It's A Sign of the Times

The rubber has hit the proverbial road and the economy is in shambles. It seems the road to recovery is not only a long one, but one that is far away from where we are today, in 2010. Jobs are scarce and money is tight, creating a situation where homeowners owe more on their property than it's worth. As a result, short sales can be an attractive and cheaper way out for investors, banks and owners than going through foreclosure.

According to Core Logic, a Santa Ana, California company that provides services to the real estate and mortgage markets in the US, short sales are projected to burgeon to 400,000 in 2010. Short sales are becoming more and more common for financially strapped homeowners, the proof being in the numbers - short sales have more than tripled since 2008. It is likely that short sales will remain part of the routine method of selling homes while the mortgage industry tries to regain its moorings, according to Core Logic.

Short Sales

In a short sale, the seller is given a way out by the lender when both parties agree to sell the property at a loss. The seller is then able to escape the stigma of default and the weight of a debt that can't be paid. However, losses beyond the price of the house are incurred by the seller. Their credit scores suffer and all of the money paid in down payments and renovations is lost.

On top of this scenario, with home prices fluctuating like a heart monitor on an excited patient, lenders can be reluctant to agree to a short sale. If there is more than one loan on the property it means there are several creditors who have to be appeased, making the transaction a challenge. Another thing that puts lenders off short sales is the fact that many of them have been burned when they agreed to buy low and then property ended up being sold for considerably more money at a later date.

Nevertheless, the huge increase in the numbers of short sales indicates that lenders see this type of transaction as "a good compromise between foreclosures and trying to ride out the market," according to Richard K. Green, director of the USC Lusk Center for Real Estate. Mr. Green went on to say that short sales may have a positive effect on the job market because people who are not encumbered with property are more flexible and can move freely to expand their job search. So, perhaps at the end of the day, short sales may have an upside. Here's hoping.