Short sales are being pushed as a win-win situation since the bank gets something, and the homeowner avoids foreclosure. To me it looks like a lose-lose-lose situation. Short sales hurt the mortgage company who loses money. The homeowner loses their home. Families that live around the property lose value in their homes since short sales and foreclosure drive down the values of the homes around it. This hurts families who did everything right, but are still pulled into a situation where they are also underwater on their home. Short sales are not going to stop the spiral of foreclosures that have contributed to the mortgage crisis, and although they might make sense for a particular property owner they can create their own problems.
1 in 6 homeowners, or nearly 12 million homeowners, are upside down on their mortgages. Experts believe that this number will climb to over 15 million in a year, and this figure could be higher if house prices continue to fall. This was reported in a story on ABC News Nightline on October 17, 2008 on the mortgage crisis. The story was on mortgages that were upside down or underwater, meaning that the house was worth more than what is owed. [full article]
Ed. Note – thanks to Jay Fleischman for the heads up on this article