When Vasco and Mrjama Lukic’s American housing dream turned into a nightmare, they managed to escape through a long and complicated process known as a “short sale.”
The Yugoslavian-born couple and their sons built a home in West Orange, N.J., where they hoped to settle and enjoy the fruits of many hard hours of labor.
But when their son Goren was hurt in an automobile crash two years ago, he could no longer help his parents with the mortgage payments on the house. The couple quickly got behind on their mortgage—more than a year at one point.
With no other options, they turned to a short sale—in which the lender agrees to take less than the value of the mortgage to avoid the more onerous foreclosure process. For the Lukics, it was a long and emotional road that finally ended on Thursday, when they sold their home for less than half the original asking price.
“I couldn’t work anymore. They had to do everything on their own and they were struggling,” Goren Lukic said as he drove his parents to the closing on their home. “We called up the bank and said, ‘We can’t afford the house anymore, can you guys take it?’ They were like, ‘Why not?'”
Short sales, which have taken off in the past year, have become a way out for some Americans in trouble with their mortgage. But just as the concept is gaining favor, it is already running into problems—another reason why the housing recovery is taking longer than many had hoped.
Real estate industry experts say banks are becoming more reluctant to agree to short sales, in part because the change in mark-to-market accounting rules gives them less incentive to take less than the mortgage is worth. As a result, they say, banks are holding out for what Realtors say are unrealistic offers.
“Every Realtor I talk to tells the same sort of horror story making a buy offer,” says Rick Shargo, vice president of marketing at RealtyTrac, which follows housing trends. “Interminable delays of six weeks to three months are not uncommon, or banks rejecting a 20 percent discount at short-sale only to ultimately take the property back and market it at 40 or 50 percent lower.”
For their part, bankers say prospective buyers are trying to take advantage of the situation by offering prices that are too far below market value.
Indeed, not all of the accounts regarding short sales are horror stories.
Some, like the Lukics, were just happy to be able to be able to dump the property and get on with their lives. After putting the house on the market initially at a price that would help them recoup their investment, the family finally realized they needed to change their thinking.
“They weren’t able to sell it because they wanted too much money for it,” said Joel Zeichner, an agent with Jordan Baris Realtors in West Orange, which represented the family. “We convinced them they needed to come up with a more aggressive price.”