An in depth look at something happening more and more in the greater Nashua NH real estate market

You have probably heard the term “short sale”, maybe in relation to NH foreclosure properties.   A short sale is one of the alternatives to foreclosure to which a seller can turn when the seller is unable to continue to pay for their home. 

If a seller finds themselves “upside down” in their loan, i.e. they owe more against the property than it is worth, they can try and sell the property to a buyer and then go back to the bank and see if the bank will forgive the difference between what is owed and what the property will sell for.  Basically the argument to the bank is that they will take less of a financial loss if they sell it to a buyer on the open market as opposed to going through the process of hiring an attorney to foreclose on the home and then trying to dispose of the property at auction. Many times the property ends up back in their possession at which time they have to try and sell the property to recoup their loss.  This doesn’t happen instantaneously; sometimes it takes the bank months to get the property back on the market, all the time the bank has to pay the taxes, to insure it, to winterize it if necessary, etc.

Sellers prefer the short option when faced with an impending foreclosure because they don’t have a foreclosure show up on their credit report when they do a short sale.  Banks vary as to how they report a short sale to the credit bureaus.  Sometimes if they are lucky they may just see it as an account that is closed, other times they may report it as closed with a deficiency.  The net effect is that however they report it, it is usually better than a foreclosure.

Buyers can sometimes negotiate good deals with banks in a short sale so there is a decent chance they can get a good price on a home.   

It’s “win”/ “win”/ “win”, or maybe more like “less loss”/ “less loss”/ “win”.  So if it clearly makes sense to do this, why don’t more banks go this route instead of foreclosing on people?

My theory:  Because some bank decision-makers don’t weigh all the facts.

Some banks will simply refuse to even entertain this idea, electing to go straight to the foreclosure route and not return your calls in trying to come up with an alternative solution. They can assume that they will instead take less of a loss going the foreclosure route than if they accept the short.  Incidentally, every time I have been involved in a transaction where the bank rejected a short they ended up taking a larger loss at the auction. 

Part of this estrangement from market realities is rooted in lack of understanding of what the real estate market can be like in a particular price range and area. Also, banks can have no understanding as to what the real estate experts on the ground are seeing who are working with buyers and sellers each day in a volatile market.  Many times these decision makers are in another state in some office and don’t really know how the greater Nashua NH real estate market is reacting to a particular property. 

The bigger joke here is that banks can take a bad situation (the homeowner not paying) and make it a worse situation (homeowner not paying and then rejecting a short to foreclose instead).   If publicly traded banks have an interest in increasing shareholder value you have to wonder how taking bigger losses is in their shareholders’ best interest. 

The glimmer of light in this is the banks who do understand that the longer their “Non Performing Asset” stays in their portfolio the more money it costs them in the long run.  There are some of them so if you are in a situation where a short is an option, give me a call and I’ll see what I can do to help.  With any luck your lender will be one of the few that understand this.  As foreclosures rise, I wouldn’t be surprised to see more banks be open to the idea of a short sale and recognize it is in everyone’s best interest when that is the only other choice for avoiding a foreclosure.

Andy Benjamin
RE/MAX Properties
Licensed in NH and MA
603-674-5864 (cell – best way to reach)

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