Mortgage lenders, under pressure from a downward spiraling South Florida real estate market and steep loan loss reserve requirements, are becoming more receptive to short sale offers from discount buyers, according to a report from the consulting firm Condo Vultures® LLC.
A short sale occurs when a lender permits a borrower, who may or may not be current on debt service payments, to sell a property at a price that is less than the mortgage amount owed to the bank. A foreclosure occurs when a borrower falls behind on mortgage payments, and ultimately is forced by the courts to relinquish ownership to creditors.
Lenders increasingly see short sales as an effective way to unload troubled mortgages and avoid the costly and drawn out foreclosure process. Lenders also tend to shy away from the foreclosure process as banking regulations require financial institutions to shift capital into loan loss reserves, which drags down earnings for several quarters, reduces future lending capabilities, and possibly turns the bank into a landlord.
Still, the advantages of short sales come at a cost as lenders experience an immediate loss on the loan that probably will not be recoverable even with a court judgment. Some lenders as an added measure have taken to requiring borrowers to sign an unsecured promissory note for the difference of the amount borrowed and the amount that is paid off with a short sale.
"As the number of mortgage defaults rises rapidly, lenders are feeling a growing pressure to move nonperforming loans quickly and increasingly at a discount," said Peter Zalewski, a principal with Condo Vultures®."With the end of the financial quarter and the year 60 days out, one would expect to see a surge in short sale transactions."
In the 60 days since Condo Vultures® began tracking properties under a short sale and foreclosure category, the number of troubled residences has grown rapidly. Short sales (136 properties), foreclosures (105 properties), and short sales/foreclosures (88 properties) combined now account for 8 percent of the 4,321 residential properties in the Vultures™ Database, and represent a combined discount of nearly $50 million, according to the report.
The typical short sale or foreclosure property in the Vultures™ Database has had its average asking price slashed by 29 percent, or $151,818. The total price decrease for all short sale and/or foreclosure properties in the Vultures™ Database is $49,948,129.
A typical property in the Vultures™ Database by comparison has had its asking price slashed by an average of 19 percent, or $192,387. The total price reduction of all the properties being tracked in the Vultures™ Database is nearly $841 million. (Here is a link to the Vultures™ Database Report for October. )
The Vultures™ Database is comprised of properties east of Interstate 95/U.S. 1 from South Miami north to Pompano Beach in Miami-Dade and Broward counties. Properties are added to the Vultures™ Database when the asking price has been slashed by 10 percent or $100,000, or have been on the market for 100 days.
Condominiums account for 68 percent, or 224, of the 329 Vultures™ Database properties that are short sales or foreclosures. The average price drop for a condo short sale or foreclosure is 27 percent, or $126,689, for a total asking price reduction of $28.4 million.
Single-family houses and townhouses account for 32 percent, or 105, of the total number of short sale or foreclosure properties. The average price drop for a single-family house or townhouse offered as a short sale or foreclosure is 32 percent, or $205,426, for a total discount of $21.6 million.
Miami-Dade County accounts for four of the five short sale/foreclosure properties with the biggest drop in asking price. Condos account for three of the top five properties on the list.
A 54-year-old Miami Beach condominium with 1,120 square feet of living space has experienced a 74 percent price drop, ranking it as the top short sale and/or foreclosure opportunity in the Vultures™ Database. The asking price has slipped to $149,900 from a historical high of $575,000 in July 2006.
This same Miami Beach building is also home to the third largest price drop on the short sale or foreclosure list. The No. 3 property is a 1,464-square-foot unit that is currently being offered at $216,900, down 62 percent from an original price of $575,000.
The second biggest price drop (64 percent) for a short sale or foreclosure belongs to a Miami house with two bedrooms and one bath that is listed for $79,900 from a historical high of $221,000.
In the condo section of the Vultures™ Database, the top five short sale or foreclosure properties have had their asking price slashed by 74 percent in Miami Beach (see above), 62 percent in Miami Beach (see above), 56 percent (one in North Miami and one in Hallandale Beach), and 54 percent in Hallandale Beach.
An additional four condos on the short sale and/or foreclosure list have had their asking prices cut by 51 percent. These condos are located in Hallandale Beach, Miami, North Bay Village, Pompano Beach. Rounding out the top 10 condo short sale or foreclosure properties is a Sunny Isles Beach unit that has had the asking price cut by 50 percent, or $301,000.
In the database’s single-family house and townhouse section, the five greatest price drops for a short sale or foreclosure property is a 64 percent drop in Miami (see above), a 58 percent fall in Fort Lauderdale, 56 percent decrease in Hollywood, a 54 percent drop in Fort Lauderdale, and a 52 percent reduction in Fort Lauderdale.
Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com.
Copyright © 2007, Condo Vultures® LLC
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