I heard a story recently that is indicative of what is happening in the industry.
A homeowner’s loan was resetting to a higher interest rate so he went to refinance. For easy numbers let’s say his loan was for $220,000 but the home was only worth $200,000. The bank wouldn’t do it because the value was below what he owed. He didn’t have the money to make up the difference because he was stretched to the limit; so far stretched that he couldn’t make his reset payments either.
Now it was time to pursue a short sale. Six months had an offer for $190,000 – the market was still sliding- and the bank looked at it but wouldn’t take it. I wonder if they thought they could somehow get more money out of the deal but it didn’t happen as no one could bring more money in. They lost the buyer and the bank foreclosed two months later.
The owner, reasonably annoyed the decision by the bank, followed the house and learned that it sold for $175,000. One reason the bank will do a short sale is because it costs more money to go through the foreclosure process. Add on to that the bank took an offer less than what they had months ago just piles on to the losses.
Unfortunately this isn’t an isolated case. I see and hear about this happening all of the time and it is unlikely that you can charm into reason. Hopefully the short sales and foreclosures will slow down soon but someone reported that in her area, not Portland, that distressed properties only made up 20% of the listings but 50% of the sales. That is why it is rough for the typical home seller.
