Market glut has many home sellers coming up short

By Josh Brown

The Virginian-Pilot

Beth Soliz and her husband purchased their Portsmouth home in 2006 for $252,000. In July, Soliz's husband was offered a promotion that meant moving to Annapolis, Md.

"We originally listed the house at $250,000, just to break even," said Soliz, 44.

When no offers came, the couple worked with their mortgage company to see whether it would let them sell the house for less to pay off the loan.

As the region's housing market struggles under an abundance of unsold homes and falling values, banks and homeowners seem to be turning in growing numbers to what is known as a "short sale" to avoid a foreclosure.

The process involves selling a house for less than the amount the seller owes the lender. It happens more often in a down housing market as homeowners reach for ways to unload properties they need to sell after values have dropped. Lenders agree to take a loss on the short sale to avoid the added costs of a foreclosure and trying to maintain and resell the property.

Figures from local multiple listing service Real Estate Information Network show just 153 homes have been sold short this year in Hampton Roads. An additional 352 homes currently on the market are listed as short sales.

That's about 2 percent of the nearly 15,000 homes on the market in the region, but real estate experts say those numbers just scratch the surface.

"We're seeing it more now than we ever have," said Steve Rockefeller, vice president of SunTrust Mortgage's Virginia Beach office.

While a short sale can seem like a good alternative to foreclosure for both the banks and homeowners, the process tends to add months to closing times as banks decide whether to accept offers, during which buyers sometimes get frustrated and move on.

The local multiple listing service requests that sellers disclose whether a property is being sold short, but not all are counted, either because paperwork isn't filled out correctly or because the seller intentionally hides that the home is being sold short, said Kim Johnson, an agent for Prudential Decker Realty.

Many agents shy away from short sales.

Bill Byrd, an agent with Keller Williams Realty, has handled just three short sales in the past year.

"I've actually been avoiding them," Byrd said. "It's hard to get them to close. It's hard to keep the buyer in the transaction. They get antsy and don't want to wait and walk out."

SunTrust's Rockefeller said the long waits during a short sale are caused in part because banks' lending divisions are swamped with work, dealing with both foreclosures and short sales.

"There is tremendous volume and backlog," he said.

Some agents' worries hit closer to the wallet.

"Realtors are often asked to take a cut on their commission because the lender's taking a cut and they just don't think they want to pay anyone in full," Johnson said.

Johnson said dealing with short sales in this market is almost becoming unavoidable.

"In Northern Virginia, you almost can't participate in the real estate market unless you deal with short sales," she said. "Here in this market people could kind of pick and choose."

Rockefeller praised the short sale as a way to help bring balance back to the market.

"It prevents foreclosure and keeps everybody on an even keel," he said. "More than anything, these short sales are bringing the market around."

Banks don't always take a loss on a short sale. Sometimes they work out a payment plan for the difference with the borrowers.

The debts remain on the borrowers' credit reports, and their credit scores take a hit, but not as bad as what a foreclosure would do.

Homeowners are forced into short sales for a variety of reasons.

Some simply cannot afford their monthly payments, whether they took on too large a loan or the interest rate reset on their adjustable rate mortgage. Some have lost a job. Others, such as the Solizes, need to relocate.

With no buyers, the Portsmouth couple realized a short sale was the only option, Beth Soliz said. "Walking away from it just wouldn't work."

The couple eventually sold the house for $226,000 and plans to repay the difference to the bank.

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com