RGJ.com
Standing just a few feet away from what she calls her "dream home," Tara Free should be feeling like a million bucks.
"I just absolutely love this house," Free said. "It's an older home, but it's in a quiet neighborhood. It's got this huge backyard. It actually reminds me of my childhood, so it felt like home the minute I walked into it."
Instead of elation, however, the Sparks resident's mood is much closer to the gloomy rain clouds just overhead.
With preapproval from her lender and a willing seller, the house of Free's dreams is so close that she almost can taste it. And yet the house also feels oh-so far away.
To get the house, Free opted to go the short sale route. But like many short sale buyers, Free is learning that the meaning of the word "short" has nothing to do with the time it takes to close such transactions.
"Every time my Realtor calls Bank of America and tries to get a hold of somebody to get an answer, my agent is told to call back tomorrow and 'We'll have an answer for you,' -- and that's the answer we've been getting every day," Free said. "I have full approval (from my lender), all the inspections are done, and you have a negotiated price with a willing buyer and seller. Why am I sitting here five months later with everything done, and nobody's giving me a reason for waiting?"
Going short
In real estate, a short sale involves the sale of a property for less than the balance owed on the mortgage.
For borrowers and lenders, the transaction smacks of a classic compromise. Borrowers get to free themselves from their mortgage commitment with less of a credit hit compared to a foreclosure. In the case of lenders, they get to avoid the significant fees that a foreclosure entails.
In Free's case, a short sale also comes with the added bonus of getting more bang for her buck.
"Foreclosures are getting snapped up, but the price for these homes are also getting jacked up because of the demand," said the 27-year-old Free. "In my situation and with what I can afford, I can get more house for the price through a short sale."
Limited bank-owned inventory at the entry-level market also means many buyers have no choice but to consider short sales. As of December, short sales accounted for 31 percent of active inventory in December compared to 12 percent for bank-owned properties, said Jennifer Capurro, a real estate agent and president-elect of the Reno/Sparks Association of Realtors.
"If you're looking for a house under $200,000 right now, there is essentially no inventory," Capurro said.
A matter of time
Although short sales sound good in theory, they also come with one key caveat: time.
Capurro has seen some short sales take only 45 days. But she has also seen one transaction that took 14 months.
Through October last year, local data showed short sales took six months to close on average once the property is listed, Capurro said.
One primary driver for the length of a short sale transaction are rules and conditions set by whomever owns the note on the mortgage -- and it usually isn't the lender that originally issued it. Banks, for example, usually act as servicers for the mortgages they modify.
"For the most part, servicers don't own interest on the notes but are just servicing them on behalf of a Fannie Mae or a Freddie Mac or an investor," said J.K. Huey, senior vice president of Wells Fargo Home Mortgage. "And decisions on shorts sales are made based on the rules that the investor or owner of that note has on it."
In short, banks such as Wells Fargo or Bank of America have clear guidelines they must follow when servicing a short sale.
Then there's the potential for multiple lienholders having a stake on a property. If a house happens to have a second mortgage, home equity line of credit, other liens -- and all happen to involve different entities -- a short sale can't be executed until all parties agree to it.
Houses that have mortgage insurance also typically need the approval of the mortgage insurance company before a short sale can be approved.
Add everything together and you have the biggest challenge in the industry for short sales right now, Huey said.
"For someone unfamiliar with the process, they perceive it as delays or the bank holding things up," Huey said. "But in reality, we're just waiting for all parties to come to an agreement."
Not-so-short answer
Despite the potential headaches that come with it, more people are opting to give short sales a try, Capurro said.
One reason is comfort level. Although many people -- and even real estate agents -- didn't exactly know what a short sale was three or four years ago, the high number of distressed properties in the area has helped increase awareness about short sales.
Meanwhile, the limited supply of bank-owned foreclosures has led to more competing bids and counteroffers among buyers. With more buyers jockeying for a shrinking pool of houses, buying a foreclosed home can sometimes take just as long as a short sale, Capurro said.
If you decide to go for a short sale, however, it's important to realize it might take some time. The wait has been especially frustrating for Free, who took a second job and worked for years to get her finances so she could qualify for a home loan. After missing the initial deadline for the first-time homebuyer tax credit, Free now worries the short sale won't be finished by the time the tax credit extension expires at the end of April.
"I feel like I'm at a loss," Free said. "All I want is to buy a home that I'm perfectly capable of getting financing for. But every time it looks like we're ready to go, it just feels like I get the door slammed in my face."
Despite the difficulties, Free said she has no intention of backing out from the short sale. For one, she really likes this particular house. Tax credit or no tax credit, Free plans to stick with the whole thing till the better end.
"I've worked my butt off since I was 17 to live the American dream and buy a house," Free said. "I'm in a fight now. I will fight tooth and nail to get this house."
Questions? email scottbishop@windermere.com or online LewisBishop.com