TBO.com - Tampa Bay Online
Short Selling Gets A Long Look
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Published: January 8, 2008
TAMPA - In February 2006, Kim and John Cataldo bought their dream home in Tampa's swanky Corey Lake Isles neighborhood. They paid $565,000.
But a year later, after their property taxes and homeowners insurance skyrocketed, the couple couldn't afford mortgage payments and put the house on the market. No offer was more than $500,000.
"By that time, real estate prices had fallen," Kim Cataldo said. "We didn't know what to do."
The Cataldos kept making payments, but were running out of money. They kept trying to sell the home, but the offers dropped lower. In November 2007, the lender filed a foreclosure lawsuit against the couple.
Their best offer from a buyer is $350,000. To their astonishment, the Cataldos say their lender is considering accepting it and forgiving the rest of the loan.
Real estate experts say this arrangement, known in the lending industry as a short sale, is becoming more common in the Bay area as the number of foreclosures rises and sales prices decline. Lenders, in an effort to avoid taking the home back, are increasingly accepting less than is owed.
The process can be significantly less expensive than foreclosure for both lenders and homeowners. And legislation approved late last month has sweetened the deal even further for those selling their homestead by lowering their tax burden on the sale.
"For the lender, it's all about the math," said Charles Richardson, who runs mortgage operations at CNBS Financial Group in Tampa. "Some lenders are willing to take a big hit now to get rid of the bigger hit in the future."
Debbie Ferraro of American Guardian Title in Tampa said lenders had been reluctant to accept short sales, but two weeks before Christmas, attitudes changed.
"Short sale business started going crazy," Ferraro said.
The Cataldos' real estate agent, Nick Davis of ReMax Premier Group in Wesley Chapel, isn't surprised. He closed 12 short sales in 2007 and now has 17 short sale listings. He has offers and is negotiating with lenders on six of them, including the offer on the Cataldos' home.
When the real estate market tanked last year and Davis' business dropped, he saw short sales as a way to continue selling homes. Now, he said, short sales make up 40 percent of his company's business.
"In 2007, we were still growing our business by 22 percent," he said. "That's largely due to short sales."
Ron Donalson, a principal with Alday-Donalson Title Agencies of America, also has beefed up business by specializing in short sale business. He travels the state holding how-to workshops for real estate agents. He said he stages the workshops for free, hoping the agents will, in turn, use his company for the title work.
In the past three months, he has held 31 such workshops and closed about 50 such purchases. Thirty more sales are pending.
"I'm trying to market a positive atmosphere," Donalson said. "Buyers can roll back prices to 2003. Basically, you're buying equity on sale."
For homeowners in trouble, a short sale can be a good alternative to foreclosure. It doesn't help them keep the home, but it can keep the black mark of foreclosure off their credit report. It's also a lot less expensive than going through the court system in a foreclosure lawsuit.
On Dec. 20, when President Bush signed the Mortgage Forgiveness Debt Relief Act, it got even cheaper for owners of primary homes. Before the legislation, homeowners who persuaded a lender to accept a short sale had to pay income tax on the loan amount forgiven by the lender. Under the new law, they won't have to pay taxes on the forgiven amount, up to the original mortgage amount on the purchase of the home.
"For homeowners, this is absolutely something they should look into," Richardson said.
But the process isn't always easy. Especially for investors who aren't eligible for the for tax break.
Tony Maltese, a local real estate investor, got in over his head in deals that went bad. He took out $3 million in loans on nine homes. One home has been foreclosed on, despite an offer for a short sale, he said, and another home is likely to be lost in foreclosure soon.
He's now working on two short sale deals, one for a home in Zephyrhills and one for a home in New York.
"I was reluctant to try this," he said. "But I'm trying to keep my credit from getting worse."
Reporter Shannon Behnken can be reached at (813) 259-7804 or sbehnken@tampatrib.com.
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Reader Comments
Posted by ( flbratt ) on January 7, 2008 at 9:47 p.m. ( Suggest removal )
The market sucks.......I am sitting on my home until the market comes back up. I feel sorry for all of the people out there loosing their homes. And something quick needs to be done!
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Posted by ( dmichaelmoore ) on January 7, 2008 at 10:53 p.m. ( Suggest removal )
The bottom line is that people who couldn't afford homes got financing they shouldn't have got and bid up prices.
