Call them upside down, underwater, or just plain in deep trouble: if the people who own homes owe more on them than they are presently worth, they may have to turn to a transaction called a "short sale."
Hailed as one of the last stops before foreclosure, the short sale should be a relatively easy option for sellers and buyers alike.
"They owe $200,000. The house is worth $180,000. They're $20,000 behind the eight-ball and the only way they can sell it is if the bank will take less money. If not, the house goes into foreclosure," explained Coldwell Banker's Ed Prodehl.
The number of homeowners facing that dilemma is staggering. Economic forecasting firm Moody's Economy.com says 13 million homeowners, or one in four with a mortgage, owe more to the bank than their home is worth today.
The short sale, real estate agents say, should be a quick way out. Instead, Prodehl says, it's a nightmare.
"The client is frustrated, my agents are frustrated, we're frustrated."
Agents nationwide complain short sales are facing impossibly long delays, killing the deals that could help struggling sellers get out from "under" before facing foreclosure.
NBC Chicago interviewed recent homebuyer Jeffrey Polster, who said he and his wife are the kind of buyers banks should be chasing after.
"We had cash in hand, ready to go," Polster said. "Our situation was, you know, cash ready, can sign now, great credit. We can close tomorrow if you tell me you're ready."
Business
But when the Polsters made an offer on a short sale home, they say the silence was deafening. They say they waited, and waited, and when the bank finally responded-- some two months later-- it was with a question.
"He came back and said, 'Are we serious?' I thought, 'Are we serious? You don't sound like you're serious.'"
With no response, and no deal on the table, the Polsters walked away, and bought a foreclosure instead. It's a scene realtors say is happening over and over again, nationwide-- making a bad situation worse.
"We're waiting six to nine months and not having an answer, not knowing anything. It's not even practical for a buyer to wait that long," Polster said.
So why would banks let a sure deal go out the window? No business wants to take a loss on a loan, but the numbers show short sales seem to make sense. Recent analysis by mortgage tracking firm Clayton Holdings found that short sales result in an average loss to the mortgage holder of about 19 percent, compared with a loss of 40 percent on a foreclosure.
As for the delays, many blame a backlog of applications and contracts at the bank level. For an industry that already received $350 billion in bailout money -- and is about to get more -- is that an acceptable excuse?
"We'd just like to see the bailout situation get down to the street level," said broker Ed Prodehl. "It's gotta get down to helping the homebuyers."
NBC Chicago asked the Mortgage Bankers Association for comment on the alleged foot-dragging, but received no comment.
A pilot program recently announced by Fannie Mae may help short sale deals in Phoenix and Orlando. In those two pilot cities, homes will be pre-approved for short sales. The goal is to eliminate the long delays that can kill pending contracts and cause potential buyers to walk away.
As the economy continues to tank and credit markets continue to shrink, how is the crisis affecting you? Let us know by sending email to creditcrunch@nbcchicago.com. Your idea or question may lead to a report that can help other consumers, as we all try to survive this bumpy ride.
