen a lender offer up to $17,000 on one deal.
Andy Hargreaves, a Plymouth Realtor with Coldwell Banker Preferred, said that lenders are reaching out to homeowners who are in some stage of foreclosure that fit their criteria for the cash incentives. The homeowner also gets a full release of the deficiency, he said.
“This saves them money as it is cheaper to do a short sale than to complete the foreclosure,” he said.
Chase, Bank of America, Wells Fargo, Ocwen and Citi are lenders McMasters has dealt with that are offering cash incentives to some customers who agree to short sales. But the lenders don’t share their criteria for choosing who gets the incentive, she said.
“It’s a slippery slope to talk numbers, because every situation is different, and you don’t want to set expectations that everyone is going to be offered the same deal,” said Jeffrey Lyttle, a Chase spokesman.
Chase has offered such incentives since October 2010, he said. It also participates in the government’s Home Affordable Foreclosure Alternatives program, which offers the $3,000 incentive to homeowners and $1,500 to lenders. Chase handles 6,000 short sales a month nationally and has done more than 5,500 in Michigan since 2009.
Bank of America is offering cash incentives in a pilot program in Florida, but nothing in Michigan yet, said spokesman Rick Simon.
If the bank goes to foreclosure, its costs escalate. It has to pay attorney fees, the water bill and any taxes owed on the property until it sells.
It also is responsible for securing and maintaining the home. Losses can mount if the home is vandalized or stripped. In contrast, a short sale ends the lender’s involvement with the property.
“With the short sale, they get rid of the portfolio, the borrower, everybody. The borrower can’t resurface to hold them accountable in the future,” said Ellen Mahoney, president of Complete Title Services of Southeast Michigan’s loss-mitigation division in Birmingham.
She said short sales are moving slightly faster now than they were a year ago, but it is still going to take 45 days minimum to get a file through the bank’s underwriters. And loans with second mortgages and mortgage insurance continue to backlog the system.
Some lenders require a homeowner to be delinquent on payments, while others do not, she said.
The Sackrisons said they never missed a payment on their Warren home and barely saw a ding against their credit. But buying a new house before selling the old one does have its disadvantages.
“You run the risk that the lender will say no to the short sale and you’ll have two houses,” said Matt Sackrison. “Ours was definitely best-case. If we hadn’t done it, we’d still be sitting in the old house miserable.”
They closed on a six-bedroom home in Troy last October and had an offer on their three-bedroom Warren home with 1,536 square feet in November. It was a cash offer and their lender, Ocwen, accepted it within two months. The new $180,000 home has 2,524 square feet and backs up to the school where their son Nolan, 4, will eventually attend.
William Elias, broker/owner of Elias Realty in Livonia specializes in short sales. He said some lenders such as credit unions and some smaller banks won’t cooperate with short sales. But the larger banks have standard practices for the transactions and they are getting easier for homeowners, he said.
“The homeowner has two choices. Get very comfortable to stay in that upside-down mortgage for a very long time with no way out, or make a business decision to purge themselves of a bad investment,” he said. “The potential credit impact is temporary.”
Contact Greta Guest: 313-223-4192 or gguest@freepress.com
More Details: Short sales
Looking to sell your house for less than you owe?
• Experts advise using a real estate agent or firm that specializes in short sales.
• Banks have unique programs and different policies regarding short sales, so research what is allowable by the financial institution that holds your mortgage.
• Get a second or third opinion about short sale advice you might receive from financial advisers or real estate agents, particularly if it involves intentionally missing mortgage payments or buying a second home before a short sale on the first home has been approved.
• There are federal incentives available for some homeowners and banks for selling a home at a loss rather than allowing it to move into foreclosure. For more information, go to making home affordable .gov and click on the “Explore Programs” tab.