Foreclosures spark a new business: Specializing in short sales

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Peter Kaplan and Paul Montero of Re-Bound Properties LLC conduct short sales of properties, like this one in front of Harrison Avenue in Salem. Mark Lorenz

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May 19, 2010

By Chris Cassidy STAFF WRITER The Salem News Wed May 19, 2010, 06:00 AM EDT

SALEM — The foreclosure crisis has produced thousands of underwater homeowners, prompting two North Shore men to launch a business aimed at trying to assist them.

Rebound Properties started up last year inside a downtown Salem office, designed to help homeowners facing foreclosure negotiate deals with their banks.

The business specializes in short sales, an alternative to foreclosure in which properties are sold at discounted prices to avoid lengthy legal proceedings.

Owners Peter Kaplan, a consumer bankruptcy attorney, and Paul Montero, a real estate salesman, find buyers for properties on the verge of foreclosure, then negotiate with the banks to accept a price that is less than what is owed on the mortgage loan.

When it works, a short sale can help the homeowner avoid foreclosure, lessening the hit to a credit score. The bank gets some of its money back and avoids continuing down the costly legal path of foreclosure. And the buyer can close on a house at a discounted price.

Kaplan and Montero work on behalf of clients facing foreclosure, usually coming to terms that allow the seller to walk away without owing anything, Kaplan said.

"For them, it's better to have a short sale and bankruptcy than a bankruptcy and foreclosure," Kaplan said.

Despite signs that the economy may be improving, foreclosure activity in Massachusetts continues to rise. The number of foreclosures initiated by lenders rose 22 percent in March compared with the previous month, and 8 percent from a year earlier, according to a report by The Warren Group, which tracks housing data.

In Essex County, the number of foreclosed properties to date has risen more than 6 percent over the same period last year, the report found. The number of auction notices to date has soared from 18 last year to 50 this year.

That's a flood of properties that banks have to move on, in what can be a long — and pricey — legal process of foreclosure.

Short selling isn't a new concept, but it's one that is growing in popularity, Kaplan said.

At the beginning of the foreclosure crisis, banks were ill-prepared to consider short sales as an option, he said, but now many of them are coming around to the idea.

"Banks are getting set up to deal with this," Kaplan said. "They're beginning to understand that they should allow these properties to be sold for discounted prices."

For the most part, short sales are an attractive option, according to K. Brewer Doran, the dean of the Bertolon School of Business at Salem State College.

"In general, it's a good idea for the seller," said Doran. "It's often a good idea for the bank because foreclosure doesn't often net a good price, and it's expensive, too."

But sellers should also be aware of the fees that any third-party might charge to help orchestrate the short sale.

"One question I'd have is depending on the fee structure charged to negotiate," Doran said. "It might change the picture for the seller."

One thing that Kaplan and Montero hope to see more of is clients who emerge from the brink of foreclosure, repair their credit and go on to purchase a short sale of their own. That was the case with a Lynn client who was forced to file for bankruptcy about two years ago and recently qualified for a mortgage, Kaplan said.

"Hopefully, he's going to be a type of success story we see, someone making the full cycle," Kaplan said.

But both Kaplan and Montero predict the foreclosure storm will intensify before it eases.

"I don't see any sign that things are going to get better in the market," Montero said. "They're only going to get worse. ... Our ultimate goal is to get (our clients) to walk away with the least amount of damage possible."

Staff writer Chris Cassidy can be reached at ccassidy@salemnews.com.

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