Now the the tide has turned and prices may drop to levels below 2003...
And now good borrowers are paying for past borrowers/lenders sins.
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Posted by ( NEDLY ) on January 8, 2008 at 5:50 a.m. ( Suggest removal )
Now the lenders are working with the people after they ripped them off. They wouldn't work with anyone when the times were good though would they.
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Posted by ( RobKay ) on January 8, 2008 at 6:21 a.m. ( Suggest removal )
I'm very happy to see the people who caused the problem getting stuck paying for it - Thats Divine Justice!
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Posted by ( mcmurphy7 ) on January 8, 2008 at 7:42 a.m. ( Suggest removal )
It's partly the lenders' fault but it's also the fault of people who purchased homes they couldn't afford. I have no sympathy for any of them and I think that the bailout plan is a crock too. I think there should be reviews and prosecution of crimes in cases where mortgage documents were falsified. Those of us who purchased homes that we could afford using HONEST information will ultimately pay for all this through higher rates and taxes. THAT'S what's unfair.
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Posted by ( ad ) on January 8, 2008 at 7:51 a.m. ( Suggest removal )
I think the Realtors should have their feet held to the fire. Listing contracts should be looked at by the government. They have a totally unregulated monopoly. Suggestion: Realtor lists a house and sells it - 3%, list a house and another Realtor sells it - 3% to the selling Realtor, 1 % to the Listing agent. Stop the 180 day "Protection Period" after their contract expires and make sure they truly qualify potential buyers. I had a Realtor, who's contract I did not renew, "qualify" a potential buyer whose only funds were the "Nigerian Lottery" winnings he was anticipating and who started making offers the Realtor did not spot as bogus. I did, because I asked the guy directly where his funds were coming from. "Offshore" was the clue.
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Posted by ( baytradez ) on January 8, 2008 at 8:08 a.m. ( Suggest removal )
There's a lot of blame to go around. But, truthfully, borrowers got stars in their eyes, bought more house than they needed or could afford and now claim they didn't understand or realize how their mortgage would behave. In other words, they didn't read even the primary documents laid out for their mortgage. Now they want to say they aren't responsible. Being incapable of reading and understanding a contract and claiming not to be responsible for entering it is the definition of legal incompetence. So, are we as a people ceding our responsibility even more to the point now we shouldn't be held liable for our own bad decisions.
Yes, as mcmurphy stated, some were mislead, some falsified docs, etc. Most simply just made bad, greed based decisions and now the dice came up snake eyes.
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Posted by ( Desmo ) on January 8, 2008 at 9:23 a.m. ( Suggest removal )
Ultimately, it is the buyer's responsibility to know their limits of how much they can afford. It has been no secret that taxes are going up, insurance is going up and the cost of living is going up. I live in a house that is well below my means, by some standards that makes me less wealthy. I don't drive a fancy car and I don't have to bling my way through life for attention. I, however, will still have my house, my car and will be sitting just fine in the future, others that were sucked into the American dream of buying bigger and better are crying the blues. It's all about responsibility, something that seems sadly lacking in society these days.
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Posted by ( Tampa610 ) on January 8, 2008 at 10:04 a.m. ( Suggest removal )
Well said Desmo. I bought my house in 2006 at the top of the market but I bought something well below what the mortgage company said I could afford because I knew taxes and insurance and gas and electricty and everything else would rise and I wanted to be able to still have a life and not work myself to death. These people who buy large homes to prove something are learning a lesson I hope.
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Posted by ( hey_wilber ) on January 8, 2008 at 4:25 p.m. ( Suggest removal )
The Cataldos bought above their means and should be held to their responsibility and not bailed out by the lender. This only will cause a ripple effect and WE will be paying for their mistakes in the future. No one held a gun to their head to make the purchase, they are just a couple of morons trying to "Keep up with the Jones's". Lesson learned?
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Posted by ( hemi_girl ) on January 8, 2008 at 7:52 p.m. ( Suggest removal )
When a buyer comes to me with a pre-approval letter from a lender stating that he/she is preapproved for $200,000 and they are young people purchasing their first home, I always tell them not to buy the biggest house they can find. I tell them "you will want to take a vacation once in a while, or go to dinner or buy a new car and you won't have any extra money if you put it all into a home." Do you think 90% of them hear me???? NO!! They want the biggest, the newest, and they want to spend every dime that the mortgage broker says they can spend just so they can show their friends how "successful" they are. And then their friends come along and want the same thing. You can't tell these young people anything today....CorpExec is right.....they want everything without working for it....they want to start at the top and stay at the top at someone else's expense......the Catalbo's are a prime example of this new greed and we as the frugal taxpayers are going to end up paying the pied piper in the long run.
