Every time a bank makes a home loan, it creates a positive domino effect within local economies. Builders, architects, roofers, plumbers, furniture retailers and other companies reap the benefits as homebuyers spend their dollars. But today, these new home loans are no longer happening at the rate they should be. Homeowners are generally staying put and many owe more on their homes than they are worth. When they need or want to move, they’re finding they would have to bring thousands of dollars in cash to the closing. Most cannot afford it, so they continue to wait out the economy and hope home values will eventually recover.
Economists predicting home values will not return to their pre-2007 levels anytime in the next decade. That’s a long time to wait. This stagnation in new home loans and home-related transactions negatively impacts the economy. Homes need to be revalued at more appropriate levels so that families can move now and new homes can be built.
The value of a home drops by 1 percent, on average, if it is within 250 feet of a foreclosed home. This happens for multiple reasons. If you live near a foreclosed home, it may not be maintained and diminishes the appearance of the neighborhood reducing real estate value. Secondly, even without visible deterioration, such homes, when sold quickly for a discount, can affect neighborhood values because homebuyers and real estate brokers look at comparable sales when making an offer or listing a home.
The best way to get home revalued appropriately and back on the market is if upside-down homeowners understand the value of negotiating a short sale. A short sale occurs when the lender agrees to the sale of a home for an amount less than the outstanding mortgage balance. The sale is short of the payoff.
The lender’s approval is required because it has a lien on the property that must be released to allow for the transfer to the buyer.
In a regular sale, the mortgage would be paid in full and the lien would be released, but in a short sale, there isn’t enough money to pay off the mortgage, therefore approval from the lender must be received in order to release the lien short of the full payoff. Legal counsel can advise homeowners on their liability for the difference between the payoff and negotiated amount, as well as credit and tax consequences.
Short sales benefit the economy because they help maintain home values as high as possible. They also free homeowners to make buying and selling decisions for their individual circumstances.
The overall impact is that homeowners who do short sales are incrementally increasing activity in new-home building and loans, helping to revalue area homes, and keeping money local and not on Wall Street.