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Instead of taking ov er hom es through foreclosure and then selling them , m any lenders are agreeing
to short sales, in w hich a hom e is sold for less than the owner owes on the m ortgage. (Joe Raedle,
Getty Images / July 28, 2010)
Real estate deals in which lenders agree to take less for a property than the balance on the
mortgage have tripled since 2008, a report says.
By Tiffany Hsu, Los Angeles Times
August 11, 2010
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Short sales soar in California, U.S.
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Sales of homes for less than the amount of their outstanding
mortgage debt have tripled since 2008, particularly in
California and the Sunbelt, according to a report released
T uesday .
Known as short sales, the increasingly common transactions for financially troubled homeowners are
projected to balloon to 400,000 in 2010, according to Core Logic, a Santa Ana company that
provides services to the real estate and mortgage markets. By comparison, existing homes sold at a
seasonally adjusted annual rate of 5.37 million units in June, according to the National Assn. of
Realtors.
In an economy in which jobs are scarce and a quarter of homeowners owe more on their property than it's worth, short sales are appealing to investors, banks and owners as a cheaper way out than foreclosure.
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Such sales will likely remain routine as the mortgage industry attempts to stabilize, according to the
report from Core Logic.
T hrough short sales, lenders and struggling homeowners agree the property will be sold at a loss, allowing the seller to escape crushing debt or the stigma of default. But in the process, the sellers watch their credit scores suffer and the funds they inv ested in down payments and renovations disappear.
And with fluctuating home prices, lenders can be reluctant to approve short sales. T he transactions
can be a hassle to execute, especially when multiple loans on a home mean a slew of creditors are
included in negotiations.
Also, lenders have been burned in some short sales when they agreed to a below-market sale price
only to see the property resold later at a significantly higher price.
Still, even though the number of short sales is still relatively small, the increase shows that lenders now view the transactions as "a good compromise between foreclosures and trying to ride out the market," said Richard K. Green, director of theU SC Lusk Center for Real Estate.
T he number of transactions has exploded to more than 160,000 in 2009 from roughly 96,000 the year before. More than a quarter of the transactions occur in California, with another quarter split between Arizona, T exas and Florida.
About 4 % of short sales are then resold within 18 months, according to Core Logic. T he firm studied
the short sales of more than 250,000 single-family residences over the last two years.
Short sales, Green said, could actually end up boosting the job market. Unemployed homeowners
who can escape underwater mortgages have an easier time moving around, expanding their job
search.
"In 2008, it was impossible to do these sales," he said. "But there's some regulatory pressure to get
stuff off the balance sheet. And lenders are less in denial now, coming to grips with the reality that the
economy isn't going to snap back."
tiffany.hsu@latimes.com
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