Short Sales Prominent in Miami and Coral Gables Real Estate

posted on January 24th, 2010 filed under: Real Estate News

In a short sale, the holder of a mortgage note agrees to a sale of the property for less than the loan balance.  Of the 8,543 single-family homes in Miami-Dade County currently listed on the MLS, 3,115 (or 36%) are short sales.  Another 470 (5.5%) are listed as REO (i.e., real estate owned), meaning the lender has foreclosed and retaken possession.

The picture in Coral Gables is much less severe, with 41 of 456 listings (9%)  listed as short sales, and 8 others (1.75%) as REO.

Why have short sales become such a prominent feature of the landscape in the real-estate market in Miami and Coral Gables, outpacing traditional foreclosures?

Mainly, it’s because so many homeowners in Miami and Coral Gables are underwater on their mortgages — owe more than the property is worth — and nothing stops them from listing the homes for sale.  Simply listing a home for sale is easy compared to the foreclosure process that leads to REO listings.

Also, Florida is a recourse state.  That means if a foreclosure sale doesn’t cover the balance of the mortgage (plus fees), the bank can get a deficiency judgment.  In other words, the former homeowner is still on the hook, and could be pursued by the bank until the entire debt is paid.  With real estate prices down so much in Miami and Coral Gables, especially at the lower end of the market, a lot of people face that prospect.

The amounts involved can be stunning.  One person posted her story at a credit-counseling website.  She bought luxury condos, pre-construction, borrowing $500,000 on each, using no-income-verification loans.  The condos are now worth less than $250,000 each, leaving her potentially exposed to a deficiency judgment of more than $500,000.  She has no other assets.  Wonder how long it would take her to pay off a $500,000 debt (plus post-judgment interest, presumably).

Yet we’re not going to see debt slavery make a big comeback.  Anyone hit with a massive foreclosure deficiency judgment would go straight into bankruptcy.  The bottom line is that the lenders will simply not be paid (or will obtain recompense from taxpayers through various devices crafted by policymakers in Washington).

The futility of such massive deficiency judgments is probably another reason why short sales have become so much a part of the landscape of real estate in Miami and Coral Gables.  The lender avoids the expense of foreclosure.  The lender might insist that the debtor remain liable for some deficiency judgment, but it’s a negotiated affair, and the debtor obviously will not agree to remain on the hook for so much that bankruptcy would be preferable.  Short sales are a practical compromise.

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posted by // This entry was posted on Sunday, January 24th, 2010 at 10:37 am and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed.

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