Short Sales and Foreclosures-
If you are actively watching the real estate market here in San Diego- whether a
current owner, potential buyer or spectator to all the action, you should be aware
of the current conditions buyers and sellers are facing.
If you pick any zip code in the county and ask me to run a search for
you of homes currently on the market, the cheapest homes in that area
will most likely be of the short sale and foreclosure variety. What is
a short sale you ask? This is a situation where the owner owes the bank
more money than the home is currently worth...in other words they are
upside-down on the house. This has occurred all over San Diego for a
few reasons:
1- Many buyers in the past few years purchased homes with 100% financing- no money
down. This left the owner no buffer or cushion for changes in value.
2- Many buyers purchased with adjustable rate mortgages and now that
many of these "teaser" rates have adjusted, they simply can't afford
the new, higher monthly payment.
3- Owners that purchased before the market's big run up used their homes as ATM
machines and took all the equity out with refinances and lines of credits. Then
when the market dipped their safety net was gone.
So now these owners are in a position where they either can't afford to make the
payments or simply don't want to keep paying towards an asset that has fallen so
far in value (see the "Deal of the Month" below).
If the owner let's their home go to foreclosure or just walks away from
the property, their credit can be damaged for 7-10 years. But if the
owner markets their home for a buyer and then approaches the lender
with a solution to the problem, then they might be able to negotiate
their credit damage to 3-4 years. The lender still loses the difference
between the actual amount owed on the loan and the price the new buyer
is willing to pay but they avoid the time and cost of foreclosing on
the owner.
These short sales are all over San Diego and they look tempting since the prices
are so low. However it is important to understand that these short sales require
lender approval to be completed. Some lenders are willing to work with clients in
a short sale situation but other lenders are not cooperating. Also, the timeframe
for getting a response from a lender can really test a buyer's patience...we aren't
talking days but rather weeks and months!