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Posted by ( jayblotner ) on January 9, 2008 at 4:28 a.m. ( Suggest removal )
this is a horrible situation for all of us, all because of the greed and speculation of the housing market, especially realtors and mortgage brokers.there should have been much more government regulation from day 1.
when banks have to "forgive" large chunks of loans, we all suffer, and the whole economy is further affected. debt forgiveness law is a very bad band-aid to what damage the housing greed. can I have debt forgiveness for my credit cards, car loans, and anything else I don't feel like paying. not fair at all.
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Posted by ( Repsolman ) on January 9, 2008 at 8:05 a.m. ( Suggest removal )
jayblotner,
Why is this a horrible situation for all of us? What you call greed and speculation is a supply and demand economy. No one tells people to overspend and get in financial trouble. The statistics I recall are that 95% of americans are not in trouble with their mortgages so it seems 95% of us are not in this "horrible situation". As for government regulation, a nanny state can't hold a monopoly on responsibility. In fact, part of the problem was government regulation that caused the lenders to have to offer more exotic lending practices so that percieved discrimination practices would be curtailed. This government intervention, as almost always, resulted in the law of unintended consequences. The fix for "I don't like the outcome" is not more government intervention but to learn the lesson and accept responsibility for your actions. I will tender that not all persons caught up in this are irresponsible. Some surely were nieve and lacked the experience to see what could happen. To them I say learn the lesson and don't let it happen again. If it does, you are just irresponsible.
As far as I'm concerned, if a debt is incurred through no illegal means, then the responsibility is totally on the debtor. Obviously if dupped via illegal means then responsibility also falls on the lender.
Being an adult means being responsible for your own actions. Mom and dad and big brother government are not. Life is hard, times can be hard, welcome to the world of an adult. Ahh... to be a kid again.
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Posted by ( rennug ) on January 9, 2008 at 1:27 p.m. ( Suggest removal )
What everybody fails to realize is that while you are getting to purchase a house in a short sale at less than what is owed, you are still paying what the house is worth! You might walk into a neighborhoold that a few years ago was out of your reach price wise, but you are not getting it with equity and in some cases still paying too much, not to mention it is a huge headache and not normally a 30day close and sometimes you end up in a bidding war instead of finding out right away a yes or no on your offer. You are better off not messing with these unless you have nothing but time on your hands, willing to take the property as is, and knowing that you are not able to get any concessions from the seller.
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Posted by ( Bobthebuilder ) on January 12, 2008 at 9:13 a.m. ( Suggest removal )
I live in FL and own a small company that builds quality homes. We have about 30 employees of which I'm about to layoff and I hope to have the company stay low for a while and survive this horrible period. I'm also losing my home and destroying my credit with all the business credit lines I 'I've personally guaranteed. I am not an irresponsible person, nor am I someone who deserves to lose my home. I am an educated man and worked hard to provide for my family. I am an unfortunate product of this market downturn as with most of the hard working people that now have either had to lower their income or are just not getting any at all.
In this market, I've seen Realtors on soup lines or church grocery giveaways, and I've seen subcontractors pawn all their equipment and some arrested for theft to help provide for their familes... Imagine your whole life turned upside down without any income and no work for 18 to probably 28 months. And there is nothing you can do about it.
Well, I'm sick and tired of everyone saying people deserve losing their homes because they did it to themselves. Especially when there are a couple of million people in Florida that will not only lose their homes but also their jobs and or companies.. Companies that have been around for 30 years and all revolve around real estate.
The market is effecting many people in many ways.. So open your eyes and don't be so focused on one thing. "Oh they bought the home and they couldn't afford it.. they deserve it " I would like you to look my 7 year old son and 5 year old daughter in the face and tell them they deserve it. Get some couth and see beyond your own prejudice and negativity. It is not about people living above their means, it is about people who are losing their jobs and soon after their homes. SHUT UP ALREADY..
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