Every time a bank makes a home loan, it creates a positive domino effect within our local economy. Builders, architects, roofers, plumbers, furniture retailers and other companies reap the benefit as homebuyers spend their dollars in the community. But today, these new home loans are no longer happening at the rate they should. Homeowners are generally staying put and many owe more on their homes than they’re worth. When they need or want to move, they’re finding they would have to bring thousands of dollars in cash to the closing. Most cannot afford it, so they continue to wait out the economy and hope home values will eventually recover.
Economists are not predicting home values to return to their pre-2007 levels anytime in the next decade. That’s a long time to wait. This stagnation in new home loans and home-related transactions negatively impacts the local economy. Homes need to be revalued at more appropriate levels so that families can move now and new homes can be built.
Currently, homes are being revalued through foreclosures. According to the 2011 American Economic Review report “Forced Sales and House Prices” by John Campbell, Stefano Giglio and Parag Pathak, foreclosure reduces the average value of a house by 27 percent. In addition, sellers who are trying to sell their nondistressed, occupied properties in a neighborhood that has a foreclosed home on the market will take a price hit. Researchers estimate the value of a home drops by 1 percent, on average, if it is within 250 feet of a foreclosed home.
The Massachusetts Institute of Technology said the paper represents the first time economists have clearly quantified how much nearby foreclosures affect the prices of inhabited homes.
“This can happen for multiple reasons,” Pathak said, in the report. “If you live near a foreclosed house, it may not be maintained.” Adding that neighborhood appearance enhances real estate value.
Secondly, even without visible deterioration, such homes, when resold quickly for a discount, can affect neighborhood values because homebuyers and real estate brokers look at comparable sales when making an offer.
The best way to get these homes revalued appropriately – and back on the market – is if upside-down homeowners understand the value of negotiating a short sale. A short sale occurs when the lender agrees to the sale of a home for an amount less than the outstanding mortgage balance. The sale is short of the payoff.
The lender’s approval is required because it has a lien on the property that must be released to allow for the transfer to the buyer.
In a regular sale, the mortgage would be paid in full and the lien would be released, but in a short sale, there isn’t enough money to pay off the mortgage, therefore approval from the lender must be received in order to release the lien short of the full payoff. Legal counsel can advise homeowners on their liability for the difference between the payoff and negotiated amount, as well as credit and tax consequences.
Short sales benefit the local economy because they help maintain home values as high as possible. They also free homeowners to make buying and selling decisions for their individual circumstances, without paying overwhelming closing costs.
The overall impact is that homeowners who do short sales are incrementally increasing activity in new-home building and loans, helping to revalue area homes, and keeping money local – and not on Wall Street – for stronger Ozarks communities.
Daniel Sivils is the founder of Springfield-based Sivils Law Group PC. He can be reached at dbsivils@sivilslawgroup.com.[[In-content Ad]]
