In 2004, appraisers were busy raising the prices of homes Americans paid based on demand. The “flip market” reached its height and probably culminated in 2006. Then the media spoke daily of the “bubble” in the real estate market until markets in Nevada, Arizona and Florida, which had appreciated the most nationwide, collapsed. These were the “second home” dreams of Americans contemplating their retirement and those real estate speculators taking the “if they build it, they will come” approach. In 2010, so many newly constructed units remain empty and their underlying values in many communities have dropped by as much as 50% or more due to the growing impact of foreclosures and short sales.
When people get divorced, they often sell the marital residence. In 2010, divorced couples are learning there is less equity in their homes and the ability to sell a nonforeclosed or short-sale property is impacted by these market conditions. These conditions also impact refinancing as there is less equity in most properties in 2010 than existed in 2003.
A short sale is a property that is worth less than the seller owes on his mortgage, before consideration of real estate commissions and closing costs. A seller will receive no funds upon sale. Often, a seller has not only a first mortgage but also a home equity loan or line of credit to repay, which requires the approval of the proposed sale by all the creditors before a closing can be set.
In foreclosure, the property is lost back to the mortgage holder for the failure of the owners to make their monthly mortgage payments. Generally, a foreclosure action will commence within 120 days of failing to pay the mortgage in full. Upon taking back the property, the bank or mortgage holders will try to sell the property to recoup as much of the overdue mortgage and attorney’s fees as the market will bear.
Cash is king in today’s market, so a lower cash offer for foreclosed and short sale property will often beat out a mortgage contingency contract offer for a greater amount given certain credit restraints working in the market place. Until jobs are created that pay low six figures, real estate sales will linger and values will continue to decline because there will many products available for sale. All of these market issues will impact sound settlement strategies in family law for years to come. It is my goal in representing my clients to identify in the interviewing process how these issues can be managed or immediately dealt with in an earnest and open discussion.