Short sales offer troubled homeowners a way out

Lender must approve a deal for less than loan balance

Home is supposed to be your sanctuary — but for Jim Carbone, it was quickly becoming a prison, crushing him in debt and affecting his health.

Carbone’s home in West Chester Twp. trapped him in his second-floor master bedroom because he could not negotiate stairs. So in 2005, he and his wife, Marilyn, put the $280,000 property on the market and bought a condo in Fairfield that didn’t impair his ability to get around.

But just days later, the housing market crashed — and suddenly their old home was worth less than their $250,000 mortgage. For two years they fought the financial riptides that left their mortgage underwater and drowned them in credit-card debt.

“It was devastating. I mean, I was borrowing money every month; I was paying more than I was getting in,” Carbone said.

It’s a situation similar to the plight thousands of homeowners locally and nationally are facing in today’s sour real-estate market. When a loan remodification isn’t a viable option, to avoid foreclosure many homeowners are turning to the next best thing: the short sale.

What is a short sale?

In simplified form, a short sale is when a property is sold on the market for less than the loan balance. It requires the agreement of the lender to complete.

The transaction is far from simple. While many lenders are willing to consider a short sale in today’s market when a loan remodification isn’t possible, it can take months to negotiate, said Kristin Calendine, a real estate agent with Huff Realty who specializes in short sales.

“Theoretically, you are agreeing to sell the home for lower than what they owe, but in all actuality we are selling the properties at the market value of what they are worth today,” she said.

The average time it takes to complete a short sale, from buyer bid to closing, is four to six months. However, Calendine said she has seen extremes stretching from three weeks to 15 months.

While it may seem odd that a bank would accept less than a loan balance, it actually makes financial sense: according to data from consulting group Clayton Holdings, a foreclosure results in an average loss of 40 percent to the lender, versus 19 percent for a short sale.

Sellers must be careful, however, that no deficiency agreement is included in the short sale. This is where the lender requires the original loan holder to pay back the difference of the sale price versus the loan amount.

Calendine advises people to negotiate a payment in full or payment received in full value so that the bank agrees the sale price will be accepted as the full and final payment on the loan.

It also is important to note that it can take two years before another home can be purchased after a short sale per Federal Housing Administration requirements, especially if the homeowner was ever delinquent on loan payments before the short sale.

Helping homeowners move forward

The Carbone family took a somewhat similar approach to complete their short sale: Fresh Start Property Solutions.

The Sharonville-based firm takes a different approach to short sales by essentially purchasing the property from the homeowner at no cost, and then negotiates directly with the lender on what is owed on the mortgage. Fresh Start then sells the property later at a low — but profitable — price. The firm completes this service at no charge to the client, who is able to walk away without a mortgage or foreclosure filing in the end, said Tom Turvey, company president.

The company, whose primary territory is Butler and Warren counties, handles an average of 100 cases at a time and has closed about 75 this year. That’s more than six times the amount of transactions it completed in 2007, when it was founded.

The process is much quicker because while Fresh Start makes an average profit of 12 percent per property, it lists the home for less than market value, making for a quick sale.

“We help the bank because they want out from under it, we help the buyer because they don’t have a foreclosure on their record — and in addition we help the new buyer because they are getting a good price,” Turvey said.

For Carbone, it was more than getting rid of his old house; it was getting his life back.

“I feel like the weight of the world has been lifted off my shoulders,” he said. “It’s just amazing, you don’t have to worry about anything, you don’t have to do anything, you just put it in their hands and they take care of it.”

For more information on Fresh Start, call (513) 489-5333.

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