• BY GABE SEMENZA - GSEMENZA@VICAD.COM
• Originally published November 8, 2009 at 11:27 p.m., updated November 9, 2009 at 10:26 a.m.

• WHAT IS A SHORT SALE?

  A real estate short sale occurs when a homeowner, who can no longer pay his mortgage, sells his home for less than what he owes. To do so, the lender must first agree to the ...

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WHAT IS A SHORT SALE?

A real estate short sale occurs when a homeowner, who can no longer pay his mortgage, sells his home for less than what he owes. To do so, the lender must first agree to the sale and to absorb the financial loss in the process.

Online video

To view video of the Canters discuss the pitfalls of short sales, visit www.VictoriaAdvocate.com and click this story.

VICTORIA COUNTY FORECLOSURES

To view a breakdown of Victoria County foreclosure notices this year and for the last five years, read Wednesday's Advocate.

The old farm house boasts everything but a fireplace. Its character, interior wood work and surrounding acre in east Victoria County were just what John and Sheryl Canter wanted.

After recently remodeling to their tastes, the 53- and 51-year-old moved from the city to the country.

That they paid $20,000 less than the already-low asking price made the move even sweeter. The couple bought the home via a short sale.

While the county's foreclosure rate remains better than the national average, Victoria County is now home to a noticeable increase in short sales. The implications vary depending on who you talk to.

A real estate short sale occurs when a homeowner, who can no longer pay his mortgage, sells his home for less than what he owes. To do so, the lender must first agree to the sale and to absorb the financial loss in the process.

Some say short sales benefit buyers and sellers. Others say the up-tick this year might signal problems still to come.

Louise Hull-Patillo of Cornerstone Properties is one of many local brokers and agents who say short sales were almost unheard of a year ago. This year, they've become more commonplace.

"It's a win-win-win situation," Hull-Patillo said.

Short sales help the homeowner and lender to avoid the costly pitfalls of foreclosure. Homeowners who avoid foreclosure also sidestep the emotional pain and ugly credit mark that sticks for at least 10 years. Banks absorb the difference of the sale, but they save money in legal and process fees and release inventory that otherwise might remain stagnant on the market.

Short sales also present discounted home prices to homebuyers, like the Canters.

"There's definitely a trickle-down effect to other parts of the community," Hull-Patillo said. "When someone buys a home, they want to decorate, buy furniture, landscape. Those people take those dollars and spend them locally."

No agency tracks short sales, so it's unknown just how many of these transactions happened locally this year. Anecdotally, some local brokers report five short sales so far this year; others report about 10.

Add these sales, and a portrait begins to emerge: A notable number of local homeowners either lost jobs, earn less money or were caught in once-lenient lending practices.

"Some buyers were able to purchase a home they could afford if they were getting overtime and everything was great in their lives," Hull-Patillo said. "Others couldn't afford the payments when the rates went up on adjustable loans."

Lee Swearingen, broker at Coldwell Banker The Ron Brown Company, said short sales weren't this notable since the late 1980s and early 1990s, a period in which banks, the oil and gas industry and savings and loans dived.

"This time, we have not suffered like we did then, even though we're starting to see part of the pain," Swearingen said. "I still think we're very fortunate. Short sales are better than a foreclosure, but it's something you want to avoid if you can."

Short sales present problems for a number of reasons. First, the closing process can be excruciatingly slow. The Canters fought for three months for updates as the lender processed the sale. Other potential home buyers waited even longer.

"They named it wrong. It's not a short sale. It's a very long sale," said Fred Sanchez, a local agent. "It took my client five months."

Problems beyond frustrating wait times might also surface. Alexander Paykin is president of New York-based Option Next, a real estate loss mitigation company.

"It's dangerous to use short sales in your county as an indicator," Paykin said. "On one hand, a rise in short sales could be seen as a precursor to foreclosures. If they can't sell the property in a short sale, it could go to a foreclosure. On the other hand, short sales could result in a lot of fresh purchases. That means the purchaser might just get a good deal on it, move in, remodel and increase the home's value."

If short sales clog the market, or if foreclosures spike greatly, home prices tend to drop. This drop remains good for homebuyers but pulls median home prices downward, which is bad for sellers.

"Realistically, there's one major thing a spike in short sales will tell you: Some people in your area can't afford their homes," Paykin said. "That's a problem for the neighborhood, that's a problem for the community."

For the Canters, a short sale proved to be a blessing in the end. The process tested their patience but delivered a dream home.

"Would I do it again?" Sheryl Canter said. "Yes. I love this house."

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