With the downturn in the housing market and the economy as a whole, many home owners were under water on their mortgage and owed more than the house was worth. This is never a good thing and if you have to sell or relocate to another area then you can have big problems as you will not be able to pay off your loan with the proceeds from the sale.
Also, figure in the Realtor taking 6% and you are even further away from the amount needed to satisfy the loan.
With that being said it is very important for homeowners to do all they can to keep their current home or to get rid of it with the least amount of damage to their credit and bank accounts. Some can try to rent out their properties or have friends or family gift them money to cover the difference, but often times these are just temporary solutions to a big problem.
What is a Short Sale?
One solution that can work is called a short sale. Essentially a short sale is where the bank agrees to take less money than what is owed and satisfies the mortgage. While the bank may lose out on some money, it is often much cheaper than going through the foreclosure process which can cost the bank $20,000 or more in most instances. The short sale is also much quicker and does not take too long to process once it is approved.
Getting Short Sale Approval
Getting the short sale approved is often the hardest part though. Many times there are 2 or 3 mortgages on the property and if the 1st mortgage is not getting their full amount that means the other mortgages are getting nothing. Other banks do not like to get nothing so they must either agree to a compromise or the other bank will just not agree to the short sale. This will derail the whole process as all the lien holders must approve the short sale for it to be processed.
While these are much better for the borrower, it is still a very stressful process. However, the HAMP program has required lenders to do all they can to stop foreclosures and help out borrowers who are struggling to meet their minimum payments. As you can see in the chart below, the number of short sales as increase quite a bit over the past 3 years. This is one tool banks can use to help home owners out.
The hardest hit areas were located in areas where real estate prices were increasing at 10% plus levels each year. Many areas in these states saw home prices double in just a few years as well. This was very unrealistic and if you continued that rate homes would be worth millions and millions of dollars in just a few more years.
Obviously things had to calm down and when the economy turned bad these areas took the hardest hit and home prices fell faster than they rose in the previous years. With the coasts and western areas taking such a nose dive it really hurt the local economies as well. No longer did these people have the money to eat out, buy home improvements, or other things they purchased when the going was good.
Even Perfect Credit Might Not Be Enough To Get a Mortgage
The hardest part in getting a loan these days is qualifying for one. The banks have become really strict with their underwriting guidelines so only the best borrowers can get loans. There are some good deals to be had in states such as California, Florida, Nevada, Oregon, and Arizona. These states were hit the hardest, but others such as Michigan and Ohio have seen areas hit hard as well. Many cities such as Stockton, Las Vegas, Miami, Eugene, Phoenix, and Cleveland are just a few that have seen a huge rise in short sales.
Now, many cities have short sale bus tours that take people to all the foreclosed or seriously delinquent properties in the area. The prices have dropped to a point where investors and bargain hunters are starting to look for some good deals on previously over priced homes. Others advertise these properties on local TV shows or radio ads. The market is really growing for short sale homes.
As you can see, 2010 is on pace to break many of the previous year’s short sale records and many expect 2011 to be bad before the market starts to balance itself out again. Whether you are interesting in investing in a short sale property or looking to sell yourself, it can be a useful in many circumstances.
Top 5 Short Sale States
Last 3 years short sale numbers compiled from various sources:
2010 (est. year to date)
California – 129,065
Florida – 74,006
Nevada -29,365
Oregon -18,036
Arizona-16,526
2009
California – 163,245
Florida – 79,458
Nevada – 25,369
Oregon – 19,214
Arizona- 15,125
2008
California – 112,065
Florida – 42,069
Nevada -18,006
Oregon -9,058
Arizona- 5,333
